Tateosian v. State

• Citation: 945 A.2d 833,2007 VT 136
• Decision Date: 21 December 2007
• Docket Number: No. 05-574.,05-574.
• Court: United States State Supreme Court of Vermont
• Parties: Edward TATEOSIAN and Margaret Tateosian v. STATE of Vermont and Aero Industries, Inc. v. Vermont Municipal Truck Equipment & Supplies, Inc.

945 A.2d 833 2007 VT 136 Edward TATEOSIAN and Margaret Tateosian
v.
STATE of Vermont and Aero Industries, Inc.
v.
Vermont Municipal Truck Equipment & Supplies, Inc. No. 05-574. Supreme Court of Vermont. December 21, 2007.

[945 A.2d 835]

William H. Sorrell, Attorney General, William E. Griffin, Chief Assistant Attorney General, and Eve Jacobs-Carnahan, Assistant Attorney General, Montpelier, for Third-Party Plaintiff-Appellant.

John E. Brady and Brendan P. Donahue of Brady & Callahan, P.C., Springfield, for Third-Party Defendant-Appellee/Cross-Appellant Vermont Municipal Truck Equipment & Supplies, Inc.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

¶ 1. DOOLEY, J.

In this contractual duty-to-defend case, both parties — third-party plaintiff, the State of Vermont, and third-party defendant, Vermont Municipal Truck Equipment & Supplies, Inc. (VMT)—appeal the judgment of the superior court. In relevant part, the court concluded that VMT had a limited duty to defend the State and awarded the State $5430 in attorney's fees. On appeal, the State argues that the court erred by: (1) concluding that VMT's duty to defend terminated after only several months of litigation; (2) limiting VMT's duty to defend to only one of the claims against the State; and (3) apportioning costs between the covered and uncovered claims. The State also seeks prejudgment interest on its costs and expenses. VMT cross-appeals, claiming that the court erred in: (1) granting the State judgment on the pleadings; (2) denying VMT a jury trial; (3) granting the State a monetary reward; and (4) refusing to consider VMT's defense that the State breached its covenant of good faith and fair dealing. We conclude that VMT had no obligation to defend the State and reverse.

¶ 2. This litigation arises from an automobile accident that occurred in January 2000 when a metal chain cover from a State of Vermont snowplow truck flew off and crashed into the windshield of Edward and Margaret Tateosian's car, injuring Edward Tateosian. The steel chain cover for the dump truck mechanism was located behind the driver's door and was manufactured by Aero Industries, Inc. (Aero). In January 1996, VMT supplied and installed the cover on the truck pursuant to a procurement contract with the State. The bid documents specified that the dump-truck cover "must be suitable for use with asphalt, gravel, and salt. Aero Industries, Inc. Easy Cover model 400 or acceptable equal." The standard form procurement-and-installation contract prepared by the State Division of Purchasing also included a liability provision, specifying that "[t]he contractor shall indemnify, defend and hold harmless the State and its officers and employees from liability and any claims, suits judgments, and damages arising as a result of the Contractor's performance of this contract."

¶ 3. The Tateosians filed suit against the State for negligence and against Aero for product defect. In their suit against the State, plaintiffs alleged that the self-tapping screws that held the cover in place "came loose because of rust and excessive corrosion." Plaintiffs alleged that the State was negligent in accepting the chain cover because it was "not suitable for transportation of nor exposure to salt and the elements." (Hereinafter referred to as the negligent-acceptance claim.) They also claimed that the State was negligent because it failed "to properly inspect and maintain the chain cover in question when the presence of excessive rust and corrosion presented an obvious danger." (Hereinafter referred to as the negligent-maintenance claim.) Against Aero, plaintiffs alleged that the chain guard was defective and was negligently designed.

945 A.2d 836

¶ 4. The State brought third-party indemnity and duty-to-defend claims against VMT. The State alleged that it had relied upon the expertise of VMT "in installing these material covers on the dump bodies" and relied upon VMT to provide information regarding the appropriateness of using self-tapping screws to attach the chain guard and for instructions regarding "the inspection and maintenance of these self-tapping screws." The State sought a declaratory judgment that VMT was required to defend the Tateosian claims against the State and indemnify the State if it were found negligent. In its third-party complaint, the State did not allege that VMT was negligent. Both the State and VMT filed cross-claims against Aero, claiming product defect.

¶ 5. The State filed for judgment on the pleadings on the duty-to-defend issue. On August 7, 2003, the court ruled on the pleadings that VMT was obligated to defend the State "insofar as that defense relates to Plaintiffs' claim that the dump body covers were unsuitable when the State took delivery." The court reasoned that the negligent-acceptance claim "potentially falls within the parameters of the indemnification provision." VMT never assumed the State's defense, however, because the parties were unable to reach an agreement on sharing representation for the two claims. VMT offered to provide the State with an attorney to defend against the negligent-acceptance claim, but the State refused this offer, demanding that VMT provide a complete defense as well as prosecute the cross-claim against Aero.

¶ 6. On October 13, 2004, plaintiffs filed a motion to dismiss the negligent-acceptance claim without prejudice. The State opposed this motion, arguing that if the claim was dismissed without prejudice, plaintiffs could raise the issue at a later date and possibly subject the State to multiple trials. Upon the court's suggestion that the claim be dismissed with prejudice, plaintiffs' attorney refused, explaining that, although he had no evidence to support the claim, he was not entirely satisfied that rust and corrosion did not cause the accident. The court declined to dismiss the claim without prejudice, and the claim remained.

¶ 7. At trial, the court bifurcated the liability claims in plaintiffs' complaint from the State's third-party claims for defense and indemnification against VMT. First, the court held a jury trial on the liability issues. On the third day of trial, the State reached a settlement with Aero and dismissed its indemnity claim against VMT. On the fourth day of trial, the State admitted liability. The jury rendered a verdict in favor of Edward Tateosian for $275,000 and in favor of Margaret Tateosian for $35,000. In addition, the court entered judgment as a matter of law for the State on plaintiffs' negligent-acceptance claim.

¶ 8. The court then held a bench trial on the State's duty-to-defend claim against VMT. The court concluded that VMT had a limited duty to defend, consistent with the earlier ruling on the motion for judgment on the pleadings, and awarded the State $5430 in defense costs. The court held that the State was entitled to a defense only on the negligent-acceptance claim and that plaintiffs had abandoned that claim in April 2003 and, consequently, the State was not entitled to attorney's fees after that time. Following VMT's motion for clarification, the court ruled that it would not consider VMT's defense for breach of the covenant of good faith, explaining that VMT waived the argument, having failed to raise it following the State's motion for judgment on the pleadings. Both parties appeal the court's decision.

945 A.2d 837

¶ 9. On appeal, the State argues that VMT had a duty to provide a complete defense—defending against both of the Tateosians' direct claims and prosecuting the cross-claim against Aero—based on alternative theories. The State contends that under the terms of its contract with VMT, VMT had a duty to defend the State against the negligent-maintenance and negligent-acceptance claims, as well as in its cross-claim against Aero. Further, the State argues that even if the contract language applied only to the negligent-acceptance claim, VMT had to provide a full defense as part of its legal duty to defend.

¶ 10. Although the superior court took evidence, the duty-to-defend issue presented in this appeal is a question of law, which we review de novo. City of Burlington v. Nat'l Union Fire Ins. Co., 163 Vt. 124, 127, 655 A.2d 719, 721 (1994); see Fireman's Fund Ins. Co. v. CNA Ins. Co., 2004 VT 93, ¶ 8, 177 Vt. 215, 862 A.2d 251 (explaining that interpreting a contract is a question of law that we review de novo). Indeed, the superior court decision on appeal relied on the earlier decision made on the pleadings. For a judgment on the pleadings, we assume all factual allegations in the nonmoving party's pleading are true. Knight v. Rower, 170 Vt. 96, 98, 742 A.2d 1237, 1239 (1999).

¶ 11. The State's position on appeal, as well as its position in the trial court, is based on two fundamental propositions: (1) the standards applicable to VMT's duty to defend are the same as if VMT were an insurer under a liability insurance policy; and (2) under the contractual language, VMT had a duty to defend on at least one of plaintiffs's claims against the State. Because we conclude that the State is...