Co-operative Ins. Cos. v. Woodward, No. 168-8-10 Oecv (Eaton, J., Apr. 11, 2011)

[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
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                                                  STATE OF VERMONT

SUPERIOR COURT                                                                             CIVIL DIVISION
Orange County                                                                              Docket No. 168-8-10 Oecv

Co-operative Insurance Companies
      Plaintiff

v.

Denise Woodward
James Bennett, Individually
and as Administrator of the Estate of Brooke Bennett
       Defendant


                             Decision on Cross-Motions for Summary Judgment

        At issue in this case is whether plaintiff Co-operative Insurance Companies must
defend and indemnify a homeowner who allegedly negligently failed to prevent her
spouse from intentionally kidnapping, sexually assaulting, and murdering their twelve-
year-old niece. Because the plain language of the insurance policy (1) does not cover
bodily injury that arises out of the sexual molestation of a person, (2) does not cover
intentional criminal acts that are not “occurrences,” and (3) unambiguously excludes
coverage for any acts that are expected or intended by “an insured,” Allstate Ins. Co. v.
Vose, 2004 VT 121, ¶¶ 21–23, 177 Vt. 412; Northern Security Ins. Co. v. Perron, 172 Vt.
204, 220–22 (2001), plaintiff-insurer is entitled to a declaration that it owes no duties of
defense or indemnification in the underlying lawsuit.

        As a threshold matter, this is a declaratory-judgment action brought by the insurer
against the insured and the tort-plaintiffs in the underlying lawsuit. See Cooperative Fire
Ins. Ass’n v. Bizon, 166 Vt. 326, 330–32 (1997) (explaining that insurers may join tort-
plaintiffs as parties in declaratory-judgment actions in order to resolve the question of
insurance coverage as expeditiously as possible; this procedure is desirable because
“from a pragmatic viewpoint . . . the most real dispute is between the injured third party
and the insurance company, not between the injured and an oftentimes impecunious
insured”) (quotation omitted). Here, the insured, Denise Woodward, has not argued that
there should be insurance coverage. Instead, it is the underlying tort-plaintiffs, James
Bennett and the Estate of Brooke Bennett,1 who contend that there ought to be coverage.



           1
           It is not necessary to address here whether Mr. Bennett’s individual claims are sustainable given
the terms of the Vermont’s wrongful-death statute and the absence of any common-law claim for wrongful
death, because the answer to that question has no bearing on the determination of the coverage issues
before the court. For ease of reference, the court will simply refer to both Mr. Bennett and the Estate of
Brooke Bennett as the “defendants” for purposes of this opinion.
        Although the parties have offered different statements of material facts in support
of their cross-motions for summary judgment, the questions of whether an insurer owes
duties of defense or indemnification are normally resolved by comparing the allegations
of the underlying tort complaint to the terms of coverage in the homeowner’s policy.
Concord Gen. Mut. Ins. Co. v. Madore, 2005 VT 70, ¶¶ 7–9, 178 Vt. 281. For that
reason, the following statement of undisputed facts is taken from the underlying
complaint.

        On June 25, 2008, Michael Jacques allegedly kidnapped his twelve-year-old
niece, Brooke Bennett, and brought her to his home in Randolph, Vermont. He allegedly
did this “with the intention to commit violent and devious harm, personal injury, and
criminal acts to said minor child.” He then “drugged, sexually assaulted, and murdered
her.”

        At the time, Michael Jacques was married to Denise Woodward; they lived
together in the Randolph home. Denise Woodward was not involved in the kidnapping
or the subsequent events, but according to the complaint, she knew or should have known
that her husband had a history of predatory behavior towards minor children and women,
and further knew or should have known that her husband posed a direct threat to their
twelve-year-old niece. Based on this knowledge, it is alleged that Denise Woodward
negligently failed to (1) supervise minor children while they were in the home, (2) warn
the Bennett family of the dangers posed by her husband, and (3) prevent the harm from
occurring. No claims against Michael Jacques are stated in the underlying complaint.

       Michael Jacques and Denise Woodward were the named insureds on a policy of
homeowners’ insurance issued by Co-operative Insurance Companies with a policy
period of August 2007 to August 2008. The policy contains the following liability
coverage provision:

               Coverage L—Personal Liability. “We” pay, up to “our”
               “limit”, all sums for which an “insured” is liable by law
               because of “bodily injury” or “property damage” caused by
               an “occurrence” to which this coverage applies. “We” will
               defend a suit seeking damages if the suit resulted from
               “bodily injury” or “property damage” not excluded under
               this coverage.

       The term “bodily injury” is defined as follows in the Vermont endorsement:

               “Bodily injury” means bodily harm to a person and
               includes sickness, disease, or death. This also includes
               required care and loss of services.

               “Bodily injury” does not mean bodily harm, sickness,
               disease, or death that arises out of: . . . (c) sexual
               molestation of any person.



                                             2
       The term “occurrence” is then defined as follows:

               “Occurrence” means an accident, including repeated
               exposures to similar conditions, that results in “bodily
               injury” or “property damage” during the policy period.

        Aside from these coverage provisions and definitions, there is an “intentional-
acts” exclusion that applies to personal liability coverage:

               1. Exclusions that Apply to Coverages L and M—This
               policy does not apply to: . . .

                       i. “bodily injury” or “property damage”:

                                       (1) which is expected by, directed
                               by, or intended by an “insured”;

                                       (2) that is the result of a criminal act
                               of an “insured”; or

                                      (3) that is the result of an intentional
                               or malicious act by or at the direction of an
                               “insured”.

        Finally, returning to the definitions section at the beginning of the policy, there is
the following definition of the term “insured”:

               7. “Insured” means:

                       a. “you”;

                       b. “your” relatives if residents of “your” household;

                       c. persons under the age of 21 residing in “your”
                       household and in “your” care or in the care of
                       “your” resident relatives; . . . .

                       Under Coverages L and M, “insured” also includes
                       [persons using watercraft, or performing domestic
                       duties relating to the premises, or persons acting as
                       real estate managers].

                       Each of the above is a separate “insured”, but this
                       does not increase “our” limit.




                                              3
        It is plain from these definitions that the alleged kidnapping, sexual assault, and
murder is not covered by the homeowners’ insurance policy for at least three reasons: (1)
it was not an “occurrence” or an “accident” but rather an intentional act committed by an
insured; (2) it was not “bodily injury” because the harm arose, in part, out of the “sexual
molestation of a person”; and (3) the harm was excluded from coverage because it was
the result of an intentional criminal act of “an insured.” No plausible interpretation of the
policy could possibly cover this alleged act. See TBH v. Meyer, 168 Vt. 149, 154 (1988)
(explaining that “[t]he average person purchasing homeowner’s insurance would cringe
at the very suggestion that the person was paying for ‘criminal sexual abuse of children’
coverage [or ‘murder’ coverage]; and certainly the person would not want to share that
type of risk with other homeowner’s policyholders”).

         The question presented in this case is whether the insurance policy nevertheless
provides coverage for a spouse who negligently failed to prevent the intentional harm
from occurring. At the heart of the case is whether the relevant act for determining
coverage is the intentional kidnapping, sexual assault, and murder, or rather the negligent
failure to prevent that event from occurring. An important related question is whether the
separate-insureds clause (also known as the severability clause) creates an ambiguity
when read together with the intentional acts exclusion, and whether the ambiguity must
be resolved in favor of coverage.

        As a starting point, the general rule is that insurance coverage is determined by
the nature of the underlying injury rather than by the theories of liability asserted in the
complaint. In other words, an allegation of negligence generally does not trigger
insurance coverage if the conduct giving rise to the injury was intentional. See Meyer,
168 Vt. at 153 (no coverage for negligent infliction of emotional distress where the
insured intentionally exploited children); see also Bizon, 166 Vt. at 335–36 (no coverage
for negligence where insured intentionally shot home intruder).

        Another general rule is that in cases where the plaintiff alleges more than one
cause of an injury, the court must focus on “the causes of the injury and their relationship
to one another rather than the theory of recovery forwarded by a plaintiff.” Mailhiot v.
Nationwide Mut. Fire Ins. Co., 169 Vt. 498, 503 (1999). In insurance-coverage disputes,
therefore, “the concern is ordinarily not with the question of ‘culpability’ or why the
injury occurred, but only with the nature of the injury and how it physically happened,
which must then be compared with the language of the insurance policy to determine
whether this type of injury from this type of physical cause was intended to be covered by
the policy.” American Commerce Ins. Co. v. Porto, 811 A.2d 1185, 1195–96 (R.I. 2002)
(quoting 7 Couch on Insurance 3d § 101:41 at 101-131-32); accord Mailhiot, 169 Vt. at
502–03.

        In this case, the bodily harm was inflicted by the kidnapping, sexual assault, and
murder. Any alleged antecedent negligence on the part of another insured is inseparable
from that intentional act; there would have been no negligence in the absence of that
event. See Mailhiot, 169 Vt. at 502 (negligence does not exist in the abstract). For this
reason, the court does not agree with defendants’ assertion that the theory of negligence



                                              4
advanced in the underlying complaint is a separate concurrent cause of the harm in this
case. It is rather a theory of culpability that attempts to explain why the harm occurred.
Mailhiot, 169 Vt. at 502; Northern Security Ins. Co. v. Perron, 172 Vt. 204, 221 n.15
(2001).

       It follows from these general principles that the relevant act for purposes of
determining whether the bodily harm arose out of the “sexual molestation of a person”
was the intentional sexual assault rather than any antecedent negligence on the part of
Denise Woodward. See Porto, 811 A.2d at 1195–96 (no coverage for boy scout troop
leader who negligently failed to prevent another troop leader from sexually abusing
children). The focal point of the inquiry in these cases is whether the bodily harm arose
from sexual molestation, and not whether the bodily harm could have been prevented by
another insured. See Metropolitan Property and Cas. Ins. Co. v. Miller, 589 N.W.2d
297, 300 (Minn. 1999) (no coverage for wife who allegedly negligently failed to prevent
husband from sexually assaulting minor child); Allstate Ins. Co. v. Bates, 185 F.Supp.2d
607, 612–13 (E.D.N.C. 2000) (same).

        Similarly, the relevant act for purposes of determining whether there was an
“occurrence” in this case was the intentional crime rather than any antecedent negligence.
An “occurrence” takes place at the time the party is actually damaged, rather than at some
other moment when an allegedly wrongful act sets in motion the chain of events that
eventually leads to the injury. See Farmers Alliance Mut. Ins. Co. v. Salazar, 77 F.3d
1291, 1295–97 (10th Cir. 1996) (no coverage for claim of negligent supervision against
parents because the intentional murder committed by their son was not an “occurrence”
within the meaning of the policy). Because the kidnapping, sexual assault and murder
were not accidents, there is no coverage for the allegation that the perpetrator’s spouse
negligently failed to prevent the harm. Both of the foregoing conclusions are
independent grounds supporting the determination of “no coverage.”

        For purposes of the “intentional acts” exclusion, the court must look to the
language of the insurance policy to determine whether the relevant act was the intentional
crime or the antecedent negligence. The rule here is that the intentional-acts exclusion
applies separately to each insured (without respect to the actions of another insured) if the
policy language excludes coverage for acts expected or intended by “the insured,”
Northern Security Ins. Co. v. Perron, 172 Vt. 204, 220–22 (2001), but that the exclusion
applies collectively if the policy language excludes coverage for acts expected or
intended by “an insured.” Allstate Ins. Co. v. Vose, 2004 VT 121, ¶¶ 21–23, 177 Vt. 412.
In other words, if the policy excludes coverage for acts intended by “the insured,” then
the relevant act for purposes of applying the exclusion is the act of the separate insured
named in the complaint (e.g., in Perron, the alleged negligent act). But if the policy
excludes coverage for the intentional acts of “an insured” or “any insured,” then the
policy “excludes all insureds from coverage for damages caused by the intentional or
criminal acts of an insured,” whether named in the complaint or not. Villa v. Short, 947
A.2d 1217, 1223–24 (N.J. 2008); accord Vose, 2004 VT 121, ¶ 22.




                                             5
        Two Vermont cases illustrate this point. In Perron, two parents were alleged to
have negligently failed to prevent their minor child from sexually abusing other minor
children who visited the home, and one of the issues in the case was whether the policy
provided coverage for the parents’ alleged antecedent negligence. 172 Vt. at 206–07,
218–22. The relevant insurance policy excluded bodily injury that was expected or
intended by “the insured,” and so the Perron court held that the exclusion applied “only
to claims brought against the particular insured named in the claim,” and thus, “any
exclusion of [the intentional actor] from coverage would not affect coverage for the
claims against the other insureds.” Id. at 220–22.

        Conversely, in Vose, the question was whether insurance coverage existed for a
husband who allegedly negligently failed to prevent his wife from abusing their foster
child; the insurance policy in that case excluded coverage for the intentional or criminal
acts of “any insured.” 2004 VT 121, ¶ 21, 177 Vt. 412. As in this case, the tort-plaintiffs
there argued that the negligence claim against husband should be analyzed separately
from the intentional acts of his wife because the negligence complaint alleged that the
injuries arose “from the unintended or unexpected consequences of [his] conduct.” Id.,
¶ 21. The Supreme Court disagreed:

                       These arguments are without merit. There is no
               coverage for the negligence claim raised against Jeffrey
               Vose because Allstate’s policy excludes coverage for
               bodily injuries that are intended by “any insured.” “When
               the exclusionary language refers to intentional acts of ‘an
               insured,’ courts have uniformly concluded that the
               exclusion applies to all claims which arise from the
               intentional acts of any one insured, even though the claims
               are stated against another insured.” [Quoting Perron, 172
               Vt. at 220.] There is no meaningful difference between the
               terms “an insured” or “any insured.” In this case, Allstate
               “intended that the wrongful act of any insured would void
               the policy,” and it unambiguously drafted and included
               language to this effect in its contract with the insureds. . . .

                       The negligence claim against Jeffrey Vose arises
               from, and is dependent on, the intentional acts of Janet
               Vose. Without her intentional acts of abuse against S.C.,
               there could be no claim against Jeffrey Vose. Thus, the
               relevant act for determining coverage is Janet Vose’s
               intentional abuse of S.C., not Jeffrey Vose’s alleged
               negligent failure to protect S.C. from this abuse. [Citing
               Perron, 172 Vt. at 221.] Because there is no coverage for
               Janet Vose’s intentional acts, there is no coverage for the
               derivative negligence claim raised against Jeffrey Vose.
               See id. Summary judgment was therefore properly granted
               for Allstate.



                                              6
2004 VT 121, ¶¶ 22–23, 177 Vt. 412.2 This language controls the outcome of the present
case: the intentional-acts exclusion here provides that there is no coverage for bodily
injury that is “expected by, directed by, or intended by an ‘insured.’” For the reasons
expressed in Vose, therefore, the relevant act for determining coverage in this case is the
intentional kidnapping, sexual assault, and murder perpetrated by Michael Jacques. And
because there is no coverage for his acts, “there is no coverage for the derivative
negligence claim against” Denise Woodward. Vose, 2004 VT 21, ¶ 23; accord
EMCASCO Ins. Co. v. Diedrich, 394 F.3d 1091, 1095–96 (8th Cir. 2005) (no coverage
for claim that parents negligently failed to prevent son from sexually molesting other
children).

        The supposed wrinkle here is the “separate insureds” or severability clause.
Defendants argue that the severability clause—which explains that “[e]ach of the above is
a separate ‘insured’”—creates an expectation that the intentional-acts exclusion will
apply separately to each insured, and that this expectation creates an ambiguity (which
must be resolved in favor of coverage) when compared to the actual language of the
intentional acts exclusion. In support of this argument, defendants cite to a number of
cases, most prominently the recent decision of the California Supreme Court in Minkler
v. Safeco Ins. Co. of America, 232 P.3d 612 (Cal. 2010).

         Minkler involved an allegation that a homeowner had negligently failed to prevent
her son from sexually assaulting a minor child, and the terms of her insurance policy
excluded coverage for injuries that were expected or intended by “an insured.” 232 P.3d
at 614. And although the California Supreme Court acknowledged that application of the
normal rule here would result in a finding of no coverage—as in Vose—the Court found
it significant that the policy contained a severability clause explaining that “this insurance
applies separately to each insured.” Id. at 614–15. In the view of the California Supreme
Court, this clause conflicted with the indefinite intentional-acts exclusion and thus
created an ambiguity that needed to be resolved in favor of coverage. See id. (explaining
that “a lay insured would reasonably anticipate that, under a policy containing such a
clause, each insured’s coverage would be analyzed separately, so that the intentional act
of one insured would not, in and of itself, bar liability coverage of another insured for the
latter’s independent act that did not come within the terms of the exclusion”). In the final
analysis, therefore, the severability clause created an expectation on the part of the
insured that the policy would cover her so long as her own conduct did not fall within the
intentional-acts exclusion. Id. at 624; see also id. at 622 (collecting cases in support of
this conclusion).

       Defendants seek application of Minkler here. This court does not find Minkler
persuasive for three reasons.



         2
           It is curious that neither party cited Vose for its substantive outcome in their briefing. It is
furthermore curious that defendants cited Vose for a procedural point, thus indicating awareness of its
existence, but did not bring the case’s substantive holding to the attention of the tribunal.


                                                        7
        First, the California Supreme Court was careful to note that the homeowners’
insurance policy in Minkler did not contain a specific provision excluding claims for
bodily injury that arose out of the sexual molestation of a person, and that it was therefore
not deciding the question of how a policy containing that provision should be interpreted.
Id. at 620. This is important because “[p]roper insurance contract interpretation requires
that the policy provisions be read together and viewed as an integrated whole.” Waters v.
Concord Group Ins. Cos., 169 Vt. 534, 536 (1999) (mem.). In this case, therefore, the
separate-insureds clause may mean that the policy applies separately to each insured, but
it does not change the fact that “the policy that separately applies to [each insured]
contains an exclusion for bodily injury ‘arising out of sexual molestation.’” Ristine v.
Hartford Ins. Co., 97 P.3d 1206, 1209–10 (Or. Ct. App. 2004) (no coverage for spouse
who negligently failed to prevent her husband from committing sexual abuse). A
severability clause can make it clear that the insurance policy applies separately to each
insured, but it cannot create coverage where none exists. BP America, Inc. v. State Auto
Prop. & Cas. Ins. Co., 148 P.3d 832, 840–41 (Okla. 2005).

        Second, as Minkler itself recognizes, it is the minority rule. See 232 P.3d at 625
(“A greater number of cases, we recognize, have taken the opposite view, concluding that
a severability clause does not alter the collective application of an exclusion for
intentional, criminal, or fraudulent acts by ‘an’ or ‘any’ insured.”). And, in this court’s
view, the majority cases are frankly more persuasive. As the majority cases explain,
separate-insured clauses mean that each insured will be treated separately for purposes of
the intentional-acts exclusion, but “[t]he fact remains . . . that as applied even
independently to each insured, an ‘any insured’ exclusion unambiguously eliminates
coverage for each and every insured.” J.G. v. Wangard, 2008 WI 99, ¶ 42 n.10, 753
N.W.2d 475 (no coverage for spouse who negligently failed to prevent husband from
committing sexual abuse); see also Minkler, 232 P.3d at 625 (collecting majority cases).
In other words, as applied here: Denise Woodward is a separate insured, but her
insurance policy excludes coverage for bodily injury that is expected or intended by “an
insured.” This is not ambiguous—she and her husband are the two insureds on the
policy, and the intentional act of “an insured” is an intentional act committed by either
one of them. Again, the severability clause makes it clear that the policy applies
separately to each insured, but it cannot create coverage where none exists. See Secura
Supreme Ins. Co. v. M.S.M., 755 N.W.2d 320, 329 (Minn. Ct. App. 2008) (explaining that
“[t]he act of applying the policy separately to each insured does not alter or create
ambiguity in the substance or sweep of the exclusion”).

        Finally, there is the issue that the insurance policy in Perron had a severability
clause. See 172 Vt. at 219 (noting provision that insurance policy “applies separately to
each insured”). Although it is true that the Perron opinion did not focus on the impact of
the severability clause, the Perron court did go out of its way to explain that if the
intentional-acts exclusion in that case had referred to the intentional acts of “an insured,”
the policy would have applied “to all claims which arise from the intentional acts of any
one insured, even though the claims are stated against another insured.” Id. at 220.
There is no mention in Perron (or Vose) that the severability clause would have changed
the analysis at all.



                                              8
        For these reasons, the court is not persuaded that the severability clause here
creates any ambiguity. The insurance policy applies separately to each insured, but each
separate insurance policy contains a definition of the term “occurrence,” an explanation
that “bodily injury” does not include bodily harm arising out of the “sexual molestation
of a person,” and an exclusion for bodily injury that is expected or intended by “an
insured.” It is not reasonable for a policyholder to expect coverage given these
provisions and definitions. Plaintiff is entitled to a declaration that the denial of coverage
is proper, and that it has no duty to indemnify Denise Woodward in the underlying civil
action.

        Of course, the duty of an insurer to defend its insured is substantially broader than
the duty to indemnify, and generally, the insurer must defend the action if there is a
possibility of coverage. City of Burlington v. Nat’l Union Fire Ins. Co., 163 Vt. 124, 127
(1994). For the reasons expressed above, however, this court has determined that there is
no possibility of coverage in this case. It follows that the insurer is under no obligation to
defend. Id.; Garneau v. Curtis & Bedell, Inc., 158 Vt. 363, 368 (1992).


                                          ORDER

      (1) Plaintiff Co-operative Insurance Companies’ Motion for Summary Judgment
(MPR #1), filed Sep. 21, 2010, is granted;

       (2) Defendant James Bennett’s Motion for Summary Judgment (MPR #3), filed
Nov. 18, 2010, is denied;

       (3) A final judgment order shall issue separately.

       Dated at Chelsea, Vermont this ____ day of April, 2011.


                                               ____________________________
                                               Harold E. Eaton, Jr.
                                               Superior Court Judge




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