Desiree DeBartolo owned a restaurant in Poultney, Vermont. She closed it in the fall of 2000 and let the property insurance lapse. The mortgagee demanded that she secure property insurance on the building for $92,000 (the amount of the outstanding mortgage debt). DeBartolo applied for a six-month policy in March 2001 with a property limit of $92,000. The application she prepared for her agent stated that the restaurant was "closed for the season."

DeBartolo's agent placed coverage with Underwriters at Lloyds's of London (Lloyd's). Lloyd's was a surplus lines carrier in Vermont and could only issue coverage if similar corresponding coverage from other sources was not reasonably available. The agent sent a copy of the policy (effective March 14, 2001) to DeBartolo on May 1, 2001 along with a letter instructing her to notify him if the restaurant reopened so that he could make any necessary insurance changes. The declarations described the covered property as a "vacant restaurant" on Route 30 in Poultney. DeBartolo received the policy and the letter before the loss occurred but did not read either one.

DeBartolo reopened the restaurant for business on May 26, 2001. She tried to dry a plumbing leak that had soaked a carpet by using a kerosene heater. The heater caused a fire on May 30, 2001 and resulted in damage that exceeded the limit. DeBartolo admitted that the restaurant was not vacant at the time of loss.

Lloyd's denied coverage for the loss. It stated that coverage applied only while the restaurant was vacant and that DeBartolo had intentionally concealed a known material fact, both at the time of loss and when she applied for coverage. DeBartolo initiated an action for breach of contract against Lloyd's in 2003, alleging that its denial of coverage was made in bad faith. Lloyd's raised the same issues as defenses that were in its denial letter. Both parties stipulated to the facts and submitted cross-motions for summary judgment.

The Superior Court ruled that the policy was ambiguous as to whether coverage would continue if the restaurant reopened. It construed the policy in DeBartolo's favor, granted her motion for summary judgment, and ordered Lloyd's to pay the full limit (less the $500 deductible) along with pre-judgment interest and costs. The court issued a supplemental finding at a later date that DeBartolo did not conceal the restaurant reopening from Lloyd's. Lloyd's appealed.

On appeal, Lloyd's argued that the trial court erred in its decision because the policy's plain language unambiguously limited property coverage to a vacant restaurant. It noted that the declarations described the property as a vacant restaurant and contended that this description was material to (and limited the extent of) the coverage provided. DeBartolo, in contrast, asserted that the policy was, at best, ambiguous as to whether property coverage would continue when the restaurant reopened, and should be construed in her favor.

The Supreme Court of Vermont determined that, even if the restaurant's reopening was a material fact, the Superior Court did not err in finding that DeBartolo did not intentionally conceal it, even though there was evidence to the contrary. DeBartolo did not tell Lloyd's about the restaurant reopening because she "didn't think of it." She further testified that she had only a rudimentary understanding of the impact of the restaurant's vacancy on her insurance coverage. The Supreme Court also determined that the letter from the insurance agent asking DeBartolo to notify Lloyd's when the vacant restaurant reopened was insufficient to impose an obligation on her to notify Lloyd's before the restaurant reopened.

The Supreme Court affirmed the Superior Court's decision in all respects.

Supreme Court of Vermont. Desiree DeBartolo v. Underwriters at Lloyd's of London. No. 06-027. April 25, 2007. 925 A.2d 1018