Insurance. No coverage ruling affirmed: breach of warranty of habitability is not wrongful eviction or other “personal injury”; “reasonable expectations’ theory rejected; no decision whether there should be Chinese wall between coverage counsel and insurer-retained defense counsel.

Vermont Mutual Insurance Company v. Parsons Hill Partnership, Willard Group, Poulin Group and Fortin (2008-509) (04-Jun-2010) 2010 VT 44 (Dooley, J.)
Plaintiff insurance carrier sought a declaration that landlord’s liability insurance policies do not cover tenants’ claims for breach of an implied warranty of habitability, arising out of water contamination. The trial court granted insurance carrier’s motion for summary judgment .Defendants appeal. We affirm.

Coverage B provides coverage for “personal injury” defined as including wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor.” The trial court ruled there is no coverage because the underlying litigation does not involve damages for “personal injury” as that term is defined in the Policy. We conclude that this ruling was correct.

This type of coverage is a theory-based insurance coverage. It defines its coverage in terms of offenses, or theories of liability, not in terms of the injury sustained by the plaintiff. The court held that “[t]here was no constructive eviction here; . . . none of the tenants ever actually moved out, i.e., no involuntary ‘eviction,’ or loss of tenancy actually resulted” and “the toxic contamination of their drinking water [did not] materially invade, or compromise in any way their rights to exclusive possession of their leased premises.”

We agree with the trial court that tenants’ theory of landlord’s liability does not create coverage under Coverage B. As the trial court observed, the underlying claim does not involve eviction or wrongful entry. Thus, to claim an “offense” under Coverage B, the claim must involve an invasion of the tenants’ private right of occupancy. In our view, the breach-of-warranty claim does not involve an offense as that term is used in Coverage B. Construing a breach of warranty as an “invasion” stretches the language of the Policy beyond its plain and unambiguous meaning.

Defendants next argue that landlord had a reasonable expectation of coverage and that this expectation should trump any coverage limitations. Apart from circumstances where an agent of the insurance carrier promises specific coverage, we have not held that the expectations of an insured can control over unambiguous policy language. The standard policy provisions, particularly the provision of Coverage B at issue in this case, have been the subject of many court decisions, and their limitations can be readily determined. We cannot find any expectation of coverage under Coverage B to be reasonable given the unambiguous language of the policy.

Finally, defendants argue that we should reverse because insurance carrier’s coverage staff improperly used confidential information obtained by insurer-supplied defense counsel from his client, landlord, to deny coverage. The trial court found no facts from which it could infer that insurance carrier’s staff had improper access to confidential information “which would be of any use, or benefit at all in this coverage litigation.” We concur because the controlling coverage issue is purely one of law, and insurance carrier could not have obtained from defense counsel any information that could have any effect on whether coverage existed.