Insured’s Breach of Cooperation Clause Doomed Coverage, Vermont Supreme Court Declares

November 1, 2015 | Insurance Coverage

The Vermont Supreme Court, affirming a trial court’s decision, has ruled that an insured had breached his insurance policy’s cooperation clause and that, as a result, his insurance carrier had no obligation to defend or indemnify him in connection with an underlying personal injury claim.

The Case

Charles Chandler asserted that his then-girlfriend, now-wife, Faye Ainsworth, was injured when she fell on the stairs at his workplace in May 2009.

Chandler’s insurance carrier, Concord Group Insurance Company, first received notice of the incident in February 2010 and asked Chandler to sign a non-waiver agreement so that it could investigate. Chandler refused to sign the agreement and determined that Concord’s desire to investigate the claim was in effect a wrongful denial of the claim.

In March 2010, Concord sent Chandler a letter explaining that it was not denying coverage, but that it needed to conduct a full investigation before considering a settlement. It also explained that Chandler had canceled an appointment to meet with a Concord investigator.

Chandler sued Concord in March 2010, alleging that Concord had refused to pay his claim and seeking $1,069,700 in damages he would “most likely have to pay to Faye Ainsworth.” Concord denied the allegations and counterclaimed for a declaration of non-coverage. Concord filed motions to dismiss and for summary judgment, asserting that due to Chandler’s noncooperation, it was relieved of its obligations to defend and indemnify Chandler.

The court concluded that Chandler had actively prevented Concord from investigating the incident by not reporting it for several months, not allowing investigators access to the premises, staging photographs, and interfering with discovery and depositions. The court also concluded that Chandler had violated his duty to not undertake obligations without Concord’s assent by settling Ainsworth’s claims against him for $1,311,500 after she sued him. The court noted that Chandler had embroiled Concord in protracted litigation by filing suits in both state and federal courts in Vermont and Massachusetts and by filing repeated motions to disqualify judges and court staff. The court explained that it appeared that Chandler had colluded with Ainsworth to obtain a settlement from Concord. Under these circumstances, the court concluded that Concord had established that Chandler had breached his obligation to cooperate and, as a result, that Concord was relieved of its duties under the insurance policy.

Chandler appealed to the Vermont Supreme Court.

The Vermont Supreme Court’s Decision

The court affirmed.

In its decision, the court found that:

Concord first contacted Chandler on March 3, 2010, after receiving a notice-of-claim letter from Ainsworth’s attorney that Mr. Chandler’s insurance agent had forwarded to Concord;
On March 9, 2010, Concord notified Chandler that it was investigating his claim under a reservation of rights and requested that he arrange to meet with Concord’s investigator;
On March 18, 2010, Concord, by letter, confirmed that it had not denied coverage, indicated that it needed to conduct an investigation to evaluate the claim, and confirmed that Chandler had cancelled a scheduled meeting with a Concord investigator;
That same day, Chandler sent a letter to Concord accusing Concord of denying the claim, insisting that Concord pay the claim “immediately,” and stating, “If you don’t settle then I will have no other recourse but to settle the claim myself….”;
That letter made it clear that Chandler did not intend to allow Concord to investigate the accident site or to participate in Concord’s investigation;
On March 19, Concord again contacted Chandler to reiterate that it had not denied coverage and that it needed to conduct an investigation;
In that letter, in response to a communication from Chandler suggesting that he might settle the claim directly with Ainsworth through her attorney, Concord also notified him that any attempt on his part to settle the case without Concord’s approval could jeopardize his coverage; and
Chandler filed his lawsuit on March 22, 2010.
The court said that within three weeks of Concord’s first contacting Chandler, before allowing Concord to interview him or investigate the accident site, and before allowing sufficient time for Concord to get the necessary medical records and other information to support Ainsworth’s claim, Chandler sued Concord. The court added that Chandler insisted that Concord pay without investigating (beyond reviewing the materials he had submitted), declined to participate in an interview, refused to allow Concord’s investigator to visit the site of the incident, and threatened that if Concord did not settle the case with Ainsworth right away, he would settle himself. Moreover, the court added, Chandler had entered into a stipulation on the merits of the personal injury claim and had subjected himself to liability in connection with the personal injury claim in the amount of $1,311,500.

With these facts in mind, the court held that Chandler had forfeited his coverage under the Concord policy by failing to comply with the cooperation requirement. By admitting liability and entering into a settlement with Ainsworth in her personal injury suit before Concord had the opportunity to investigate facts applicable to the lawsuit, Chandler prejudiced Concord by placing it “in a substantially less favorable position than it would have been had the insured fully cooperated,” the court stated.

Therefore, the court concluded, Concord was excused from providing coverage.

The case is Chandler v. Concord Group Ins. Co., No. 15-236 (Vt. Oct. 1, 2015).

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  • Robert Tugander





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