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Acadia Insurance Co. v. Welog, Inc.

United States District Court, D. Vermont

July 11, 2017



          Geoffrey W. Crawford, Judge United States District Court

         This case begins in the forests of Vermont's Northeast Kingdom. Plum Creek Maine Timberlands, LLC ("Plum Creek"), which owned thousands of acres of forestland, hired WeLog, Inc., a logging company based in New Hampshire, to perform logging on several stands of trees on its property.[1] During inspections that occurred while the logging was taking place, the State of Vermont informed Plum Creek that three stands had been over-logged and, as a consequence, much of Plum Creek's land was no longer eligible for a current use property tax program. Plum Creek appealed the administrative determinations to Vermont Superior Court, which ruled in its favor. The State appealed to the Vermont Supreme Court which, in September 2016, reversed the Superior Court's decision and remanded the case. Plum Creek Maine Timberlands, LLC v. Vt. Dep't of Forests, Parks, and Recreation, 2016 VT 103, 155 A.3d 694 [hereinafter Plum Creek v. Vermont]. In the meantime, Plum Creek sued WeLog, alleging that WeLog is responsible for the over-logging. That case remains pending in this court. Plum Creek Main Marketing, Inc. v. WeLog, Inc.), No. 5:16-cv-312 (D. Vt.) [hereinafter Plum Creek v. WeLog}. Acadia Insurance Company, WeLog's insurer, has instituted this suit against WeLog, seeking a declaratory judgment that it is not responsible for defending or indemnifying WeLog in the lawsuit brought by Plum Creek. (Doc. 61.)

         WeLog now moves for partial summary judgment, arguing that the laws of New Hampshire apply in construing the insurance contract between Acadia and WeLog. (Doc. 36.) Acadia cross-moves for partial summary judgment, arguing that the laws of Vermont apply instead. (Doc. 47.) The court heard argument on April 5, 2017.


         I. Underlying Dispute and Procedural Background

         The court draws the following facts from the first amended complaint (Doc. 61) and, where appropriate, the Vermont Supreme Court's decision in Plum Creek v. Vermont.

         In 2007, Plum Creek's predecessor, the Essex Timber Company, enrolled the land in the current use tax program, known as the "Use Value Appraisal Program" ("UVA Program"), pursuant to 32 V.S.A. § 3751 et seq. Plum Creek v. Vermont, 2016 VT 103 ¶4. (Doc. 61 ¶ 12.)[2]Enrollment in this program enables land owners "who practice long term forest management to have their land appraised for property taxes based on its value or use for forestry, rather than its market value, " resulting in a substantially lower property tax assessment. (Id. ¶ 14.) If land enrolled in the program is improperly haivested or developed, the state assesses a land-use change tax and excludes the entire parcel from eligibility for the UVA Program for five years, significantly increasing the owner's property tax liability. (Id. ¶ 15.)

         Plum Creek entered into a logging contract with WeLog in November 2009 and logging commenced shortly thereafter. (Doc. 61 ¶ 17.) After several site visits by state and county foresters in early 2010, the county forester issued an "adverse-inspection report" identifying violations of the forest management plan in the three stands of trees in question. Plum Creek v. Vermont, 2016 VT 103 ¶¶ 8-9. The Vermont Department of Forests, Parks, and Recreation ("FPR") then informed the Division of Property Valuation and Review ("PVR") (within the Vermont Department of Taxes) that Plum Creek's property should "be removed from [the UVA Program] for harvesting contrary to the [forest] management plan." Id. ¶ 11. In July 2010, the entire 56, 604-acre parcel was removed from the UVA Program and the state assessed a $7, 860.80 land-use change tax against Plum Creek.[3] 2016 VT 103 ¶ 11. The ineligibility of the parcel for the UVA Program for five years will increase Plum Creek's yearly property tax assessment by $ 191, 000. (Id. ¶21.) The adverse-inspection report and the removal of the parcel from the UVA program were upheld in administrative appeals by both FPR and PVR. Id. ¶ 15.

         Plum Creek sought court review in Vermont Superior Court. Id. ¶ 16. The Superior Court concluded that FPR had applied an inappropriate method of measuring "residual basal area"-"the amount of tree stock left after cutting"-and that the adverse-inspection report was therefore not justified. Id. ¶¶ 6, 19. In September 2016, the Vermont Supreme Court reversed and remanded. Id. ¶ 47. It concluded that FPR's method of measuring residual basal area was appropriate and reinstated the adverse-inspection report. Id. ¶¶ 35, 47. It remanded for further proceedings to address "questions raised in Plum Creek's appeal of the PVR Director's decision removing [the] land from the UVA program and leveling a tax assessment against Plum Creek." Id. ¶ 47.

         While these proceedings were ongoing, Plum Creek sued WeLog in state court for breach of contract. (Doc. 61 ¶ 22; Doc. 61-1.) Plum Creek subsequently dismissed that suit without prejudice while the State's appeal in the Vermont Supreme Court was pending. (Doc. 61 ¶ 31.) In November 2016, after the Supreme Court ruled, Plum Creek refiled its suit against WeLog, this time in federal court. Plum Creek v. WeLog, No. 5:16-cv-312 (D. Vt).

         In this lawsuit, Acadia seeks a declaratory judgment that WeLog's insurance policy with Acadia "provides no liability coverage to WeLog, Inc. for the breach of contract claim asserted against it by Plum Creek" and that "Acadia has no duty to defend or indemnify WeLog, Inc. for the breach of contract claim asserted against it by Plum Creek." (Doc. 61 at 10.) It also seeks a declaratory judgment that Vermont law applies in the coverage dispute. (Id.)

         Acadia and WeLog have both filed motions for partial summary judgment, contesting whether Vermont or New Hampshire law should apply in interpreting the insurance policy. According to the parties, the choice of law is significant because under New Hampshire law, an insurer must seek a declaratory judgment that it has no duty to defend or indemnify its insured within six months of the filing of the suit which gives rise to the question, N.H. Rev. Stat. § 491:22(III), while Vermont law imposes no such requirement.[4] (Doc. 54 at 2.)

         II. Facts at Summary Judgment

         The facts at summary judgment are almost entirely undisputed. WeLog introduces the following uncontested facts: WeLog is a New Hampshire corporation with its principal place of business in New Hampshire; Acadia issued the insurance policy from its office in New Hampshire; and WeLog purchased the policy through an insurance broker located in New Hampshire. (Doc. 36-1 ¶¶ 1, 4, 5.) The insurance policy does not include a choice-of-law provision, but its policy number does contain the letters "NH" which establishes that the policy was issued by the New Hampshire office. (Id. ¶¶ 3, 6.) Finally, it asserts that WeLog "had a reasonable expectation New Hampshire law would govern the relationship with Acadia Insurance." (Id. ¶ 7.) Acadia disputes this last fact, arguing that the facts it has asserted in support of its motion show otherwise. (Doc. 46-2.)

         In support of its motion, Acadia introduces additional facts, all of which are also undisputed unless noted. WeLog has been registered to do business in Vermont since 1991 and in 2009 through 2010 had a registered agent for service of process in Barre, Vermont. (Doc. 46-1 ¶¶ 5-6.) WeLog "grosses approximately $2, 000, 000 in annual revenue and carries about 10 employees" harvesting and hauling timber and performing "construction work for roads and trails and some house lots." (Id. ¶¶ 8-10.) In Vermont, WeLog performs both "small jobs" and "winter jobs, " which take an entire season to complete. (Id. ¶ 18.) In 2008-2009, $39, 911 of WeLog's payroll "was attributable to its logging operations" in Vermont. (Id. ¶¶ 13-14.) In 2009-2010, $39, 147 was attributable to logging work in Vermont and an additional $8, 050 to street and road work in the state. (Id. ¶¶ 15-16.)

         With regard to the insurance policy itself, Acadia states that the policy "covered WeLog, Inc.'s business activities in Massachusetts, New York, Vermont and New Hampshire, " and that the policy "contemplated, assessed a premium, and covered [] risk exposure for logging practices in the State of Vermont." (Id. ¶¶ 35, 38.) The insurance policy, which assessed "premium bases" calculated on the basis of payroll data for different insured activities, assessed a premium basis of $170, 814 for logging and lumbering operations in New Hampshire, $153, 347 for road construction in New Hampshire, $26, 800 for forestry service products in New Hampshire, $86, 306 for maintenance or storage of equipment or material in New Hampshire, and $106, 073 for subcontracted work "in connection with construction, reconstruction, [or] repair in New Hampshire." (Doc. 36-2 at 47-48; Doc. 46-4 at 1.) The listed premium basis for logging and lumbering in Vermont, the only category explicitly listed for that state, is "if any." (Doc. 36-2 at 48.)[5] And finally, when Malcom Washburn, president of WeLog, received the policy, he did not read it and likely just placed it in a desk drawer, though he "understood that the policy covered risks in the State of Vermont." (Doc. 46-1 ¶¶ 33, 37.)[6]

         Acadia also introduces undisputed facts concerning WeLog's logging on Plum Creek's land. WeLog worked on Plum Creek's land in Vermont from November 2009 through February 2010. (Doc. 46-1 ¶¶ 19-20.) It logged on approximately 115-120 acres. (Id. ¶20.) In November, two WeLog employees began work on the project, but by January, a "full crew of eight" was working on it. (Id. ¶¶ 21-22.) Mr. Washburn, was "on site in Vermont almost every day." (Id. ¶ 22.) At the time of the project, Mr. Washburn knew that the land was enrolled in the UVA Program, that WeLog had to "conduct its logging operations in accordance with all applicable Vermont laws." (Id. ¶¶ 25-26.) He was familiar with Vermont forestry, logging, and water quality laws, and kept a small reference book in his pocket. (Id. ΒΆΒΆ ...

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