Burlington, City of, v. Arthur J. Gallagher & Co.

City of Burlington v. Arthur J. Gallagher & Co. (2000-482); 173 Vt. 484;
788 A.2d 18

[Filed 29-Oct-2001]


                                 ENTRY ORDER

                      SUPREME COURT DOCKET NO. 2000-482

                             OCTOBER TERM, 2001


City of Burlington, et al.	       }	APPEALED FROM:
                                       }
                                       }
     v.	                               }	Chittenden Superior Court
                                       }	
Arthur J. Gallagher & Co., et al.      }
                                       }	DOCKET NO. S191-98CnC

                                                Trial Judge: Helen M. Toor

             In the above-entitled cause, the Clerk will enter:

       The City of Burlington and those certain Underwriters at Lloyd's,
  London ("Underwriters")  appeal a superior court order granting defendants,
  Arthur J. Gallagher & Co. and its subsidiaries,  summary judgment against
  Underwriters and partial summary judgment against Burlington.  
  Underwriters sought indemnity, or alternatively presumptive damages, from
  Gallagher, an insurance  broker that procured a liability insurance policy
  for the City of Burlington, because Gallagher failed  to notify
  Underwriters of a claim made against the city.  Burlington sought punitive
  damages from  Gallagher, in addition to compensatory damages.  We find no
  error in the superior court's order and  therefore affirm.

       The essential facts are not disputed.  Gallagher brokered an Airport
  Owners' and Operators'  Liability policy from Underwriters for the
  Burlington International Airport starting in 1985.  The  policy provided
  coverage for, among other things, damages caused by wrongful eviction and
  legal  costs incurred to defend any third party claim.  Like most liability
  policies, the policy required  Burlington to promptly notify Underwriters
  of any claim made against the city under the policy.   Such notice was to
  be provided to Gallagher rather than to Underwriters directly, according to
  the  policy's terms.

       On July 13, 1989, Burlington notified Gallagher of a suit that one of
  the city's airport tenants  had filed against it.  The tenant, Business
  Air, Inc., claimed damages resulting from a 1987 eviction  after the roof
  trusses failed in the hangar it leased. Burlington and Business Air
  eventually settled the  suit for $795,000 in 1993.  Following the
  settlement, Gallagher finally notified Underwriters of the  claim against
  Burlington.

       After Underwriters became aware of the Business Air action, it
  negotiated a one million dollar  settlement with Burlington for any claims
  arising from the Underwriter's failure to defend the city 

 

  and provide coverage for Business Air's claim against Burlington. 
  Underwriters, along with  Burlington, then sued Gallagher for not promptly
  notifying Underwriters of the Business Air matter.   The insurer's
  complaint alleged that Gallagher breached its duty as Underwriters' agent
  and fiduciary  to timely notify Underwriters of the claim against
  Burlington.   Underwriters asserted that  Gallagher's untimely notice
  harmed the company because it was unable to investigate and evaluate 
  Business Air's claim and monitor and control the defense.  To remedy that
  harm, Underwriters asked  for "implied indemnification and/or presumptive
  damages . . . in the full amount paid by  Underwriters to Burlington in the
  settlement."

       The case proceeded through discovery, which was the subject of some
  dispute.  Gallagher  sought documents that would show the extent of
  Underwriters' actual damages from the delayed  notification.  Underwriters
  refused to supply the requested documents and agreed to limit its  damages
  theories to presumed damages and/or implied indemnity and actual damages in
  the form of  transaction and accounting expenses caused by Gallagher's late
  claim notice.  The court then issued a  discovery order memorializing the
  limit on damages which could be claimed and denying the request  for
  documents.  Underwriters subsequently abandoned the accounting and
  transaction expense theory  of damages, leaving presumed damages and
  implied indemnity as the remaining theories.

       In January and March 2000, Gallagher and Underwriters respectively
  moved for summary  judgment.  Underwriters argued that it should be
  relieved of its obligations under the insurance  contract due to
  Gallagher's late claim notice for the same reasons an insurer is relieved
  of its  obligations when the insured provides untimely notice. 
  Underwriters' theory would hold Gallagher  ultimately responsible for
  fulfilling the insurance contract's coverage commitments just as the 
  insured is so responsible in late claim notice cases.  Gallagher opposed
  Underwriters' motion.  It  sought summary judgment against Underwriters on
  all counts and against Burlington on the issue of  punitive damages.  The
  court granted judgment for Gallagher, concluding that there was no legal 
  basis or precedent to support Underwriters' claims, and there was
  insufficient evidence to establish  malice to warrant presenting the
  punitive damages claim to a jury.  On reconsideration, the court  again
  found no basis for Underwriters' claims that implied indemnity and presumed
  damages are  available to the insurer from the broker's untimely claim
  notice.  The court entered final judgment for  Gallagher on all of
  Underwriters' claims, and summary judgment for Gallagher on Burlington's
  claim  for punitive damages only.  This appeal followed.

       Assuming Underwriters has a valid liability claim for Gallagher's
  breach of its professional  duty to provide timely notice of claims to
  Underwriters, Underwriters chose not to pursue its actual  damages as a
  result of Gallagher's apparent breach.  That choice is fatal to
  Underwriters' claims here.  A plaintiff in a professional negligence case
  such as this must prove "by a preponderance of the  evidence, the extent
  and nature of their damages."  Callan v. Hackett, 170 Vt. 609, 609, 749 A.2d 626, 628 (2000) (mem.).  Nevertheless, Underwriters asserts here that
  the trial court erroneously  granted Gallagher summary judgment because the
  insurer is entitled to recover its coverage  settlement with Burlington
  under three other theories: (1) implied indemnification, (2) 
  indemnification under Carr v. Peerless Ins. Co., 168 Vt. 465, 724 A.2d 454 
  (1998), and (3) 

  

  "presumed" or "general" damages. (FN1)  We review each theory in turn using
  the same summary  judgment standard applicable in the trial courts.  White
  v.Quechee Lakes Landowners' Ass'n, 170 Vt.  25, 28, 742 A.2d 734, 736 
  (1999).  The moving party must show no genuine issue of material fact 
  exists and the party is entitled to judgment as a matter of law.  V.R.C.P.
  56(c).  Gallagher has  satisfied that standard here because Underwriters'
  damages theories have no legal basis under the  circumstances of this case.

       Underwriters seeks recovery of its settlement with the City of
  Burlington under what it calls  "conventional" indemnity.  Indemnity is
  available where (1) an express agreement or undertaking by  one party to
  indemnify the other exists or (2) circumstances require the law to imply
  such an  undertaking.   Bardwell Motor Inn, Inc. v. Accavallo, 135 Vt. 571,
  572, 381 A.2d 1061, 1062 (1977).  Underwriters does not claim that it had
  an express indemnity agreement with Gallagher.  Instead, the  company
  argues that it is entitled to implied indemnity.  Implied "indemnity is a
  right accruing to a  party who, without active fault, has been compelled by
  some legal obligation, such as a finding of  vicarious liability, to pay
  damages occasioned by the negligence of another."  Morris v. American 
  Motors Corp., 142 Vt. 566, 576, 459 A.2d 968, 974 (1982).  In such cases,
  indemnity is implied for  equitable reasons where it is fair to shift the
  loss resulting from negligence from one party to the  more responsible
  party.  Knisely v. Central Vt.  Hosp., ___ Vt. ___, ___, 769 A.2d 5, 8
  (2000).   Here, Underwriters' obligation to Burlington arose out of the
  insurance policy it issued to the city and  not as a result of Gallagher's
  untimely notice of the Business Air suit.  Consequently, equity does not 
  require shifting the loss from Underwriters, the party with insurance
  coverage obligations, to  Gallagher.  Summary judgment for Gallagher on
  this theory was appropriate.

       Underwriters' second damages theory relies on our decision in Carr v.
  Peerless Ins. Co., 168  Vt. 465, 724 A.2d 454, although that reliance is
  wholly misplaced.  Carr involved an insurance  premium finance company's
  failure to follow statutory notice provisions when it cancelled the 
  insured's policy for nonpayment.  We found no basis to require the insurer
  to pay under the cancelled  policy, but determined that the insured had a
  claim against the finance company under both the  relevant statute and the
  contract between the insured and the premium finance company.  See id. at 
  473-74, 724 A.2d  at 459-60.  The insured's remedy, we held, was to provide
  the policy benefits to the  insured as if the cancellation had not taken
  place.  Id. at 477, 724 A.2d  at 461.  We reasoned that that  remedy was
  "necessary to implement the statutory prohibition on the premium finance
  company  using the power of attorney to cancel the policy, except pursuant
  to the" required statutory  procedures.  Id., 724 A.2d  at 461-62. 

 

       Underwriters has not pointed to any analogous statutory provision to
  justify the Carr result in  this case.  Instead, the company argues that we
  should apply the same result here to avoid the  inherently speculative
  proof concerning what would have happened if Gallagher had provided timely 
  notice of the claim against Burlington, and to reallocate liability onto
  the actual wrongdoer,  Gallagher, rather than Underwriters, the innocent
  party.  Relying on Carr, Underwriters wants  damages from Gallagher's late
  notice without having to demonstrate precisely what those damages  are. 
  Carr provides no support for this theory and we can find no other precedent
  that does.   Accordingly, the superior court correctly concluded that
  Gallagher was entitled to judgment as a  matter of law on this issue.

       Underwriters also argues that in the absence of known or liquidated
  damages, relief is  available to it under the doctrine of "presumed" or
  "general" damages.  The heart of this argument is  the same as
  Underwriters' other arguments - the company wants Gallagher to pay damages
  but does  not want to prove what those damages are.  Unfortunately for
  Underwriters, the principle of  "presumed" or "general" damages has no
  application in this case.

       "General" or "presumed" damages are those "so frequently resulting
  that their existence is  normally to be anticipated and that do not need to
  be alleged to be proved."  2 S. Speiser et al., The  American Law of Torts
  § 8.6, at 459 (1985).  For example, under Vermont common law, actual harm 
  to one's reputation is presumed "from the mere publication of a defamatory
  falsehood" and thus  general or presumed damages may be awarded without
  special pleading or proof.  Ryan v. Herald  Ass'n, Inc., 152 Vt. 275, 281,
  566 A.2d 1316, 1320 (1989).  No such presumption of harm can be  made in
  professional negligence cases, however.  As we noted previously, damages
  for negligent acts  continue to require proof of actual harm.  See Callan,
  170 Vt. at 609, 749 A.2d  at 628.  The trial  court did not err by remaining
  faithful to that standard. 

       We now turn to the City of Burlington's only claim on appeal.  The
  city seeks reinstatement of  its claim for punitive damages against
  Gallagher.  Burlington claims the evidence was sufficient to  allow the
  jury to decide the question.  We disagree.  Punitive damages are designed
  to deter the  wrongdoer from repeating the same or similar acts, and to
  punish intentional, deliberate, and  malicious conduct.  Brueckner v.
  Norwich University, 169 Vt. 118, 129, 730 A.2d 1086, 1095  (1999).  Simply
  engaging in wrongful conduct is insufficient to establish the element of
  malice  necessary to successfully recover punitive damages.  Id. 
  Burlington failed to present enough  evidence that Gallagher acted
  maliciously to overcome Gallagher's motion for summary judgment.

       Burlington points to Gallagher's repeated failure to fulfill its
  obligations to notify it and  Underwriters of the Business Air claim as
  evidence of Gallagher's bad intent.  It also cites an  affidavit of an
  expert witness who opined that Gallagher's poor practices were self-serving
  and  enhanced Gallagher's ability to secure additional business.  Although
  Gallagher may have acted  incompetently and with disregard to Burlington's
  rights under the insurance policy Gallagher  brokered, its actions fail to
  evidence the level of maliciousness required to present a punitive  damages
  claim to a jury.  The trial court, therefore, correctly dismissed the
  city's punitive damages  claim.

 


       Affirmed.


                                       BY THE COURT:



                                       _______________________________________
                                       Jeffrey L. Amestoy, Chief Justice

                                       _______________________________________
                                       John A. Dooley, Associate Justice

                                       _______________________________________
                                       James L. Morse, Associate Justice

                                       _______________________________________
                                       Denise R. Johnson, Associate Justice

                                       _______________________________________
                                       Marilyn S. Skoglund, Associate Justice


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                                  Footnotes


FN1.  Underwriters also asserts on appeal that the court should have let it
  litigate a claim for  actual damages before a jury.  The last claim has no
  merit because the insurer abandoned its actual  damages theory below to
  protect it from responding to Gallagher's discovery requests.  Accordingly, 
  the claim was not preserved and we do not address it.  See In re Miller,
  170 Vt. 64, 69, 742 A.2d 1219, 1223 (1999).