Northern Security Insurance v. Mitec, No. S1167-99 Cncv (Katz, J., Apr.
13, 2004)



[The text of this Vermont trial court opinion is unofficial. It has been
reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is
not guaranteed.]



STATE OF VERMONT
Chittenden County, ss.:



NORTHERN SECURITY INSURANCE CO.

v.

MITEC ELECTRONICS, LTD.




                                  ENTRY

       This is a case concerning the breadth and width of a General Release
signed by a corporation. The plaintiffs seek to extend this Release over the
present Mitec defendants to remove their liability as insurers for harms
caused by pollution from defendants’ former industrial site. Defendants
argue that such an interpretation of the release is more than the document
was meant to handle and that it would violate public policy to allow one
company to discharge an insurer for all future harms suffered by other
corporations.

                                   Facts

        Mitec Systems Corporation was a Vermont corporation created in
1978 and dissolved in 1989. (Def. Mot. to Dismiss ex. C, Dec. 13, 1999).
Mitec Systems was one of a number of corporations that Meyer Bentob
created as part of his on-going manufacturing and hi-tech concerns. (Reply
to Def. Opp’n to Summ. J. ex. 8, Jan. 7, 2004). At all relevant times,
Bentob was the president (or its functional equivalent) and super-majority
stockholder in all Mitec corporations. Id. At some point in 1979 Mitec
Systems began occupying a leased space at the Alling Industrial Park in
Williston, Vermont. (Pl. Mem. in Opp’n to Mot. to Dismiss ex. E, at 7,
Dec. 9, 2002). At this site, Mitec Systems manufactured electronic and
microwave communication components. In 1984, the State of Vermont
investigated the site for pollution and the illegal dumping of hazardous
waste. This led to a suit against Mitec Systems in Chittenden Superior
Court. (Pl. Mot. for Summ. J. ex. 3, Oct. 15, 2003). Although Mitec
Systems was entered as a defendant, Mitec Electronics, Ltd. was also
named as a co-defendant and eventually provided a letter of credit to the
State as part of the 1986 settlement. (Pl. Mem. in Opp’n to Mot. to Dismiss
ex. E, at 8, Dec. 9, 2002). In 1985 and 1986, Mitec Systems and Mitec
Electronics were sued by third parties from around the Williston site for
environmental damages stemming from the pollution. (Pl. Mot. for Summ.
J. exs. 4, 5, Oct. 15, 2003). Throughout 1987, Mitec Systems and its
insurance carrier, Northern Security Insurance Company, Inc., settled with
these third parties and in exchange obtained general releases from them.
Mitec also provided additional money to the State of Vermont to assist with
cleaning the site. (Pl. Mot. for Summ. J. ex. 2, at 2, Oct. 15, 2003).

        Following the 1986 settlement with the State of Vermont, Mitec
Systems ceased business operations and sold off its assets to Mitec
Manufacturing, Ltd. (Pl. Mem. in Opp’n to Mot. to Dismiss ex. E, at 8,
Dec. 9, 2002). Both Mitec Electronics and Mitec Manufacturing are
Canadian companies that were founded and are owned by Bentob. (Reply
to Def. Opp’n to Summ. J. ex. 8, Jan. 7, 2004). There is evidence that when
Mitec Systems sold its assets, Mitec Manufacturing paid an inflated price of
20% above book value. (Pl. Mem. in Opp’n to Mot. to Dismiss ex. E, at 8,
Dec. 9, 2002). There is also evidence that during its existence, Mitec
Systems carried large debts to Mitec Electronics and Mitec Manufacturing
that were listed as loans or accounts payable. (Pl. Mem. in Opp’n to Mot.
to Dismiss ex. E, at 7, Dec. 9, 2002). These debts were almost always in
excess of Mitec Systems’ value. (Pl. Mem. in Opp’n to Mot. to Dismiss ex.
E, at 8, Dec. 9, 2002). As of 1987 Mitec Systems was involuntary
terminated by the Secretary of State for failing to file annual reports. (Def.
Mot. to Dismiss ex. C, Dec. 13, 1999). It was officially dissolved by the
Secretary on December 29, 1989. Id.

       On May 16, 1988, Mitec Systems sued Northern Security for
indemnification for the settlement of claims and for the additional money it
had paid the State for cleaning the site. (Pl. Mot. for Summ. J. ex. 2, at 2,
Oct. 15, 2003). This lead to a settlement agreement between Mitec
Systems and Northern Security on February 16, 1989. Mitec Systems
Corp. v. Northern Sec. Ins. Co., S515-88CnC (Jenkins, J., Feb. 16, 1989).
Northern Security paid Mitec $16,250 to resolve outstanding indemnity
claims and in exchange Mitec signed a general release discharging
Northern Security. The relevant language of this release states:
      Greeting: know ye, That Mitec Systems Corporation . . . have
      remised, released, and forever discharged, and by these
      presents does for its successors, affiliates and assigns, remise,
      release and forever discharge the said Northern Security
      Insurance Company, Inc. and its directors, officers, agents,
      employees, past and present, successors, affiliates, and
      assigns, of and from all, and all manner of action and actions,
      cause and causes of action, suits debts, dues, sums of money,
      accounts, reckoning, bonds, bills, specialties, covenants,
      contracts, controversies, agreements, promises, variances,
      trespasses, damages, judgments, extents executions, claims
      and demands whatsoever, in law or in equity, which against
      the said Northern Security Insurance Company, Inc. ever had,
      now has or which its successors, affiliates or assigns hereafter
      can, shall or may have for, upon or by reason of any matter,
      cause or thing whatsoever from the beginning of the world to
      the day of the date of these presents.

(Pl. Mot. for Summ. J. ex. 1, Oct. 15, 2003). Following this release and the
dissolution of Mitec Systems, Bentob consolidated his Mitecs further by
winding Mitec Manufacturing into Mitec Electronics in 1992 and forming
Mitec Telecom in 1996 as part of a consolidation between Mitec
Electronics and another Canadian company. (Def. Opp’n to Mot. for
Summ. J., at 5, Dec. 22, 2003).

        In 1997, Gerald and Nancy Bates brought suit against the remaining
Mitec corporations for environmental damages. (Pl. Mot. for Summ. J. ex.
6, Oct. 15, 2003). The Bates live near the Williston industrial site and had
begun to experience the effects of the pollution, which had flowed onto
their property through groundwater and seepage. Id. Mitec contacted
Northern Security thereafter and sought insurance coverage from this claim.
Northern Security, in turn, brought this current action to declare that the
1989 general release relieves them from any responsibility for actions
against the Mitec corporations for damages stemming from the pollution at
the Williston industrial site.

                            Summary Judgment

        The question for summary judgment is whether or not the general
release signed by Mitec Systems in 1989 should release Northern Security
from the present law suit. The question neatly divides into two sub-issues.
First there is a question of construction in whether the release should be
read to include all future and unknown claims. The second sub-issue is
whether the release signed by Mitec Systems should be binding on the
remaining Mitec defendants. Much of this is dependant on intent of the
parties and the term “affiliates.” Both of these questions are issues of
contract interpretation, which make them particularly appropriate for
summary judgment. See 66 Am. Jur. 2d Release § 28 (scope of release is a
question for the court); Morrisseau v. Fayette, 164 Vt. 358, 366 (1995)
(absent ambiguity, contract interpretation is a matter of law). While the
parties still dispute the exact relationships of the corporations involved, the
material elements are not in dispute. Bacon v. Lascelles, 165 Vt. 214, 218
(1996) (summary judgment appropriate where there is no genuine issue of
material fact and movant is entitled to judgment as a matter of law).

        A release between an insurer and insured is a contract and is
governed by the law of contract. Leo v. Hillman, 164 Vt. 94, 104 (1995).
The purpose of examining the release is to ascertain the intent of the parties
at the time of execution. 15 L.Russ & T.Segalla, Couch on Insurance 3d §
216:8, at 216-11 (1999). If the language is “clear and unequivocal,” we
will look only to the release and not to parol evidence. Maglin v.
Tschanneral, 174 Vt. 39, 45 (2002) (quoting Lamoille Grain Co. v. St.
Johnsbury & L.C. R.R., 135 Vt. 5, 8 (1976)). In the present case, Northern
Security argues that the phrase “ever had, now has or which its successors,
affiliates or assigns hereafter can, shall or may have,” connotes a release by
Mitec Systems of all claims past, present, future, and unknown. (Pl. Mot.
for Summ. J. ex. 1, Oct. 15, 2003). Mitec argues that this phrase is not
clear and that the release is really limited to past and present claims.

        As a general principle, releases must be specific to be valid and are
interpreted narrowly. Investment Props., Inc. v. Lyttle, 169 Vt. 487, 497
(1999). However, the scope of a release is not determined by “magic”
words. 66 Am. Jur. 2d Release § 8 (noting that no “magic”words are
necessary to create a release). A release may dismiss future or unknown
losses despite the fact that the parties were unaware of them or the claims
had not ripened. Russ & Segalla, § 216:36, at 216-51. In fact, the general
rule is that a general release precludes further action on a policy. Id. Only
if the parties limit the release to the past is there a clear presumption that
the release does not have an effect on future claims. Id. § 216:37, at 216-
52. The general release here, as Mitec points out, does not use the words
“future” or “unknown,” but it is also clear from the language chosen that
the intent is to make the release as broad and as general as possible. Instead
of “future” or “unknown” Northern Security has substituted the phrase
“may or shall have.” Coupled with the general intent of the document, this
phrase can have little other meaning. The document makes clear in later
paragraphs that the purpose of this release is to conclude Northern
Security’s coverage for environmental claims against Mitec. See (Pl. Mot.
for Summ. J. ex. 1, Oct. 15, 2003) (incorporating by reference, but not
limiting the scope to, the coverage dispute between the parties). As the
agreement incorporated this dispute into the release, it is fair to reference
this as a frame for the release. McGee Constr. Co. v. Neshobe Dev., 156
Vt. 550, 554 (1991). Mitec and Northern Security had already obtained
releases from all third parties that had come forward. They had also
resolved, for the time being, litigation with the State of Vermont through a
general release. And Mitec had ceased operations at the Williston
industrial site, ending any future sources of additional contamination. For
that moment, all Northern Security had liability for was either a claim by
the parties somehow not covered by their general releases or future claims.
By referencing the Mitec litigation for coverage stemming from its
environmental problems, we conclude that the parties intended the release
to cover both.

        Mitec’s final argument against future application centers on the last
phrase of the release discussing its scope which says, “from the beginning
of the world to the day of the date of these presents.” (Pl. Mot. for Summ.
J. ex. 1, Oct. 15, 2003). Mitec argues that this phrase limits the release to
past or present claims or at least creates enough ambiguity to turn
interpretation into an issue of fact. Taking this phrase out of context,
however, obscures its purpose. Directly before this phrase are the words,
“for, upon or by reason of any matter, cause or thing whatsoever.” Id. As a
whole, the phrase is a limitation not on claims, but to the more narrow
description of the subject matter of the claims. The phrase limits the
release to cover only Mitec’s actions past and present. Any future pollution
or use of the Williston site is outside the scope of the language. While this
is somewhat meaningless in light of Mitec’s suspension of activities, it is in
line with the guideline that a release may be invalid for being too broad or
vague. Russ & Segalla, § 216:8, at 216-12. Therefore, the phrase
concerning past and present applies to the sources of potential claims and is
rightly limited to past and present acts or omissions by Mitec. Language
concerning the range of claims arising from Mitec’s past or present actions
remains uninhibited by the phrase and continues to release Northern
Security from past, present, and future claims stemming from Mitec’s
actions prior to 1989 at the Williston industrial park. As the Bates claim
falls within this description, the general release is effective against Mitec’s
request for coverage.

        This brings us to the second issue of whether Mitec Systems’ release
is binding on the other Mitec defendants. Much of this argument revolves
around the parties’ understanding of the phrase “ successors, affiliates and
assigns.” As a preliminary matter, however, it is important to note that the
environmental damage for which the Bates seek to recover and for which
Northern Security would potentially indemnify comes from the actions of
Mitec Systems. Furthermore, while the Mitec companies appear to have
some evidence of intermingled funds, undercapitalization, and unified
control through Meyer Bentob, there has not been enough evidence, nor has
the argument been fully made by Northern Securities to pierce the Mitec
corporate veil and attach liability for the actions of one Mitec defendant on
all Mitec defendants. See generally Agway, Inc. v, Brooks, 173 Vt. 262
(2001); Walkovszky v. Carlton, 223 N.E.2d 6 (N.Y. 1966). We will
therefore not address the issue of whether Northern Security remains liable
to Mitec Telecom, Mitec Electronics, or Meyer Bentob through an
independently held policy or the scope of that policy. Instead, we will limit
our discussion to the effect of Mitec Systems’ release on the other Mitec
companies’ ability to make coverage claims through the Mitec Systems’
policy.

       When Mitec Systems released Northern Security, it also agreed to
release Northern Security from claims by its “successors, affiliates and
assigns.” Northern Security argues that the remaining Mitec defendants fit
into one of these three categories. Mitec argues that they do not. For the
sake of clarity, the Mitec defendants can be divided into two categories
those that were in existence at the time of the release and those that have
been created since. Mitec Telecom is of the latter. Since it was not in
existence at the time of the agreement and Northern Security’s coverage, it
could only claim coverage as a successor to one of the Mitec companies in
existence at the time of the release. If it were a successor to Mitec Systems,
which Mitec disputes, then it would be barred by the release. If it were a
successor to either Mitec Manufacturing or Mitec Electronics, the other two
then-existing Mitec companies, then its rights to coverage depend on their
rights. Specifically, if Mitec Manufacturing and Mitec Electronics were
affiliates of Mitec Systems, then no one can claim coverage under its
Northern Security policy.

        To this end, the Mitec defendants take two approaches. First, they
argue that “affiliate” has a precise and technical definition requiring a
certain percentage of ownership. Second, they argue that the various Mitec
Corporations were in no way connected and were independent of each
other. The relationship of the companies, however, paints a different
portrait. Aside from a unity of control and ownership vested in Meyer
Bentob, the Mitec defendants seem to have worked hand in glove as if part
of a larger company, supporting each other and fulfilling individual parts of
a larger manufacturing and distribution enterprise. While it is an
elementary rule of corporations that liability does not extend to other
corporations (short of specific contracts), or officers (short of breaches of
fiduciary duty) no matter how closely they work together, the facts
illustrate that the Mitec defendants were affiliated in the common meaning
of the word in that they were associated and worked with each other. The
question then shifts to whether this understanding of “affiliate” was the
same one intended by the parties executing the release or whether they
intended some more technical or narrow definition.

        The document itself offers no definition of “affliate,” but it does use
the word as part of a verbal triptych, “successors, affiliates and assigns.”
This rhetorical device is repeated throughout the document as it reaches for
every possible way to describe: who it is releasing; what it is releasing; and
even the verb, “to release.” Each instance of this verbal overkill
demonstrates an intent to cover all possible interpretations of the parties’
status and rights. Given the purpose of the release, to end Northern
Securities duty to indemnify any further claims from the pollution of the
Williston industrial site, there is no evidence to conclude that the parties
meant the term “affiliate” in anything other than its common and broadest
sense. Furthermore, there is enough evidence to support the conclusion that
Mitec Manufacturing and Mitec Electronics were “affiliates” of Mitec
Systems. Both were providing financial resources to Mitec Systems. Both
appeared on various documents with Mitec Systems, Mitec Electronics on
the lease and Mitec Manufacturing on at least one version of the insurance
policy. And all three were owned and controlled by Meyer Bentob.
Without further evidence illustrating an intent to assign “affilitate” some
more obscure meaning, there is no reason to give “affiliate” some narrower
interpretation that would exclude the companies here since that would be
inconsistent with ordinary and usual interpretations of the word in caselaw
and the general intent of the parties at formation. In re Hawkins Brothers,
Inc., 1992 WL 381040, *4 (Bankr. D.Vt.) (quoting Gramatan Nat’l Bank v.
Beecher, 122 Vt. 266, 370 (1961)). We conclude that the Mitec defendants
in existence in 1989 were affiliates of Mitec Systems for the purposes of
the release and are effectively precluded from raising any claims against
Northern Security based on the policy held and released by Mitec Systems.

       As a final point, Mitec argues public policy cannot allow a general
release of future and unknown claims that have not matured at the time of
formation. Chubb v. Amax Coal Co., 466 N.E.2d 369, 372–73 (Ill. App.
1984). Applying the reasoning of Chubb to the present case, however,
would be inapposite. In that case, Chubb, an employee of the Amax Coal
Company, suffered an on-the-job injury. Id. at 370. He was compensated
by his employer’s insurance company, signed a release with them, became
re-employed with Amax, and was re-enrolled in the insurance program. Id.
Soon thereafter, Chubb’s injuries worsened beyond their anticipated scope,
and he filed for benefits. Id. at 371.

       The Illinois court concluded that while the release did discharge the
insurance company from its original duty, Chubb’s re-employment and re-
enrollment required the court to suspend its application because doing so
would have made the ongoing, re-employment policy a nullity—a
statutorily prohibited situation of ongoing employment without required
workers’ compensation coverage. Id. at 373. In the present case, the
insurance relationship between Mitec Systems and Northern Security
terminated in 1989. Enforcing the release would not affect an ongoing
relationship or nullify a statutory requirement. Moreover, it is fully within
the power of a release to end an insurer’s liability to an insured for claims
arising out of past actions. 66 Am. Jur. 2d Release § 33.

       Beyond Chubb, there are several relevant factors to consider when
examining a general release for public policy purposes. 66 Am. Jur. 2d
Release §16, at 384–85 (outlining some of the factors to consider for public
policy before enforcing a release). In this case, both parties were
sophisticated business actors with substantial bargaining power and the
advice of counsel. They created a release for actual, realized consideration.
They signed a document that was part standardized form, but also part
typed, implying negotiations and a bargained-for result. As Northern
Security seeks to enforce the release, there is no issue involving the Bates’
separate right to litigate or recover for injuries. Enforcement is only sought
for a purpose readily apparent from the face of the document.

       The only factor that even tickles public policy is the broad amount of
time and scope covered by the release. This factor, however, is more than
compensated by the previously listed factors and is not in and of itself
violative of public policy. See Maska U.S., Inc. v. Kansa Gen. Ins. Co.,
198 F.3d 74, 80 (2d Cir. 1999) (citing to caselaw illustrating the limited
nature of public policy exceptions). While Mitec may now feel the release
is unfair to them, such a bargained-for result does not offend public policy.

       Northern Security has met its burden by showing some evidence that
the present Mitec Telecom is the successor to an affiliate. On the other
hand, Mitec has not shown facts which would tend to rebut that conclusion.
Therefore summary judgment is appropriate. Based on the foregoing and
consistent with the scope of our analysis, plaintiff’s motion for summary
judgment is granted. Northern Security is entitled to a declaratory
judgment that it is not liable to defend or indemnify the Mitec defendants or
Mr. Bentob.

       Dated at Burlington, Vermont________________, 2004.
________________________
Judge
