Putney School, Inc. v. Schaaf

• Citation: 599 A.2d 322,157 Vt. 396
• Decision Date: 14 June 1991
• Docket Number: No. 89-253,89-253
• Parties: , 71 Ed. Law Rep. 505 The PUTNEY SCHOOL, INC. v. Joseph SCHAAF.
• Court: United States State Supreme Court of Vermont

Page 322

599 A.2d 322

157 Vt. 396, 71 Ed. Law Rep. 505

The PUTNEY SCHOOL, INC. v. Joseph SCHAAF.

No. 89-253.

Supreme Court of Vermont.

June 14, 1991.

Motion for Reargument Denied

Oct. 4, 1991.

John H. Fitzhugh of Sheehey Brue Gray & Furlong, Burlington, for plaintiff-appellant.

Allan R. Keyes of Ryan Smith & Carbine, Ltd., Rutland, for defendant-appellee CNA Ins. Companies.

Jeffry W. White of Theriault & Joslin, P.C., Montpelier, for defendant-appellee National Union Fire Ins. Co.

Before GIBSON, DOOLEY and MORSE, JJ., BARNEY, C.J. (Ret.) and MARTIN, Superior Judge, Specially Assigned.

MORSE, Justice.

We are asked to decide whether insurance policies underwritten by CNA Insurance Companies and National Union Fire Insurance Company provided coverage to Putney School for the wrongful discharge of a music teacher, Joseph Schaaf. After trial, the superior court ruled that CNA was properly notified of the teacher's claim, but in a later proceeding held that its policy did not cover Putney School for breach of contract. The court also ruled that National Union's policy excluded the Schaaf claim because National Union was not given notice of it according to a provision requiring notice of preexisting potential claims. Putney School, bereft of any insurance coverage, appealed. We affirm in part and reverse in part.

The essential facts are not in dispute, but they and the procedural posture of this lawsuit are complicated. In January 1984, the Putney School's headmaster (called school director) became dissatisfied with Schaaf and informed him that his employment would be terminated at the end of that school year. Schaaf was advised of his appeal rights. The school director also told Schaaf that he could take up the matter of his employment with the new school director when she took over. In mid-1984, Schaaf hired an attorney, and, on June 5, 1984, filed an appeal to the school's administrative council. That month the school also hired an attorney to represent its interests in the matter. The appeal was never heard, and Putney gave Schaaf a sabbatical for the 1984-1985 school year.

In January 1985, Putney's new school director upheld the decision to discharge Schaaf and advised him of his right to appeal. A second appeal was filed but apparently never heard. Protracted negotiations ensued, aimed at settling the employment dispute but instead culminating in a lawsuit for declaratory judgment brought by the school on May 27, 1986. Schaaf counterclaimed for wrongful discharge. Later, the school brought its two insurers, CNA and National Union, into the suit as third-party defendants to determine their respective responsibilities, if any, to cover Schaaf's claim.

CNA covered Putney School with a "claims made" liability policy for a three-year period ending May 25, 1985. The CNA policy extended coverage for wrongful acts occurring within the policy period so long as written notice was given the insurer within one year of notice to the school of the claim. CNA's policy, however, excluded "any amounts due, under the terms of any contractual obligation."

When CNA's policy terminated, National Union's coverage of the school commenced. Its policy covered a three-year period beginning May 25, 1985. A prior acts endorsement in the policy provided:

In consideration of the premium charged, it is hereby understood and agreed that this policy is extended to cover Wrongful Acts committed prior to the beginning of the Policy Period.

All references in this policy to Wrongful Acts committed during the Policy Period are hereby amended to include Wrongful Acts committed prior to the beginning of the Policy Period.

It is further understood and agreed that the following exclusion is hereby added to this policy.

(K) To Wrongful Acts committed prior to the beginning of the Policy Period if, on or before 5/25/85 any Insured knew or could have foreseen that such Wrongful Acts would result in a claim or suit against the Insured.

(Emphasis added.)

Written notice of the Schaaf claim was sent June 10, 1986, to Putney's insurance broker, Brewer & Lord, which in turn notified National Union, but not CNA. Ten months later, after repeated attempts by Putney to prompt National Union to take action, it learned the carrier might decline coverage. National Union sent a letter dated June 24, 1987, declining coverage on the basis of the wrongful acts exclusion. Thereupon, Putney notified CNA of the Schaaf claim, but CNA promptly denied coverage due to late notice.

CNA answered the school's third-party complaint by raising only the affirmative defense of untimely notice. On April 28, 1988, the trial court ordered that by August 1, 1988, the parties were to file a statement of "significant issues of fact and law." On May 31, 1988, motions for summary judgment were filed by the carriers. CNA's motion rested solely on the ground that the Schaaf claim was not within the policy period and, if it was, that proper notice was not received. Putney then filed a cross-motion for summary judgment refuting the defenses raised by the companies and asserting that National Union was estopped from denying coverage because it neglected to respond promptly. Because the trial court concluded that the motions for summary judgment raised disputes concerning genuine issues of material fact, it denied them and ordered a trial.

Trial on the merits of the third-party action was held on August 8, 1988. At the close of evidence, the court ruled from the bench that National Union had properly declined coverage because its policy's prior wrongful act exclusion applied but that CNA had been properly notified and "there was coverage under the CNA policy for Putney for the circumstances surrounding the termination of Mr. Schaaf." On August 12, 1988, the court ordered:

1. CNA Insurance Companies (CNA) shall provide insurance coverage in accordance with its Insurance Policy with the Putney School which is in evidence.

2. National Union need not provide insurance coverage in accordance with its Insurance policy with the Putney School which is in evidence.

The Schaaf claim then proceeded to trial and, after a few days of evidence, was settled. A stipulation was signed, and it became an order of the court dated August 17, 1988, which included the following provision: "This order plus the August 12, 1988 Coverage Order fully dispose of all claims herein."

Thereafter, CNA filed a motion under V.R.C.P. 54(b) and 59(e) to amend the August 17th judgment, raising for the first time the defense that its policy excluded coverage for breach of contractual obligation. The court, without stating why, reopened the third-party dispute and, on April 12, 1989, granted CNA summary judgment.

Putney appealed from the court's amended judgment. CNA challenges the original judgment on its obligation to provide coverage. Although CNA did not cross-appeal, the issue is preserved. See Staruski v. Continental Telephone Co., 154 Vt. 568, 571 n. 3, 581 A.2d 266, 267-68 n. 3 (1990).

I.

CNA argues that the court was wrong in finding that its policy's notice-of-claim requirement was satisfied. The policy provided that (1) the insured must report a claim in writing to the insurer, paragraph VII(c); (2) notice to the insurer shall be given to the firm shown in Item G of the declarations, paragraph VII(e); (3) CNA, CNA Plaza, Chicago, Illinois, is the firm indicated in Item G of the declarations; and (4) "[n]otice to any agent of knowledge possessed by any agent or by any other person shall not ... estop the Insurer from asserting any right under the terms of this policy," paragraph VIII(g). CNA asserts that because Putney School only notified its insurance broker, Brewer & Lord, CNA is not estopped from asserting improper notice.

Anticipating that the dispute over Schaaf's termination might warrant notice to its insurer, Putney's business manager in June 1984 telephoned Brewer & Lord, the brokerage firm that arranged for the policy with CNA and to which Putney made premium payments. Brewer & Lord was told that Schaaf had been terminated and that a dispute existed. Because Brewer & Lord did not think the incident serious enough, it did not pass on the information to CNA. On these facts, the trial court concluded that Brewer & Lord was acting as an agent on CNA's behalf and that notice to it was notice to CNA.

Two years later, on June 10, 1986, Putney's lawyer sent Brewer & Lord a letter explaining that settlement had failed and a lawsuit was about to be brought. Brewer & Lord forwarded the information to National Union, but not to CNA. CNA's first notice of the Schaaf dispute was a letter from Putney in June 1987.

A.

CNA submits that the court's agency finding was clearly erroneous. V.R.C.P. 52(a)(2). In finding that Brewer & Lord acted as CNA's agent, the court properly looked to the circumstances of their relationship and their conduct. Rule v. New Hampshire-Vermont Health Service, 144 Vt. 323, 326, 477 A.2d 622, 624 (1984).

The court made findings on several key areas of the relationship between CNA and Brewer & Lord: (1) although it could not bind CNA to policies, Brewer & Lord solicited business on CNA's behalf; (2) premiums were paid to Brewer & Lord, which forwarded them to CNA; (3) CNA paid Brewer & Lord a percentage of the premiums for policies Brewer & Lord sold; and (4) Brewer & Lord evaluated reports from insureds about potential claims and decided which ones were serious enough to warrant notice to CNA. Based on the totality of the relationship, but most particularly the last factor, the court found that Brewer & Lord "perform[ed] a dual function," that is, it acted as agent for both the insurer and the insured at the notice-of-claim stage.

The court's findings were based on the testimony of Roger Wilson, a partner at Brewer & Lord who handled Putney's business. Although Wilson denied that he or his firm ever acted as an agent for CNA, his testimony on Brewer & Lord's role...