McAlister v. Property and Cas. Ins. Guar.

• Decision Date: 11 August 2006
• Docket Number: No. 04-547.,04-547.
• Citation: 908 A.2d 455,2006 VT 85
• Court: Vermont Supreme Court
• Parties: Robert K. McALISTER v. VERMONT PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION and Robert S. Baska, M.D.

908 A.2d 455

2006 VT 85

Robert K. McALISTER v. VERMONT PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION and Robert S. Baska, M.D.

No. 04-547.

Supreme Court of Vermont.

August 11, 2006.

Colin R. Benjamin of Benjamin, Bookchin, Colburn & Durrell, P.C., Derby, for Plaintiff-Appellee.

W. Scott O'Connell of Nixon Peabody L.L.P., Manchester, New Hampshire, and Joseph C. Tanski and Mark D. Robins, Boston, Massachusetts, for Defendant-Appellant.

Present: REIBER, C.J., and DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

BURGESS, J.

¶ 1. In this declaratory judgment action, defendant Vermont Property and Casualty Insurance Guaranty Association ("VPCIGA") appeals from the superior court's order, on the parties' cross-motions for summary judgment, that VPCIGA must provide insurance coverage up to $300,000 to defend and indemnify defendant Dr. Robert S. Baska against plaintiff's medical malpractice claim. The issue on appeal is whether plaintiff's claim is a "covered claim" under Vermont's Property and Casualty Insurance Guaranty Association Act, 8 V.S.A. §§ 3611-3626, which governs the extent of VPCIGA's obligations to an insured or claimant when an insurer becomes insolvent. See 8 V.S.A. § 3615. Although we disagree with the reasoning relied upon by the trial court, we conclude that plaintiff's claim is a covered claim under the Act. Accordingly, we affirm.

¶ 2. The relevant undisputed facts may be briefly summarized. Plaintiff claims he suffered injuries as a result of negligent treatment he received from Dr. Baska in 1999. From 1992 through 2001, Dr. Baska carried medical malpractice insurance through PHICO Insurance Company under a "claims-made" policy, which provided coverage only if the medical incident from which the claim arose occurred while the policy was in effect and the claim was made during the policy period. If the policy was cancelled for any reason, PHICO was required to provide Dr. Baska the option to purchase an extended reporting period, or "tail," to assure continuity of coverage for medical incidents that occurred during the time the terminated claims-made policy was in effect. Dr. Baska's policy was cancelled, effective August 25, 2001, and Dr. Baska purchased the extended reporting tail coverage for a one-time premium of $35,512. The extended reporting period became effective the same day the underlying policy was terminated. There was no expiration date for the extended reporting period, so that claims arising from medical incidents that occurred when the claims-made policy was in effect could be reported any time after the tail reporting period commenced.

¶ 3. On February 1, 2002, PHICO was determined to be insolvent and placed into liquidation by order of the Commonwealth Court of Pennsylvania. The order set a deadline of April 1, 2003 for filing claims with the liquidator. On July 30, 2002, plaintiff filed a malpractice lawsuit against Dr. Baska in Lamoille Superior Court and a proof of loss against PHICO with the Pennsylvania liquidator. VPCIGA declined to defend or indemnify Dr. Baska in the suit on the grounds that a claim pursuant to extended reporting coverage must have been filed within thirty days of the liquidation order to be considered a "covered claim" under the Guaranty Association Act. Plaintiff then filed this declaratory judgment action to resolve the dispute over the extent of VPCIGA's obligations.

¶ 4. We begin with a brief discussion of VPCIGA's role under Vermont's Guaranty Association Act. VPCIGA is a nonprofit, unincorporated legal entity created by the Act to provide a limited amount of substitute insurance coverage when an insurer becomes insolvent. 8 V.S.A. §§ 3613, 3615. Membership in the association is compulsory for all insurers writing policies and transacting business in this state. Id. § 3613. The costs of satisfying VPCIGA's statutory obligations for insolvent insurers are distributed among all member insurers. Id. § 3615(a)(3).

¶ 5. To the extent of its statutory obligations, VPCIGA is deemed to be the insurer on "covered claims" and has "all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent." Id. § 3615(a)(2). VPCIGA's obligation is limited to the insolvent insurer's obligation under the policy from which the claim arises. Int'l Collection Serv. v. Vt. Prop. & Cas. Ins. Guar. Ass'n, 150 Vt. 630, 631, 555 A.2d 978, 978 (1988); see also 8 V.S.A. § 3612(4)(B) (defining "[c]overed claim" as "an unpaid claim ... which arises out of and is in an amount not in excess of the applicable limits of an insurance policy to which [the Act] applies"). In addition to certain monetary limits, the Act provides the following express limitations to VPCIGA's obligations:

[VPCIGA] shall ... [b]e obligated to the extent of the covered claims existing prior to the order of liquidation, arising within 30 days after the order of liquidation, or before the policy expiration date if less than 30 days after the order of liquidation, or before the insured replaces the policy or causes its cancellation, if the insured does so within 30 days of the determination .... In no event shall the association be obligated to a policyholder or claimant in an amount in excess of the obligation of the insolvent insurer under the policy from which the claim arises, nor for any claim filed with the association after the final date set for the filing of claims against the liquidator or receiver of the insolvent insurer, nor in any event after the expiration of three years from the date of determination of the insolvency of such insurer.

Id. § 3615(a)(1).

¶ 6. VPCIGA argues that under the terms of the extended reporting tail coverage no claim could exist or arise within thirty days of the order of liquidation where the claim was not reported until after thirty days from the order of liquidation had passed. Plaintiff responds that the purchase of the reporting tail on Dr. Baska's claims-made policy essentially converted the policy to an "occurrence" policy, where a claim is deemed to exist or arise at the time of the medical incident, so long as the medical incident occurred during the policy period, even if the claim is not reported until after the policy period expired. Under plaintiff's argument, the thirty-day cutoff in the first sentence of § 3615(a)(1) is inapplicable in the context of reporting tail coverage where the underlying claims-made policy has already been cancelled. In such a case, plaintiff argues, it is the second sentence that governs, allowing a claim to be filed up until the cutoff date set for filing claims against the liquidator.

¶ 7. On appeal from a grant of summary judgment, we apply the same standard as the trial court. Allstate Ins. Co. v. Vose, 2004 VT 121, ¶ 13, 177 Vt. 412, 869 A.2d 97. Summary judgment is appropriate where there are no material facts in dispute and any party is entitled to judgment as a matter of law. V.R.C.P. 56(c)(3). Here, the facts are undisputed and the parties differ over the construction of both the Vermont Guaranty Association Act and the PHICO insurance contract. As this appeal presents only questions of law, our review is nondeferential and plenary. Concord Gen. Mut. Ins. Co. v. Madore, 2005 VT 70, ¶ 9, 178 Vt. 281, 882 A.2d 1152.

I.

¶ 8. The trial court concluded that 8 V.S.A. § 3615(a)(1) was unclear as to whether the statutory term "order of liquidation" referred to "the initiation of the liquidation proceeding or its final determination." The trial court interpreted the Pennsylvania court's February 2, 2002 order as a "preliminary" order of liquidation, not the "final" one, which the court stated "came several months later." The trial court did not identify what it considered to be the "final" order of liquidation, and we cannot discern what the trial court meant from the record provided. Nevertheless, we disagree with the trial court's conclusion that "the order of liquidation" in § 3615(a)(1) is susceptible to more than one interpretation.

¶ 9. The phrase "order of liquidation" was added to § 3615(a)(1) in 2002, replacing the language "determination of insolvency." 2001, No. 95 (Adj.Sess.), § 2. While it is true that the Guaranty Association Act does not expressly define "order of liquidation," the same legislative act amending § 3615 also amended the definition of an "insolvent insurer" in § 3612(5) to mean an insurer "against whom a final order of liquidation has been entered with a finding of insolvency by a court of competent jurisdiction in the insurer's state of domicile." 2001, No. 95 (Adj.Sess.), § 1. Although it appears that the different statutory phrasing of "final order of liquidation" in § 3612(5) and "the order of liquidation" in § 3615(a)(1) may have caused some confusion for the trial court, we find nothing in the Guaranty Association Act that would lead us to believe the Legislature was referring to two different orders in these sections.

¶ 10. To the extent that additional clarity of the meaning of "the order of liquidation" is needed, we find it in the statutory sections governing liquidation proceedings. As we have often noted, "[i]t is a well-established canon of statutory construction that statutes relating to the same subject matter should be construed together and read in pari materia, if at all possible." Munson v. City of S. Burlington, 162 Vt. 506, 509, 648 A.2d 867, 869 (1994). The liquidation statutes provide that the Commissioner of the Department of Banking, Insurance, Securities, and Health Care Administration may petition the superior court for an order of liquidation, 8 V.S.A. § 7056, or a judicial declaration of insolvency, id. § 7057(d). Section 7057, entitled "Liquidation orders" provides that "[a]n order to liquidate the business of a domestic insurer shall appoint the commissioner and his or her successors in office liquidator and shall direct the liquidator forthwith to take possession of the assets of the insurer and to administer...