United States District Court, D. Vermont
DECISION ON MOTIONS FOR SUMMARY JUDGMENT (DOCS. 17,
Geoffrey W. Crawford, Chief Judge.
parties move for summary judgment in this coverage case filed
by Plaintiff Linda West against Defendant Carolina Casualty
Insurance Company ("Carolina") pursuant to
Vermont's direct-action statute, 8 V.S.A. § 4203(3).
The facts are undisputed.
to September 2015, Seldon Technologies, Inc.
("Seldon") was a manufacturer of water filters
located in Windsor, Vermont. Seldon obtained liability
insurance, including employment practices coverage, from
Carolina in January 2013. The policy was a claims-made and
reported policy. The initial policy period ran from January
28, 2013 to January 28, 2014. (Doc. 20-7.)
March 2013, Seldon terminated the employment of Linda West,
whom it had employed as an accountant. In May 2013, West
filed suit against Seldon in state court on grounds of age
discrimination. On June 13, 2013, Seldon's Vice President
of Finance, George Hillman, reported the lawsuit to Carolina.
June 18 and July 8, 2013, Mr. Hillman and Carolina's
representative Jacqueline Noster discussed legal
representation for Seldon in the pending lawsuit. Mr. Hillman
sought continued representation by Seldon's attorneys at
Nixon Peabody LLP. Ms. Noster stated that Carolina controlled
the choice of defense counsel and wished to have attorney
Gary Franklin of Primmer Piper Eggleston & Cramer PC
handle the defense. The impasse was broken at the end of July
2013 when Mr. Hillman executed a release discharging Carolina
from any obligation to defend or indemnify Seldon in
connection with West's lawsuit. (Doc. 20-10.)
West's lawsuit against Seldon was pending, Seldon
experienced serious financial difficulties. On September 26,
2015, Seldon's board authorized liquidation of its
assets. (Doc. 20-3 at ¶ 8.)
December 28, 2015, Seldon's counsel from Nixon Peabody
moved to withdraw in the state court case, stating that
Seldon was no longer an operating entity, had auctioned its
assets, and had no remaining funds. See West v. Seldon
Techs., Inc., No. 325-5-13 Wrcv (Vt. Super. Dec. 28,
2015) (motion for leave to withdraw as counsel). That motion
was granted on February 5, 2016. See West v. Seldon
Techs., Inc., No. 325-5-13 Wrcv (Vt. Super. Feb. 5,
2016) (entry regarding motion for leave to withdraw as
counsel). On May 19, 2016, the state court granted West's
motion for default judgment as to liability and ordered
further proceedings to determine the amount of damages.
See West v. Seldon Techs., Inc., 325-5-13 Wrcv (Vt.
Super. May 19, 2016) (entry regarding motion for default
judgment). On June 30, 2016, a jury returned a damages
verdict in the amount of $400, 000, and the state court
issued a judgment in favor of West against Seldon in the
amount of $400, 000 plus interest and costs. (Doc. 17-15 at
filed this action on March 20, 2017, seeking payment of the
judgment with interest under Vermont's direct-action
diversity case, the court applies the law of Vermont, which
governs both the construction of a policy issued to a Vermont
corporation and the execution of a release cancelling
coverage by that company. The questions presented by the case
have not been resolved by Vermont legislation or the
decisions of the Vermont Supreme Court. "To the extent
that state law is uncertain or ambiguous, [the court] must
'carefully . . . predict' how the state's highest
court would resolve the uncertainty or ambiguity."
Maska U.S., Inc. v. Kansa General Ins. Co., 198 F.3d
74, 78 (2d Cir. 1999) (citation omitted). Here, the parties
have not cited and the court has not found any squarely
controlling Vermont precedent.
courts have long recognized a restriction on the right of an
insured to cancel coverage after a loss has occurred. Both
case law and the leading insurance treatises identify
circumstances in which the release of rights under a
liability policy violate public policy because it defeats the
settled expectation of the injured party that insurance will
respond to the claim. This principle can be traced back to
fire insurance cases of the nineteenth century and forward to
third-party cases in the modern era.
recognition of restrictions on the right of an insured to
cancel coverage after a loss has its origins in the
recognition that in the first-party setting, multiple parties
may have interests in the same insurance proceeds. See
Home Ins. Co. v. Baltimore Warehouse Co., 93 U.S. 527
(1876) (fire insurance obtained by a warehouse owner
protected both the interest of the named insured and the
interest of the owners of the goods). Although the owner of
the goods was not a named insured or otherwise a party to the
insurance contract, courts devised legal theories to protect
the owner from a cancellation after the loss.
held that when warehouse operators insured goods stored on
their premises, they were agents or trustees acting on behalf
of the owners of those goods. As principals in this
relationship, the owners of goods had the right to ratify or
adopt insurance contracts after a loss. Edwards
v. Cleveland Mill & Power Co.,193 N.C. 780, 138
S.E. 131 (1927). From these cases, it was a short step to
recognizing that ...