Rainforest Chocolate, LLC v. Sentinel Ins. Co.

• Decision Date: 28 December 2018
• Docket Number: No. 2018-095,2018-095
• Citation: 2018 VT 140
• Court: Vermont Supreme Court
• Parties: Rainforest Chocolate, LLC v. Sentinel Insurance Company, Ltd.

2018 VT 140

Rainforest Chocolate, LLC v. Sentinel Insurance Company, Ltd.

No. 2018-095

Supreme Court of Vermont

September Term, 2018

December 28, 2018

NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions by email at: JUD.Reporter@vermont.gov or by mail at: Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801, of any errors in order that corrections may be made before this opinion goes to press.

On Appeal from Superior Court, Addison Unit, Civil Division

Helen M. Toor, J.

James W. Runcie of Ouimette & Runcie, Vergennes, for Plaintiff-Appellant.

Richard Windish of Hayes, Windish & Badgewick, Woodstock, for Defendant-Appellee.

PRESENT: Reiber, C.J., Skoglund, Robinson and Carroll, JJ., and Davenport, Supr. J. (Ret.), Specially Assigned

¶ 1. SKOGLUND, J. In this insurance dispute, appellant, Rainforest Chocolate, LLC (Rainforest), appeals the summary judgment motion granted in favor of appellee, Sentinel Insurance Company, Ltd. (Sentinel). Rainforest argues that the trial court erred in its interpretation of the insurance policy and its conclusion that Rainforest's loss was not covered. We reverse.

¶ 2. The facts are undisputed. Rainforest was insured under a business-owner policy offered by Sentinel. In May 2016, Rainforest's employee received an email purporting to be from his manager. The email directed the employee to transfer $19,875 to a specified outside bank account through an electronic-funds transfer. Unbeknownst to the employee, an unknown individual had gained control of the manager's email account and sent the email. The employee electronically transferred the money. Shortly thereafter when Rainforest learned that the manager had not sent the email, it contacted its bank, which froze its account and limited the loss to $10,261.36.

¶ 3. Rainforest reported the loss to Sentinel. In a series of letters exchanged concerning coverage for the loss, Rainforest claimed the loss should be covered under provisions of the policy covering losses due to Forgery, for Forged or Altered Instruments, and for losses resulting from Computer Fraud. Sentinel denied coverage. In a continuing attempt to obtain coverage for the loss, Rainforest also claimed coverage under a provision of the policy for the loss of Money or Securities by theft. Sentinel again denied coverage, primarily relying on an exclusion for physical loss or physical damage caused by or resulting from False Pretense that concerned "voluntary parting" of the property—the False Pretense Exclusion.

¶ 4. After cross-motions for summary judgment, based on a statement of agreed facts, the trial court denied Rainforest's motion, granted Sentinel's motion, and entered judgment in favor of Sentinel. In its conclusion, the court stated:

The complicated nature of this policy, with its layers of coverages and exclusions, is almost impossible to follow without a compass and a guide. It took the court many hours of reading and rereading the policy and the briefs to reach a clear understanding of how the various provisions fit together. How any insured, however sophisticated, is supposed to determine that it is getting what it paid for with a policy like this is a mystery to the court. Nonetheless, the court concludes that the terms of the policy, while confusing, are not ambiguous and must be enforced as written.

The court held that Sentinel was correct in denying coverage under the False Pretense Exclusion. Rainforest timely appealed.

¶ 5. "This Court reviews summary judgment rulings de novo, applying the same standard as the trial court." Jadallah v. Town of Fairfax, 2018 VT 34, ¶ 14, ___ Vt. ___, 186 A.3d 1111. Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." V.R.C.P. 56(a).Here, there is no dispute over material facts. Instead, this dispute arises around the interpretation of the insurance policy at issue.

¶ 6. When interpreting an insurance policy, this Court follows well-established principles—our "review is nondeferential and plenary." Shriner v. Amica Mut. Ins., 2017 VT 23, ¶ 6, 204 Vt. 321, 167 A.3d 326. "An insurance policy is construed according to 'its terms and the evident intent of the parties as expressed in the policy language.' " Cincinnati Specialty Underwriters Ins. v. Energy Wise Homes, Inc., 2015 VT 52, ¶ 16, 199 Vt. 104, 120 A.3d 1160 (quoting Sperling v. Allstate Indem. Co., 2007 VT 126, ¶ 8, 182 Vt. 521, 944 A.2d 210). An insurance policy "is to be strictly construed against the insurer." Simpson v. State Mut. Life Assurance Co. of Am., 135 Vt. 554, 556, 382 A.2d 198, 199 (1977). "The insurer bears the burden of showing that an insured's claim is excluded by the policy." Shriner, 2017 VT 23, ¶ 6.

¶ 7. Vermont law "requires that policy language be accorded its plain, ordinary meaning consistent with the reasonable expectation of the insured, and that terms that are ambiguous or unclear be construed broadly in favor of coverage." Towns v. N. Sec. Ins., 2008 VT 98, ¶ 21, 184 Vt. 322, 964 A.2d 1150; see also Shriner, 2017 VT 23, ¶ 6 ("We give effect to the terms in an insurance policy according to their plain, ordinary and popular meaning, and our interpretation of an insurance policy is guided by a review of the language from the perspective of what a reasonably prudent person applying for insurance would have understood it to mean." (quotation and alteration omitted)). "Words or phrases in an insurance policy are ambiguous if they are fairly susceptible to more than one reasonable interpretation." Whitney v. Vt. Mut. Ins., 2015 VT 140, ¶ 16, 201 Vt. 29, 135 A.3d 272. Further, "[w]hen a provision is ambiguous or may reasonably be interpreted in more than one way, then we will construe it according to the reasonable expectations of the insured, based on the policy language." Vt. Mut. Ins. v. Parsons Hill P'ship, 2010 VT 44, ¶ 21, 188 Vt. 80, 1 A.3d 1016. However, "the fact that a dispute has arisen as to proper interpretation does not automatically render the language ambiguous." Isbrandtsen v. N. BranchCorp., 150 Vt. 575, 581, 556 A.2d 81, 85 (1988). And, "we will not deprive the insurer of unambiguous terms placed in the contract for its benefit." Shriner, 2017 VT 23, ¶ 6 (quotation omitted).

¶ 8. With these interpretation principles in mind, we turn to the insurance policy at hand. As the trial court noted, there are several subsections of the policy at the center of our analysis. First, the Special Property Coverage Form (SPC Form) outlines the general "rights, duties, and what is and is not covered" and the additional coverage areas in Section A, and then defines several terms in Section G.

A. COVERAGE

We will pay for direct physical loss of or physical damage to Covered Property at the premises described in the Declarations (also called "scheduled premises" in this policy) caused by or resulting from a Covered Cause of Loss.

. . . .

2. Property Not Covered

Covered Property does not include:

. . . .

c. "Money," bullion, numismatic and philatelic property and bank notes or "securities" except as provided in any Additional Coverages or Optional Coverages.

. . . .

5. Additional Coverages

. . . .

f. Forgery

(1) We will pay for loss resulting directly from forgery or alteration of any check, draft, promissory note, or similar written promises, orders or directions to pay a sum certain in "money" that you or your agent has issued, or that was issued by someone who impersonates you or your agent.

. . . .i. Money and Securities

(1) We will pay for loss of "money" and "securities" used in your business while at a bank or savings institution, within your living quarters or the living quarters of your partners or any employee having use and custody of the property, at the "scheduled premises," or in transit between any of these places, resulting directly from:

(a) "Theft"

. . . .

G. PROPERTY DEFINITIONS

. . . .

10. "Money" means:

a. Currency, coins and bank notes whether or not in current use

. . . .

22. "Theft" means the act of stealing.

¶ 9. The policy also contains several exclusions, outlined in Section B of the policy.

B. EXCLUSIONS

. . . .

2. We will not pay for physical loss or physical damage caused by or resulting from:

. . . .

f. False Pretense: Voluntarily parting with any property by you or anyone else to whom you have entrusted the property if induced to do so by any fraudulent scheme, trick, device or false pretense.

¶ 10. Two endorsements supplement the policy and provide coverage in several areas, including additional forgery coverage and coverage for computer fraud.

A. The following changes apply . . . to the Special Property Coverage Form, Additional Coverages:

. . . .1. Covered Property [under forged or altered instrument coverage]

. . . .

a. Checks, drafts, promissory notes, or similar written promises, orders or directions to pay a sum certain in "money" that are:

(1) Made or drawn by or drawn upon by you;

(2) Made or drawn by one acting as your agent;

or that are purported to have been so made or drawn

. . . .

4. Computer Fraud

The following Additional Coverage is added: We will pay up to $10,000 in any one occurrence for physical loss of or physical damage to "money," "securities," and other property having intrinsic value resulting directly from computer fraud. Computer fraud means any act of stealing property following and directly related to the use of any computer to fraudulently cause a transfer of that property from inside your premises or from a banking institution or similar safe depository, to a person (other than a "messenger") outside those premises or to a place outside those premises.

¶ 11. The crux of this case is whether the False Pretense Exclusion bars coverage for the loss experienced by Rainforest. Rainforest argues that the False Pretense Exclusion does not apply...