Smith v. Nationwide Mut. Ins. Co.

• Decision Date: 27 June 2003
• Docket Number: No. 02-020.,02-020.
• Citation: 830 A.2d 108
• Court: Vermont Supreme Court
• Parties: Michelle SMITH v. NATIONWIDE MUTUAL INSURANCE CO.

830 A.2d 108

Michelle SMITH v. NATIONWIDE MUTUAL INSURANCE CO.

No. 02-020.

Supreme Court of Vermont.

June 27, 2003.

Joseph C. Benning, Lyndonville, for Plaintiff-Appellee.

John E. Brady and Brendan P. Donahue of Brady & Callahan, P.C., Springfield, for Defendant-Appellant.

Present: AMESTOY, C.J., DOOLEY, MORSE¹, JOHNSON and SKOGLUND, JJ.

SKOGLUND, J.

¶ 1. This is a declaratory judgment action concerning automobile insurance. Defendant Nationwide Mutual Insurance Company ("Nationwide") appeals from an order holding it liable to its insured for a judgment entered against him in a lawsuit arising from an automobile accident that Nationwide failed to defend. Nationwide argues that it owed no defense because its insured breached its duties under the contract of insurance and was unable to defend without his cooperation. We hold that the insurer's obligations under the contract of insurance were not relieved by the insured's actions in this case. We affirm.

¶ 2. The underlying facts of the tort litigation that generated this suit and subsequent appeal are undisputed. In March 1995, plaintiff Michelle Smith and her daughter were driving their automobile along Route 122 in Wheelock, Vermont, when they collided with a telephone pole that had been downed after being hit by a vehicle driven by Wayne-Arthur: Sullivan. Both Smith and her daughter were injured in the accident. A subsequent state police accident report assigned Sullivan the entire fault for the accident. At that time, Sullivan was insured under an automobile liability insurance policy issued by defendant Nationwide.

¶ 3. Nationwide received appropriate notice of the accident and conducted an investigation. Following its investigation, Nationwide settled a personal injury claim with Smith's daughter and a property damage claim for Smith's vehicle. Nationwide did not, however, resolve Smith's personal injury claim. Consequently, Smith filed suit against Sullivan in superior court to recover for her personal injuries. In February 1998, Sullivan was personally served with the summons and complaint in plaintiff's action. In response, Sullivan filed numerous pro se pleadings challenging his personal identification and insisting that he be addressed as "Wayne-Arthur: Sullivan." Based on these pleadings, the court established personal jurisdiction over Sullivan.

¶ 4. Sullivan forwarded the relevant court documents to Nationwide. Nationwide recognized its obligation to its insured under its insurance policy and retained attorney Michael Gannon to represent Sullivan in Smith's personal injury suit. Gannon and Sullivan exchanged letters and telephone calls, and met at least once to discuss Gannon's representation of Sullivan. However, for reasons apparently stemming from a belief that any and all court proceedings against him or in which he is involved violate fundamental principles of natural law, the Uniform Commercial Code, and state and federal constitutions, Sullivan objected to Gannon's filing of an appearance on his behalf. As a result, Gannon did not enter an appearance on behalf of Sullivan. Nationwide took no further action to defend Sullivan or determine its coverage obligations.

¶ 5. Sullivan did not appear at a July 1998 merits hearing in Smith v. Sullivan, Docket # 50-3-98CaCv, and the trial court entered a default judgment in favor of Smith. Subsequently, the trial court scheduled, noticed, and held a damages hearing on November 13, 1998. Nationwide had actual notice of the default judgment and at least ten days prior notice of the damages hearing. Indeed, on November 3, Nationwide sent a letter warning Sullivan of the possible consequences of his "non-cooperation" with Nationwide and his designated attorney, noting that "a money judgment may be entered against you" and that Nationwide would not "indemnify you against any judgment." Neither Sullivan nor Nationwide appeared at the hearing. Apart from the letter to Sullivan, Nationwide took no additional steps to represent Sullivan's interests or its own interests at the damages hearing. On November 30, the court entered a judgment for Smith in the amount of $60,000.

¶ 6. In July 1999, Smith filed this action against Nationwide to recover the damages the court had awarded her in her suit against Sullivan. In its answer to Smith's complaint, Nationwide denied liability to plaintiff based on what it characterized as Sullivan's failure to cooperate. One year later, in July 2000, Nationwide filed a motion for summary judgment, which was denied. After a period of discovery, Smith filed her own motion for summary judgment. Nationwide opposed the motion and renewed its own motion for summary judgment.

¶ 7. Following a hearing, the court issued a written decision granting Smith's motion for summary judgment, denying Nationwide's cross-motion, and ordering Nationwide to pay Smith the amount of damages awarded in the underlying suit. The court held as a matter of law that Sullivan did not breach the "assistance" clause of the policy, and that Nationwide was not substantially prejudiced by Sullivan's conduct. Nationwide filed a motion for reconsideration and a motion to amend the judgment Smith had obtained against Sullivan. The court issued a post-judgment order denying Nationwide's motion to reconsider, but granting its motion to amend, reducing the amount of damages awarded to $50,000, the per-person coverage limit of the policy. This appeal followed.

¶ 8. This Court's review of summary judgment is de novo, and in proceeding with that review, we apply the same standard as the trial court. Springfield Terminal Ry. v. Agency of Transp., 174 Vt. ___, ___, 816 A.2d 448, 452 (2002). Summary judgment is appropriate only where the record demonstrates that there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. V.R.C.P. 56; Guiel v. Allstate Ins. Co., 170 Vt. 464, 467, 756 A.2d 777, 780 (2000). When evaluating a motion for summary judgment, we give the benefit of all reasonable doubts and inferences to the nonmoving party. Sabia v. Neville, 165 Vt. 515, 523, 687 A.2d 469, 474 (1996). Here, both parties moved for summary judgment at the trial level, and thus both were entitled to the benefit of all reasonable doubts and inferences when judging the opposing party's motion. Bixler v. Bullard, 172 Vt. 53, 57, 769 A.2d 690, 694 (2001).

¶ 9. Nationwide claims that the trial court erred in concluding: (1) that Sullivan did not breach the "cooperation" or "assistance" clause of the insurance policy; and (2) that Sullivan's conduct did not prejudice Nationwide's ability to defend against plaintiff's personal injury claim. In support of its claims, Nationwide raises several issues concerning the ethical duties and obligations of counsel retained for Sullivan. In this case, however, those ethical considerations do not affect the determination of the insurer's and insured's obligations under the insurance policy. The issues germane to this appeal are whether Sullivan's refusal to allow insurance counsel to enter an appearance on his behalf breached the terms of the insurance contract, and whether any such breach prejudiced Nationwide's position relative to Smith's personal injury claim, therefore relieving Nationwide of its obligations under the policy. We hold that Nationwide was not prejudiced by Sullivan's actions and remains obligated for the judgment entered against its insured.

¶ 10. An insured's refusal to cooperate with the terms of an insurance contract can vitiate the policy and relieve the insurer of its obligation to defend or indemnify the insured. Quintin v. Miller, 138 Vt. 487, 489, 417 A.2d 941, 942 (1980). An insurer attempting to avoid its coverage obligations based on an insured's noncooperation has the burden of demonstrating the insured's lack of cooperation and "the actual prejudice resulting therefrom." Am. Fid. Co. v. Kerr, 138 Vt. 359, 362, 416 A.2d 163, 165 (1980); see also Francis v. London Guar. & Accident Co., 100 Vt. 425, 428, 138 A. 780, 781 (1927). Normally, the existence of prejudice from noncooperation is a question for the trier of fact. See Coop. Fire Ins. Ass'n of Vt. v. White Caps, Inc., 166 Vt. 355, 363, 694 A.2d 34, 39 (1997). However, summary judgment on the issue of prejudice is appropriate when the insurer fails to adduce any evidence that its insured's breach placed the insurer in a substantially less favorable position than it would have been had the insured fully cooperated. See id. at 363-64, 694 A.2d at 39. In this case, summary judgment was appropriate.

¶ 11. To support its position that Sullivan's conduct breached the insurance contract, Nationwide invokes what it calls the "cooperation" clause of the policy.² The clause reads:

1. INSURED PERSONS' DUTIES

The insured will:

a) give us or our agent prompt notice of all losses and proof of claim if required.

b) notify the police of all theft losses.

c) promptly deliver to us all papers dealing with any claims or suits.

d) submit to examination under oath as often as reasonably requested by us.

e) assist us with any claim or suit....

An insurance contract is construed "according to its terms and the evident intent of the parties as expressed in the policy language." Ulm v. Ford Motor Co., 170 Vt. 281, 295, 750 A.2d 981, 992 (2000). Disputed terms are assigned their plain, ordinary, and popular meaning. Id. Any ambiguities in disputed terms are resolved in favor of the insured and against the compensated insurer responsible for drafting those provisions. State v. CNA Ins. Cos., 172 Vt. 318, 324, 779 A.2d 662, 667 (2001); Boyer v. Am. Cas. Co., 332 F.2d 708, 711 (2d Cir.1964) (applying Vermont law). As the parties have recognized, the meaning and content of the term "assist" as it is employed in the policy lends itself to various interpretations. Consequently, we will interpret the disputed term in favor of the insured.

¶ 12. The primary purpose of a...