Monday, January 3, 2011

Battle Hymn of the Old Republic (Insurance Company)


Hathaway v. Tucker, 2010 VT 114

Paul Tucker worked for Casella Waste Management as a waste hauler.  Mr. Tucker drove a tractor-trailer using his own Peterbilt Tractor and a Casella-owned trailer, in which he hauled bulk sewage waste.  After a June trip to Glen Falls, New York hauling waste, Mr. Tucker was returning to Vermont when he attempted to pass Robert Hathaway’s vehicle.  Mr. Hathaway turned his vehicle across the lane that Tucker was using to pass him, and Mr. Tucker’s rig collided with Mr. Hathaway’s vehicle.  Mr. Hathaway died as a result of the crash.  Thereafter, Mr. Hathaway’s widow sued Tucker and Casella. 

While these facts are tragic and likely to inspire strong feelings, they are only tangentially related to the present case that bears Mr. Hathaway and Mr. Tucker’s names.  The underlying wrongful death suit settled out in mediation.  The widow Hathaway long ago received her million dollar settlement and has left the stage.  This is the resulting insurance coverage fight that arose between Mr. Tucker’s insurance company (Peerless) and Casella’s (Old Republic).  The result is a very long and very boring decision.  Imagine if you will that when Star Wars began and the droids escaped that George Lucas took this as a cue to begin a four-hour documentary about the effect of asteroids on the erosion process of Tatooine.  (Reader take note: Blogger Catlin did not write this sentence and she does not, in fact, even know what the hell it is referring to, but she has opted to allow her editor, Mr. Richardson, to insert his own science fiction references where he feels it is appropriate.)  (Ed.'s Note: C'mon Betsy, it's Star Wars, it is not like I quoted high elvish.)  The effect is the same here.  We have hit pay dirt with the ever-thrilling legal trifecta: insurance coverage, duty to defend, and vicarious liability.  Anyone who is thrilling to read on after those words has either masochistic tendencies or a vested interest in the insurance business.  That is not to say the two are separate.  


But on to the meat, after the settlement with the widow Hathaway, Peerless filed a third-party declaratory judgment complaint against Old Republic, claiming that Old Republic had a duty to defend and indemnify Mr. Tucker.  Peerless’s claim was based on the argument that Mr. Tucker was an employee of Casella.  In return, Old Republic filed a fourth-party complaint against Casella, arguing that Peerless must defend and indemnify Casella.  Peerless’s response was to file a counterclaim for a declaratory judgment that Mr. Tucker should get primary insurance coverage from both Peerless and Old Republic, in which case Peerless would owe only its proportionate share of the settlement amount.  Peerless’s proportionate share would be the insurance coverage limit under the Peerless policy ($500,000) as a fraction of the total coverage limit of both the Peerless and Old Republic policies combined ($3,500,000), which would be one-seventh of the total settlement amount of approximately $1 million. 

The trial court basically agreed with Peerless on three critical issues.  

First, the court found that Mr. Tucker was actually an employee of Casella based on the “right to control” test that has been adopted by the SCOV as the test to determine whether a worker is an employee or an independent contractor (more on this scintillating test later).  

Second, the court agreed that Mr. Tucker had primary insurance coverage under both the Peerless and the Old Republic policies, with the result that Old Republic, whose coverage limit was $3 million, would pay the larger share of the settlement amount.  

And third, the court agreed that, although the Peerless policy did not contain the minimum $750,000 coverage limit required by federal law for those engaged in interstate trucking, it was not appropriate to reform the Peerless policy for the purposes of this lawsuit between the two insurance companies. 

Old Republic and Casella appealed on each of these issues.

Regarding the “employee” issue, the SCOV noted that the question is a mixed one of fact and law.  Both Old Republic and Casella argued that the SCOV should apply different tests for determining whether Mr. Tucker was an employee.  

Casella suggested that when the case is about insurance coverage, as in this case, the SCOV should use the intent of the parties because that is the best test of what risks the insurers intended to take on and contemplated in their policies. Accordingly, that test would best serve the public policy of holding insurance companies responsible primarily to their policy holders.  The evidence in this case was undisputed that both Casella and Mr. Tucker believed they were not in an employer–employee relationship, and that they considered Mr. Tucker to be an independent contractor.  The SCOV did not see any reason to adopt Casella’s intent test because, for one thing, the SCOV does not love change, and there is already Vermont case law in which the “right to control” test has been applied in the insurance context.  Further, the SCOV believes that no matter what two parties want to call their working relationship, if an employee looks like an employee, acts like an employee, and smells like an employee, then chances are the employee is still an employee, and the SCOV is the one who knows what that means, legally speaking.

Old Republic wanted the SCOV to use a test from the Restatement (Second) of Agency, which lists a whole slew of factors.  The SCOV thought the Restatement list could be useful, especially where the “right to control” test did not yield a clear answer, and indeed the SCOV recalled using this test itself in one such situation.  But that type of situation did not obtain here, and the SCOV also pointed out that many of the Restatement factors were the same types of factors that are considered under the “right to control” test.

Instead, the SCOV noted that the trial court had held an evidentiary hearing in order to make the necessary findings, and the trial court used the test that the SCOV has primarily used to make the employee/independent contractor decision, namely, the “right to control” test.  Under this test, the key question is whether the party for whom the work is done has the power to “prescribe not only what the result shall be, but also may direct the means and methods by which the other shall do the work.”  The trial court’s findings demonstrated that Casella controlled the “details, manner, and means of Mr. Tucker’s work” because it directed the timing of pickup and delivery of the solid waste, it paid Mr. Tucker by the hour because Mr. Tucker’s assignments were less predictable and required a great deal of flexibility, it could tell Mr. Tucker which route to take, and it expected that Mr. Tucker would be immediately available for any work Casella needed Mr. Tucker to do.  The SCOV acknowledged that there was evidence that weighed both for and against the trial court’s conclusion, but the SCOV had no reason to conclude that the trial court’s findings were clearly erroneous.  Based on the appropriate standard of review, then, the SCOV ruled that the trial court’s conclusion would stand.
  
The SCOV also decided the issue of primary coverage in favor of Peerless—agreeing that Old Republic’s policy included Mr. Tucker as an insured.  The legal principles that operated in the SCOV’s resolution of this issue were: (1) insurance contracts are construed to give effect to the parties’ intent, which is done by looking at the plain language of the contract; (2) insurance policies and any endorsements are read together as one document, and the terms of the policy remain in effect, except to the extent that they are altered by the endorsements.  (I am no insurance lawyer, and I barely even look at my own auto, home, and health insurance policies—let alone understand them—but I gather from reading this opinion that an “endorsement” is some kind of additional form tacked on to an insurance policy.)  (Ed. Note: the Lady is correct!)  (I don’t know why it is called an “endorsement.”  Maybe some nice insurance defense lawyer could add a comment and enlighten me and the other poor saps out there who don’t practice insurance law.)

Old Republic argued that there was an inconsistency between the policy itself and the endorsements regarding who was a named insured under the Casella policy.  The SCOV essentially said that if there was an inconsistency, the endorsement is taken to be the ruling document, and here, the endorsements clearly included “employees” as insured parties.  Consequently, because the SCOV agreed with the trial court that Mr. Tucker was a Casella employee, it agreed that Casella’s insurance policy with Old Republic covered Mr. Tucker.  Additionally, the Old Republic policy defined the term “you” as referring to the named insured.  Thus, the SCOV was able to conclude that the Old Republic policy was primary coverage for Mr. Tucker because the policy included a provision stating that it was primary coverage for any trailer while the trailer is connected to any auto that “you” own.  Since “you” included Mr. Tucker, the policy was primary coverage.  Old Republic loses again.

As to the third appellate issue, the question of amounts, Old Republic argued that the Peerless policy for Mr. Tucker should have provided $750,000 in coverage because federal law requires interstate truckers to carry that amount of insurance.  Everyone—Peerless, Old Republic, the trial court, and the SCOV—agreed that the Peerless policy was out of line with federal law.  However, rather than reform the policy for the purpose of this lawsuit, the SCOV agreed with the trial court that such a reformation should not be undertaken simply to benefit another insurance company.  The SCOV said that the federal law was there to protect injured parties, and perhaps if it were the widow Hathaway, who was suing Peerless, then it would have been appropriate to reform the policy to the federally required minimum coverage.  But since the federal law was not there to protect other insurance companies, no such reformation would occur here.  Sorry Old Republic, but you are stuck covering six-sevenths of the settlement.  End of Story.

So there it is—a real thriller to close out 2010.  We can only hope for such excitement as the 2011 opinions start rolling out.  

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