Nationwide Mut. Fire Ins. Co. v. Gamelin

• Decision Date: 21 September 2001
• Docket Number: No. 00-531.,00-531.
• Citation: 786 A.2d 1078
• Parties: NATIONWIDE MUTUAL FIRE INSURANCE COMPANY v. G. Thomas GAMELIN, Jr.
• Court: Vermont Supreme Court

786 A.2d 1078

NATIONWIDE MUTUAL FIRE INSURANCE COMPANY v. G. Thomas GAMELIN, Jr.

No. 00-531.

Supreme Court of Vermont.

September 21, 2001.

Paul R. Bowles of Hill, Unsworth, Barra & Bowles, P.L.C., Montpelier, for Plaintiff-Appellee.

Todd C. Hartsuff of Spokes Foley P.L.C., Burlington, for Defendant-Appellant.

Present: AMESTOY, C.J., DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ.

DOOLEY, J.

This is a mortgage foreclosure action in which defendant, G. Thomas Gamelin, appeals the superior court's decision denying him permission to appeal from the decree of foreclosure and a decision dismissing his counterclaim. Plaintiff is Nationwide Mutual Fire Insurance Company, which acquired the mortgage pursuant to a litigation settlement with the original mortgagee, Vermont Federal Bank (VFB). We conclude that the superior court erroneously denied permission to appeal and, accordingly, we reach the merits. On the merits, we conclude that Nationwide failed to show that it is entitled to a right of subrogation, and remand the matter for the superior court to reconsider, in light of our decision, whether Nationwide is entitled to be subrogated to the mortgagee's right to foreclose on Gamelin's property. We also conclude that the superior court erred in granting Nationwide summary judgment on Gamelin's counterclaim. Accordingly, we reverse and remand.

The relevant facts are convoluted and concern three lawsuits. In March 1992, Gamelin purchased from Nationwide a "Golden Blanket" homeowner's insurance policy on his residence. In November 1993, before Gamelin began serving a six-month prison term, he entered into a contract whereby a third party, Carl Albarelli, agreed to assume all financial obligations for the home, including mortgage payments to mortgagee VFB, in exchange for exclusive possession and the right to a deed after the mortgage was discharged. Upon Gamelin's release from prison, he moved into an apartment without returning to his home. Apparently, while the home was in the possession of Albarelli in November 1994, it was damaged by fire. Gamelin filed an insurance claim with Nationwide, but Nationwide denied it in January 1995 on the grounds that Gamelin did not reside in the home at the time of the fire and had made numerous misrepresentations in renewals of the policy after he entered prison, specifically by failing to disclose the mortgage to VFB, his criminal conviction, and the lease purchase arrangement with Albarelli.

In July 1995, Gamelin assigned his rights as an insured under the homeowner's policy to VFB. There is also evidence that Gamelin made a similar assignment to Albarelli in 1994. In November 1995, VFB brought suit against Nationwide (the contract case). In May 1997, in response to opposing motions for summary judgment, the superior court ruled that Gamelin's assignment of rights to VFB was valid,¹ and that Nationwide's coverage under Gamelin's policy could not be denied on the grounds that Gamelin did not reside at the insured premises at the time of the fire. The court granted summary judgment to VFB on these two points, but denied both sides summary judgment as to Nationwide's defense that Gamelin's policy was void because he failed to disclose the existence of the VFB mortgage, the agreement with Albarelli, and his incarceration. The court found that there were disputed issues of material fact with respect to the fraudulent misrepresentation defense. The court stated that Nationwide would have to prove that Gamelin intended to deceive Nationwide or that the undisclosed information materially affected Nationwide's decision to renew the policy.

While the contract case was pending, Gamelin discontinued making monthly mortgage payments to VFB, and in August 1996 VFB brought the mortgage foreclosure case now before us. Gamelin filed an answer in that case.

In late 1997, as trial in the contract case approached, Gamelin sued Nationwide for damages resulting from Nationwide's refusal to pay the claims that arose from the fire loss (the tort case). Within weeks of the filing of that case, VFB and Nationwide settled the contract case. Under the settlement, Nationwide paid VFB $150,000, and VFB's successor-in-interest eventually assigned Gamelin's mortgage deed to Nationwide. The paragraph of the settlement agreement, which is central to the case before us, reads as follows:

3. Paragraph 11 of the Defendant's insurance policy provides that in the event the claim by the insured is denied, the [insurer] has the option to pay the mortgagee all sums due the mortgagee and be thereafter subrogated to the rights of the mortgagee. The Defendant has elected to exercise its right under this provision in its policy and accordingly, in exchange for the payment of said sum of $150,000.00, [VFB] shall assign to [Nationwide] the Promissory Note executed by G. Thomas Gamelin, Jr., together with the Mortgage Deed securing said indebtedness.

In other sections, the settlement agreement provides that the $150,000 "represents full payment of [VFB's] claims, including, but not limited to, principal, interest and other charges due the Plaintiff relative to its mortgage received from G. Thomas Gamelin, Jr.," and further provides that VFB's "efforts have resulted in Defendant honoring its insurance policy and paying the outstanding indebtedness owed on the Plaintiff's mortgage."

The tort case proceeded, and, in June 1998, the superior court ruled that Gamelin's earlier assignment of his rights to Albarelli and VFB precluded him from making claims under the policy for fire loss,² but did not preclude him from going forward with his tort-based claims of bad faith and consumer fraud. Nationwide was later granted summary judgment on the latter claims as well.

Meanwhile, Nationwide, proceeding as assignee of Gamelin's mortgage deed, sought to foreclose on Gamelin's residence (the foreclosure case). The superior court issued a decree of foreclosure after denying Gamelin's motion to dismiss and granting Nationwide's motion for summary judgment on Gamelin's counterclaim alleging negligent misrepresentation. In denying Gamelin's motion to dismiss, the court ruled that a provision in his insurance policy allowed for a right of subrogation, and that Nationwide had exercised that right and thus was entitled to proceed with its foreclosure action. The court then denied Gamelin's motion for permission to appeal from its decree of foreclosure.

I.

The first issue that we must deal with is whether we have jurisdiction to consider this appeal. Section 4601 of Title 12 requires that defendant Gamelin obtain permission to appeal, but the superior court denied such permission. Thus, we can allow this appeal only if we conclude that "the trial court has withheld its discretion entirely or that it was exercised for clearly untenable reasons or to a clearly untenable extent." Vermont Nat'l Bank v. Clark, 156 Vt. 143, 145, 588 A.2d 621, 622 (1991).

The superior court's decision is short and cryptic: "Dispute is actually with decision in earlier case." Nationwide argues that the court's reference is to the tort case, wherein the court first dismissed Gamelin's contract claims against Nationwide because Gamelin had assigned his rights to VFB and Albarelli, and later found no bad faith or consumer fraud.

As often occurs in cases like this, we must analyze the merits, at least superficially, to review the decision denying the appeal. In our discussion of the merits below, we conclude that the superior court acted prematurely in granting Nationwide's motion for judgment of foreclosure and its motion for summary judgment on the counterclaim. This conclusion does not necessarily mean, however, that the denial of the motion to appeal was beyond the trial court's discretion. Indeed, if we were to simply review the merits to determine whether to allow the appeal, the screening function required by § 4601 would be superfluous.

But here, we have other reasons to allow the appeal. For one thing, the decision denying appeal never mentions Gamelin's attempt to appeal the summary judgment for Nationwide on his counterclaim. We must conclude that the court failed to exercise its discretion as to that appeal issue.

Further, with respect to Nationwide's rights under its settlement with VFB, we find the court's rationale to deny the appeal — "Dispute is actually with decision in earlier case." — to be untenable. Gamelin made clear that his appeal issues involve this case. Gamelin asserts that the court erred in determining that Nationwide could subrogate to the rights of VFB. This issue could not have been raised in the tort case and is not foreclosed by the tort case judgment.

Finally, we add that there is a pervasive disconnect in the rationales put forward by Nationwide and accepted by the trial court. On the merits, the court ruled that Nationwide is subrogated to the rights of VFB because of the provision of the policy allowing Nationwide to pay off the mortgagee and assume its rights. On the motion to appeal the subrogation decision, the court apparently ruled that Gamelin could not appeal because he assigned his rights to VFB — an entirely different rationale. Given the superior court's cryptic decision and the apparent switch of rationales to one not explored or explained, we hold that the motion for permission to appeal was denied for untenable reasons. Accordingly, we reach the merits of the appeal.

II.

On the merits, Gamelin first argues that the court erred in holding that Nationwide was subrogated to the rights of VFB. The court's decision was:

[A] provision in an insurance policy on mortgaged property for subrogation of the insurer to the rights of the mortgagee is generally held to preclude the right of the mortgagor to have the insurance applied on the mortgage debt.... Thus, contrary to defendant's position, his debt was not paid. The insurance policy here provided for a right of subrogation, which plaintiff exercised, and is now

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