Serecky v. National Grange Mutual Insurance

• Decision Date: 09 July 2004
• Docket Number: No. 2003-187,2003-187
• Citation: 857 A.2d 775
• Court: Vermont Supreme Court
• Parties: Cindy Serecky and Shannon Gioia v. National Grange Mutual Insurance, Utica Mutual Insurance and Cooperative Insurance

857 A.2d 775

Cindy Serecky and Shannon Gioia v. National Grange Mutual Insurance, Utica Mutual Insurance and Cooperative Insurance

No. 2003-187, JANUARY TERM, 2004

Supreme Court of Vermont

July 9, 2004

Karen J. Borgstrom of Loftus & Borgstrom, PC, Lebanon, New Hampshire, for Plaintiff-Appellant.

Robin Ober Cooley of Pierson Wadhams Quinn Yates & Coffrin, Burlington, for Defendant-Appellee National Grange Mutual.

Shapleigh Smith, Jr. of Dinse, Knapp & McAndrew, P.C., Burlington, for Defendant-Appellee Utica Mutual.

Richard P. Foote and Joan W. D. Donahue of Conley & Foote, Middlebury, for Defendant-Appellee Cooperative.

PRESENT: Amestoy, C.J., Dooley, Johnson, Skoglund and Reiber, JJ.

¶ 1. REIBER, J.

Plaintiffs Cindy Serecky and Shannon Gioia appeal from the trial court's order granting summary judgment for defendants National Grange Mutual Insurance, Utica Mutual Insurance, and Cooperative Insurance. Pursuant to an assignment of rights, plaintiffs sued defendants for breach of contract and breach of the covenant of good faith and fair dealing based on defendants' refusal to defend or indemnify its insureds, Robert Harlow, Dynamic Discount, Inc., and The Grab Bag, in an underlying sexual harassment action. The trial court granted summary judgment for defendants after concluding that the insurance policies issued by the defendant insurers did not provide coverage for intentional acts of sexual harassment, and thus, they were not obligated to defend or indemnify their insureds. Plaintiffs appealed, arguing that summary judgment was improperly granted. We affirm.

¶ 2. The following facts are undisputed. Plaintiffs were employed by Robert Harlow, the owner of Dynamic Discount and The Grab Bag (a registered trade name). In April 1999, plaintiffs filed a complaint against Harlow, Dynamic Discount, and The Grab Bag, alleging that Harlow, their direct supervisor, made inappropriate sexual remarks and engaged in inappropriate and offensive touching during working hours. In their complaint, plaintiffs made claims of sexual harassment, intentional infliction of emotional distress, negligent infliction of emotional distress, wrongful discharge, and assault and battery.

¶ 3. At the time of the incidents in the complaint, Harlow, Dynamic Discount, and The Grab Bag were insured under three policies issued by defendants. Pursuant to the terms of a homeowner's policy, Cooperative provided Harlow with personal liability coverage for sums owed because of "bodily injury" caused by an "occurrence" to which coverage applied. The policy defined an "occurrence" as "an accident, including repeated exposures to similar conditions, that results in 'bodily injury' . . . during the policy period." Cooperative denied Harlow's request for coverage after concluding that there had not been an "occurrence" within the meaning of its policy because plaintiffs' complaint alleged purposeful conduct. Cooperative identified two exclusions that also supported its decision to deny coverage: one that excluded coverage where bodily injury resulted from "activities related to the `business' of an insured" and the second that excluded coverage for bodily injury that was "the result of an intentional and malicious act by . . . an `insured.'" Cooperative's policy also excluded coverage for bodily injury "expected by . . . or intended by an `insured.'"

¶ 4. National Grange provided business liability coverage to Dynamic Discount, doing business as The Grab Bag, for sums that it was legally obligated to pay as damages because of "bodily injury" caused by an "occurrence." The policy defined an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Like Cooperative, National Grange denied coverage after determining that there had not been an "occurrence" within the meaning of its policy. National Grange explained that, although plaintiffs' complaint included a negligence claim, the facts alleged in the complaint involved intentional acts. National Grange also pointed to two exclusions in its policy that supported its denial of coverage: one that precluded coverage for "bodily injury" "expected or intended from the standpoint of the insured" and one that precluded coverage for "bodily injury" to "[a]n employee of the insured arising out of and in the course of employment by the insured."

¶ 5. Utica similarly provided business liability coverage to Dynamic Discount for sums that it was legally obligated to pay as damages because of "bodily injury" to which the insurance applied. Utica denied coverage after concluding that plaintiffs' complaint did not allege "bodily injury" caused by an "occurrence" within the meaning of its policy. Like the policies of the other defendants, Utica's policy defined an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Utica's policy also excluded coverage for "bodily injury" to "[a]n employee of the insured arising out of and in the course of employment by the insured," as well as "bodily injury" "expected or intended from the standpoint of the insured."

¶ 6. Approximately two years after defendants denied coverage, plaintiffs and the underlying defendants entered into a stipulated agreement pursuant to which the court entered judgment in favor of plaintiffs for $100,000. Harlow, individually, and on behalf of Dynamic Discount and The Grab Bag, later assigned plaintiffs all indemnification rights under the three insurance policies.

¶ 7. In April 2001, plaintiffs filed a complaint against defendants alleging breach of contract and breach of the covenant of good faith and fair dealing based on defendants' refusal to defend or indemnify the underlying defendants. In support of their claims, plaintiffs alleged that defendants acted in bad faith by failing to determine their obligation to indemnify during the pendency of the underlying case, and denying coverage without a reasonable basis for doing so. Defendants moved for summary judgment in October and November 2001 and, after a hearing, the court granted their request.

¶ 8. As an initial matter, the court rejected plaintiffs' argument that the terms of defendants' insurance policies were ambiguous. It also rejected plaintiffs' assertion that defendants had waived their present right to dispute coverage by failing to defend or indemnify Harlow in the underlying action. As the court explained, the underlying action involved different defendants, it did not proceed to trial, and there was no indication as to what issues had been determined. Turning to the merits of plaintiffs' claims, and assuming for the purposes of argument that the assignment of rights was valid, the court identified the gravamen of the underlying complaint as intentional sexual harassment by Harlow against plaintiffs. All of plaintiffs' other claims, the court explained, apart from that of negligent infliction of emotional distress, were embraced by or flowed from this intentional predatory behavior, and were themselves intentional and deliberate acts. In addition, the court rejected plaintiffs' negligent infliction of emotional distress claim as unsupported by the facts alleged in the complaint.

¶ 9. Thus, comparing the allegations in the complaint with the terms of defendants' policies, the court concluded that the complaint did not allege an "occurrence" within the meaning of defendants' policies. The court explained that all of the policies defined an "occurrence" as an "accident," and the definition of "accident" was well-established under Vermont case law. An "accident," the court stated, is "an unexpected happening without intention or design." The court found that Harlow's alleged sexual harassment of plaintiffs was a series of intentional acts and these acts were the operative cause of plaintiffs' alleged harms. The court therefore concluded that defendants' insurance policies, which provided coverage "only if" the cause of such alleged harms was "accidental," did not cover Harlow's intentional acts of sexual harassment.

¶ 10. The court found that certain exclusions within defendants' policies offered an additional basis for denying coverage, assuming arguendo that bodily injury, as defined by the policies, had occurred. Cooperative's policy, for example, excluded coverage for "bodily injury" that resulted directly or indirectly from "an intentional act of an insured." The court explained that, given the intentional nature of the insured's alleged acts, and because plaintiffs' alleged harms were a direct result of these intentional acts, this exclusionary provision alone was sufficient to deny coverage. The court also found that National Grange's and Utica's exclusion for "bodily injury" that was "expected or intended from the standpoint of the insured" independently supported a denial of coverage as well. The court explained that because sexual harassment was substantially certain to injure the person harassed, intent to injure could be inferred as a matter of law from the intent to act. The court thus concluded, as a matter of law, that defendants' insurance policies did not provide coverage to the underlying defendants and therefore, by denying coverage, defendants did not breach their duty to defend or indemnify their insureds. The court consequently granted summary judgment for defendants. In its order, the court also denied plaintiffs' request for further discovery, finding the record sufficient to demonstrate that summary judgment should be granted for defendants. This appeal followed.

¶ 11. On appeal, plaintiffs argue that the court erred in granting summary judgment to defendants. Specifically, they contend that the court erred by: (1) finding that defendants had not waived their present right to dispute coverage by failing to participate in the defense or indemnification of their insureds in the underlying action; (2) concluding,...