Vermont Mutual Insurance Company v. Parsons Hill Partnership, 2010 VT 44 (Vt. 6/4/2010)

• Decision Date: 04 June 2010
• Docket Number: No. 2008-509.,2008-509.
• Citation: 2010 VT 44
• Court: Vermont Supreme Court
• Parties: Vermont Mutual Insurance Company, v. Parsons Hill Partnership, Willard Group, Poulin Group and Adrienne Fortin.

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2010 VT 44

Vermont Mutual Insurance Company, v. Parsons Hill Partnership, Willard Group, Poulin Group and Adrienne Fortin.

No. 2008-509.

Supreme Court of Vermont.

June 4, 2010.

On Appeal from Washington Superior Court September Term, 2009, Dennis R. Pearson, J.

Leo A. Bisson and Joslyn L. Wilschek of Primmer Piper Eggleston & Cramer PC, Montpelier, for Plaintiff-Appellee.

John Paul Faignant of Miller & Faignant, P.C., Rutland, for Defendants-Appellants The Willard Group.

Lisa Chalidze, Benson, and Eugene F. Rakow of Rakow & Volz, P.C., Rutland, for Defendants-Appellants Parsons Hill Partnership, William Rooney and Catherine Rooney.

John J. Welch, Jr., Rutland, for Defendants-Appellants Poulin Group and Adrienne Fortin.

PRESENT: Dooley, Johnson, Skoglund and Burgess, JJ., and Crawford, Supr. J., Specially Assigned

DOOLEY, J.

¶ 1. Plaintiff insurance carrier, Vermont Mutual Insurance Company, sought a declaration in Washington Superior Court that landlord's liability insurance policies do not cover tenants' claims for breach of an implied warranty of habitability. The trial court granted insurance carrier's motion for summary judgment on the issue. Defendants Parsons Hill Partnership,¹ Willard Group,² Poulin Group,³ and Adrienne Fortin⁴ appeal on the ground that the court erred in construing the applicable insurance policies. We affirm.

¶ 2. Landlord Parsons Hill Partnership owns an apartment complex for low-income families in Castleton, Vermont. In 1983, landlord received notification from the Vermont Department of Health that tests had detected unsafe levels of the toxin Perchloroethylene (PCE) in the apartment complex's water system and that the water had been assigned "No Drink" status. The cause turned out to be a faulty plastic lining in the storage tank of the water system. Despite the warning, landlord took no remedial steps and did not notify its tenants of the water contamination. In 1997, one of the tenants learned of the contamination notices issued by the Department of Health while conducting internet research on an unrelated matter for her employer. Shortly thereafter, tenants filed a lawsuit for damages in Rutland Superior Court against landlord and various other parties. This underlying litigation has been ongoing for twelve years and was settled against all parties except the landlord. As part of the settlement, tenants' claims were reduced to one, alleging breach of the common law warranty of habitability. In an earlier appeal, this Court held, among other things, that tenants' common law claim for breach of the implied warranty of habitability was not preempted by the Residential Rental Agreements Act, 9 V.S.A. §§ 4451-4468, and therefore could be asserted against landlord in the trial court. Willard v. Parsons Hill P'ship, 2005 VT 69, ¶ 27, 178 Vt. 300, 882 A.2d 1213.

¶ 3. Landlord held a general comprehensive liability insurance policy (the Policy) from insurance carrier for each of the following periods: 1987-1990, 1990-1993, 1993-1996, 1996-1999, and 1999-2001. After receiving tenants' complaint, landlord notified insurance carrier and requested assistance with defending the lawsuit. Insurance carrier agreed to defend on behalf of landlord, while reserving the right to later argue that the Policy did not cover tenants' claims. And, indeed, in January 1998, insurance carrier filed the present declaratory judgment action, contending that tenants' claims fell outside the scope of the Policy and naming landlord and tenants as defendants.

¶ 4. The Policy provides three relevant forms of liability coverage. Coverage A provides coverage for bodily injury and property damage caused by an occurrence during the policy period. Under defendants' theories, the coverage limit exceeds four million dollars with respect to the claims in the underlying suit. This coverage contains an exclusion for bodily injury or property damage caused by "the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants." Coverage A is a standard part of comprehensive general liability insurance.

¶ 5. Coverage B provides coverage for personal injury or advertising injury caused, among other things, by an offense arising out of the business of the insured. Again, under defendants' theories, the coverage limit exceeds four million dollars with respect to the claims in the underlying suit. There is no pollution exclusion with respect to this coverage. Coverage B is also a standard part of comprehensive general liability insurance and is often called the broad form endorsement.

¶ 6. Coverage D was added by a pollution endorsement. It provides coverage for bodily injury and property damage caused by an occurrence if the claim was made during the policy period and arose out of "discharge, release or escape of pollutants" at premises owned by the insured. The aggregate pollution liability coverage limit is one million dollars. This coverage is not standard.

¶ 7. From the beginning landlord and tenants argued that Coverage D did not apply because their damages were not caused by pollutants within the meaning of the pollution endorsement. Instead they contended that both Coverage A and B applied. This position was rejected in August 1999 when the Washington Superior Court granted insurance carrier's motion for partial summary judgment in the declaratory judgment action. The court held that any claims relating to contaminated water were claims concerning "pollutants" and fell within the scope of the pollution endorsement, as well as the pollution exclusion from Coverage A.

¶ 8. In 2003, tenants and all of the defendants except for landlord reached separate settlement agreements with respect to the initial 1997 action. These settlement agreements required tenants to dismiss all causes of action other than their breach-of-warranty claim against landlord. In return, tenants received $3,005,000.

¶ 9. Finally, in November 2008, the trial court issued a final decision and order granting summary judgment to insurance carrier in the declaratory judgment action. This decision reaffirmed the trial court's 1999 determination that the breach-of-warranty claim was a claim concerning "pollutants" and therefore subject to the pollution endorsement and the pollution exclusion from Coverage A. The court also ruled that the exclusive coverage for damages from "pollutants" came from the pollution endorsement and could not come from any other coverage in the policy. Thus, the court ruled that if the pollution endorsement did not provide coverage for tenants' claim, the policy provided no coverage. The court further concluded that there was no coverage under the pollution endorsement, and for the same reason none under Coverage A, because tenants sought damages neither for bodily injury nor property damage as the terms were defined under the Policy. Finally, the court concluded as an additional ground for its decision that tenants had not alleged personal injury as defined in Coverage B, and, therefore, landlord had no coverage from that part of the policy. Concluding that there was no coverage under any of the coverage sections, the court thus granted insurance carrier's motion for summary judgment. Defendants appeal from both the 1999 and 2008 summary judgments, contending that the court interpreted the Policy incorrectly and that the Policy insures against tenants' warranty-of-habitability claim.

¶ 10. We review a decision granting summary judgment de novo, giving the nonmoving party the benefit of all reasonable doubts and inferences. Stamp Tech, Inc. v. Lydall/Thermal Acoustical, Inc., 2009 VT 91, ¶ 11, ___ Vt. ___, 987 A.2d 292. Summary judgment is appropriate "where there are no genuine issues of material fact and any party is entitled to judgment as a matter of law." Turner v. Roman Catholic Diocese of Burlington, 2009 VT 101, ¶ 23, ___ Vt. ___, 987 A.2d 960. This is primarily an insurance contract interpretation case, and there are no genuine issues of material fact.

¶ 11. We make two points at the outset of this decision. First, elements of this case are present in a large number of appellate decisions from around the country because the language of Coverage A, including the pollution exclusion, and Coverage B appear in virtually all of the commercial liability policies issued by insurance carriers in the United States. See New Castle County v. Nat'l Union Fire Ins. Co. of Pittsburgh, 243 F.3d 744, 747 (3d Cir. 2001) (noting that meaning of phrase central to this case from Coverage B has "generated hundreds of lawsuits"); see generally 20 E. Holmes, Appleman on Insurance 2d §§ 129-131 (2008) (describing terms of Coverage A and Coverage B). What differs from most of the other cases is the presence of Coverage D, the Vermont pollution endorsement, and the single liability claim asserted against landlord for breach of warranty of habitability. Thus, while some of the many decisions are helpful, as the following discussion shows, others are not helpful under the unique circumstances of this case.

¶ 12. Second, we face an initial challenge to determine what issues are before us by virtue of the appeal. The trial court observed that the "posture and context ha[ve] allowed the arguments here to become essentially untethered from the defining policy language and have tended to obscure the reality, at least in this court's view, that the dispositive issue in this case is now relatively simple and straight-forward." We agree. Defendants have raised a number of discrete issues, but failed to relate them to the logic of the court's decisions. As a result, the issues appear like hypothetical questions of law, and we often do not know what rulings of the court defendants challenge. This leads us to start with a roadmap, as much as we can create one, through the issues.

¶ 13. We understand that the trial court made the following rulings with respect to the three forms of coverage:

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