Smith v. Liberty Mut. Ins. Co.

• Decision Date: 04 December 1987
• Docket Number: No. 86-294,86-294
• Citation: 536 A.2d 164,130 N.H. 117
• Parties: Harry SMITH v. LIBERTY MUTUAL INSURANCE COMPANY and Estate of Nelson J. Estabrook.
• Court: New Hampshire Supreme Court

Page 164

536 A.2d 164

130 N.H. 117

Harry SMITH v. LIBERTY MUTUAL INSURANCE COMPANY and Estate of Nelson J. Estabrook.

No. 86-294.

Supreme Court of New Hampshire.

Dec. 4, 1987.

Devine, Millimet, Stahl & Branch P.A., Manchester (E. Donald Dufresne on the brief and orally), for plaintiff, Harry Smith, and defendant Estate of Nelson J. Estabrook.

James S. Yakovakis P.A., Manchester (James S. Yakovakis on the brief and orally), for defendant Liberty Mut. Ins. Co.

SOUTER, Justice.

This appeal is from a declaratory judgment of the Superior Court (Thayer, J.), see RSA 491:22, construing a corporation's liability policy that includes coverage for an "executive officer" as an unnamed insured. The trial court sustained the insurer's denial of coverage to the corporation's plant manager, on the grounds that the quoted term is not ambiguous, see Commercial Union Assurance Cos. v. Town of Derry, 118 N.H. 469, 471, 387 A.2d 1171, 1172 (1978), rev'd in part, American Home Assurance Co. v. Fish, 122 N.H. 711, 715, 451 A.2d 358, 360 (1982), that the coverage claimant is therefore not entitled to the benefit of the general rule that ambiguous policy terms are to be construed against the insurer, and that the parties to the contract did not intend the quoted term to provide the coverage in question. We modify the Commercial Union concept of policy ambiguity, conclude that the policy term is ambiguous, hold that the evidence was incompetent to demonstrate that the disputed coverage was not intended, and reverse.

In Estabrook v. American Hoist & Derrick, Inc., 127 N.H. 162, 498 A.2d 741

(1985), this court held that the workers' compensation act did not bar wrongful death actions by the Administratrix of the Estate of Nelson Estabrook against the decedent's fellow employees. One such action, against Harry Smith, underlies this proceeding. See id. at 166, 498 A.2d at 743; see also Estabrook v. Wetmore, 129 N.H. 520, 529 A.2d 956 (1987). At the relevant time, Smith was the manager of an asphalt plant owned by Lane Construction Company at which the decedent was killed. Smith had been appointed to his position by the chairman of Lane's board of directors and was Lane's senior employee in New Hampshire. He had authority to contract for the purchase of supplies and certain equipment; he was authorized to hire, fire and supervise the plant's fifty employees; and he had overall responsibility for the safety, maintenance and operation of the Manchester plant.

On the date of Estabrook's death, a contract of liability insurance in effect between Lane and Liberty Mutual Insurance Company provided coverage for "any executive officer, director or stockholder [of the named insured, Lane] while acting within the scope of his duties as such." In the trial court, both Smith and the administratrix argued that the policy covered Smith because a plant manager was an "executive officer." They relied on Young v. New Hampshire Indemnity Co., Inc., 120 N.H. 882, 424 A.2d 205 (1980), in which this court held that an identical policy provision was both ambiguous and susceptible of being read to provide coverage for "one who holds a position of administrative or managerial responsibility in a business or other organization." Id. at 883, 424 A.2d at 206 (quoting WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 794 (Unabridged 1961)). Following the rule of Trombly v. Blue Cross/Blue Shield, 120 N.H. 764, 423 A.2d 980 (1980), that an ambiguity in an insurance policy is to be construed in favor of the insured and against the insurer, we held in Young that use of the term "executive officer" extended coverage to a plant manager with responsibilities and powers virtually identical to those of Smith as manager of Lane's plant.

Arguably, however, one factual difference distinguishes Young from the case before us. In Young, the spokesman for the corporate policy-holder took the position that the manager was covered under it. Young v. N.H. Indem. Co., Inc., supra 120 N.H. at 883, 424 A.2d at 206; see Trombly v. Blue Cross/Blue Shield, supra 120 N.H. at 767, 423 A.2d at 982 (no evidence that employer who purchased group health policy had ever agreed to the reduction of coverage that would have resulted from insurer's interpretation of policy language). The employer in the instant case, however, sided with the insurer. Lane's corporate officer who procured the insurance, Stapleton, testified that he had never found anything ambiguous in the meaning or application of the term "executive officer" and had not intended to cover the plant manager by the inclusion of that language in the policy. While Stapleton admitted that he had never discussed the meaning of the term with the insurer, he stated that he interpreted the phrase to provide coverage only to an officer of the corporation who was both elected by the board of directors and a member of the corporation's executive committee.

This testimony loomed large before the trial court, which concluded that "executive officer" as used in the policy now in question presented no such ambiguity as was found in Young:

"There is no evidence to indicate that either party to the contract [i.e., Lane or Liberty Mutual] felt that the provision relating to executive officer coverage was ambiguous. On the contrary, the evidence is that the company intended [only to] cover executive committee members and not the plaintiff[ ]. Therefore, as to the parties to the contract no ambiguity exists and, accordingly, the plaintiff cannot rely on the principle of law adopted in Trombly, of construing ambiguity against the insurer and in favor of the insured."

In so reasoning, the trial judge alluded to three significant rules bearing on the interpretation of insurance policy language and the resolution of disputes about coverage. The first is the general rule that policy ambiguity will be construed in favor of the insured and against the insurer. Trombly v. Blue Cross/Blue Shield, supra at 771-72, 423 A.2d at 985. The application of this first rule depends on the second, defining ambiguity for the purpose of policy construction. It is clear that the trial judge had in mind this court's definition of policy ambiguity as language that gives rise to reasonable disagreement between the parties to the insurance contract, and about which they actually disagree. Thus, a "clause is ambiguous when the contracting parties reasonably differ as to its meaning." See 3 A. Corbin, Contracts § 543A (Supp.1971); Commercial Union Assurance Cos. v. Town of Derry, 118 N.H. at 471, 387 A.2d at 1172, cited in V & V Corp. v. American Policyholders' Ins. Co., 127 N.H. 372, 380, 500 A.2d 695, 700-01 (1985). The trial court correctly followed this definition in distinguishing Young and finding no ambiguity in the circumstances of this case.

The third rule underlying the trial court's discussion recognizes the admissibility of parol evidence to resolve ambiguity in a written agreement. It is exemplified in Town of Epping v. St. Paul Fire & Marine Ins. Co., 122 N.H. 248, 444 A.2d 496 (1982), which held that when prior dealings of the parties to the insurance contract indicate an intention to provide no coverage by the language in dispute, the intention of the parties will prevail over Trombly 's general rule of strict construction against the insurer. The trial judge referred to the evidence before him as establishing Lane's and Liberty Mutual's intentions to provide no coverage for a plant manager as an "executive officer."

Although none of the parties before us questions the soundness of the Trombly rule as such, the appeal does entail challenges to Commercial Union 's concept of policy ambiguity and to the evidentiary basis for the conclusion that Trombly is inapplicable here in any event, because the contracting parties intended no coverage for plant managers. Specifically, the appeal presents two issues: whether the concept of ambiguity, inherent in policy language or arising from its application, should be restated so that an unnamed insured who claims coverage may rely upon the Trombly rule, even when the insured contracting party actually agrees with the insurer that denies coverage; and, if so, whether Stapleton's testimony in this case was competent to support the conclusion under Town of Epping that Smith was not covered because the contracting parties had not intended to cover him.

In addressing the first question, we are mindful that Liberty Mutual does not generally challenge the right of an unnamed insured to enforce the contract embodied in the policy. See Young v. N.H. Indem. Co., Inc., 120 N.H. 882, 424 A.2d 205 (unnamed insured as plaintiff). Nor does it specifically question the standing of such an insured to maintain an action on that contract independently of any action taken by the insured contracting party. See id. We also recognize, however, that if application of the Trombly rule for the...