UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
John Wallace et al.
v. Civil No. 18-cv-747-LM Opinion No. 2019 DNH 113 Nautilus Insurance Company
O R D E R
John Wallace and Elizabeth Trase (“plaintiffs”) hired
McPhail Roofing, LLC (“McPhail”) to replace the roofs on both of
their houses. Shortly after McPhail finished construction,
plaintiffs noticed that the roofs were leaking, and eventually
replaced the roofs. Plaintiffs subsequently commenced an
arbitration proceeding against McPhail, and were awarded the
cost of replacing the roofs, compensation for the damage done to
their property by the leaking, and attorneys’ fees and expenses.
Nautilus Insurance Company (“Nautilus”), McPhail’s
commercial general liability insurer, defended McPhail in the
arbitration. Nautilus paid plaintiffs on McPhail’s behalf
roughly 10% of the arbitrator’s award, which included
compensation for the damage to plaintiffs’ houses and property
caused by the leaking, such as landscaping damages, repainting,
and attic cleaning and reinsulation. In addition, Nautilus paid
expenses and fees plaintiffs incurred in pursuing the arbitration, including expert witness fees and pre- and post-
judgment interest. Nautilus asserted, however, that its
insurance policy with McPhail did not cover the cost of
replacing the roofs or plaintiffs’ attorneys’ fees, and it
refused to indemnify McPhail for those amounts.
After McPhail declared bankruptcy, plaintiffs brought this
action against Nautilus, seeking a declaration that the unpaid
portion of the arbitrator’s award is covered by McPhail’s
insurance policy with Nautilus. See N.H. Rev. Stat. Ann.
(“RSA”) 491:22.
The court granted the parties’ joint request to resolve
this case on a stipulated record. The parties have submitted
cross-motions for judgment on the stipulated record and, on May
16, 2019, the court heard oral argument.1
At the May 16 hearing, Nautilus requested the opportunity
to file a supplemental memorandum addressing issues the court
raised during oral argument. The court granted that request and
the parties submitted supplemental memoranda. See doc. nos. 22
& 23. The court has considered the memoranda in resolving the
parties’ motions.
1 The parties filed briefs in support of their respective positions, rather than motions for judgment on the stipulated record. See doc. nos. 14 & 16. For the sake of clarity, the court construes the parties’ briefs as cross-motions for judgment on the stipulated record.
2 BACKGROUND
Plaintiffs own adjoining houses on Quarry Road in Yarmouth,
Maine. In 2015, plaintiffs determined that the cedar shingle
roofing on both their houses was deteriorating. In September
2015, plaintiffs entered into separate contracts with McPhail to
replace the roofs on their houses. Both contracts called for
McPhail to install “LifePine” roofs.
McPhail used subcontractors to complete the work and
finished the roof replacements in the fall of 2015. In November
2015, after McPhail installed the roofs, both plaintiffs noticed
several issues with their roofs, both aesthetically and
otherwise.2 The plaintiffs withheld roughly a third of the
agreed-upon contract price from the final payments due to
McPhail under the contracts.
Plaintiffs contacted LifePine’s owner, who referred them to
Robert Fulmer, a roofing consultant in New Hampshire who the
owner described as an expert in LifePine roofs. In January
2016, Fulmer conducted a detailed inspection of the roofs and
found evidence of water leaking through both roofs during
rainstorms. According to Fulmer, improper installation of the
2 For example, although not detailed in the parties’ motions, the stipulated record shows that plaintiffs noticed issues with the “ridge cap installation” that did “not appear to allow proper ventilation” and a two-inch “reveal” in one course of the “shakes” at Wallace’s house. Doc. no. 14-1 at 2.
3 shakes on the roofs allowed rain to seep through to the roof
decks (the plywood underneath the roofs) and eventually into the
houses. Fulmer opined that the only way to cure the
installation defects was to remove and replace the roofs
entirely. Plaintiffs took Fulmer’s advice and replaced both
roofs, using another contractor.
Plaintiffs and McPhail were unable to resolve their dispute
and proceeded to arbitration. Plaintiffs sought compensation
for the damage caused by the leaking and for the replacement
cost of the roofs. McPhail sought the remaining payment due
under the parties’ contracts. Nautilus, with whom McPhail held
a general commercial liability policy (the “Policy”), defended
McPhail in the proceeding.
On June 29, 2017, the arbitrator issued an award, finding
that McPhail had failed to properly install the roofs in
accordance with the manufacturer’s instructions and applicable
building codes. He further found that the remedy of removing
and replacing the roofs was reasonable.
The arbitrator awarded Wallace $140,053.50 and Trase
$160,065.62 against McPhail. At the parties’ request, the
arbitrator itemized the award of damages for each plaintiff.
For Wallace, the arbitrator awarded damages for the replacement
roof without shingles, the shingles themselves, attic cleaning,
4 attic reinsulation, and repainting. For Trase, the arbitrator
awarded damages for the replacement roof without shingles, the
shingles themselves, and damage to her landscaping.
In addition, the parties stipulated that the arbitrator
must award attorneys’ fees and expenses to the substantially
prevailing party. Because the parties could not agree on the
amounts, the arbitrator issued a Supplemental Decision on March
29, 2018. He awarded plaintiffs $176,898.95, broken down
separately into awards for attorneys’ fees, expert witness fees,
and other expenses, plus additional compensation for pre- and
post-judgment interest. On May 10, 2018, the District of Maine
entered a judgment confirming the arbitration awards against
McPhail. Wallace & Trase v. Notinger as Ch. 7 Bankr. Trustee
for McPhail Roofing, LLC, No. 2:18-cv-00188, Dkt. No. 4 (D. Me.
May 10, 2018).
Nautilus promptly paid plaintiffs on McPhail’s behalf what
it determined was covered under the Policy. Specifically,
Nautilus paid Wallace $14,961.70, which represented the itemized
damages in the arbitrator’s award for attic cleaning and
reinsulation, as well as repainting, and $25,910.24 in expert
witness fees and expenses. Nautilus paid Trase $873.63, which
represented the itemized damages to her landscaping, and
$24,566.32 in expert witness fees and expenses. Nautilus
5 refused to pay the remainder of the arbitrator’s award,
including the cost of replacing the roofs and the award of
attorneys’ fees.
Following McPhail’s declaration of bankruptcy, plaintiffs
obtained an assignment of McPhail’s claims against Nautilus. In
re McPhail Roofing, LLC, No. 17-11305-MAF, Dkt. No. 99 (Bankr.
D.N.H. Aug. 22, 2018). This action followed.
STANDARD OF REVIEW
Under New Hampshire law,3 in “‘a declaratory judgment action
to determine the coverage of an insurance policy, the burden of
proof is always on the insurer, regardless of which party brings
the petition.’” Mass. Bay Ins. Co. v. Am. Healthcare Servs.
Ass’n, 170 N.H. 342, 348 (2017) (quoting Cogswell Farm Condo.
Ass’n v. Tower Grp., Inc., 167 N.H. 245, 248 (2015)); see RSA
491:22-a (2010). “The interpretation of insurance policy
language is a question of law for this court to decide.”
3 The parties agree that New Hampshire law applies to their dispute because New Hampshire bears the most significant relationship to the Policy, as McPhail is a New Hampshire company and Nautilus and McPhail entered into the agreement in the state. See Consol. Mut. Ins. Co. v. Radio Foods Corp., 108 N.H. 494, 496 (1968) (holding that “in the absence of an express choice of law validly made by the parties, the contract is to be governed, both as to validity and performance, by the law of the State with which the contract has its most significant relationship”).
6 Cogswell Farm, 167 N.H. at 248 (quotation omitted). The court
first looks “to the plain and ordinary meaning of the policy’s
words in context, and . . . construe[s] the terms of the policy
as would a reasonable person in the position of the insured
based on more than a casual reading of the policy as a whole.”
Id. (quotation omitted). “If more than one reasonable
interpretation is possible, and an interpretation provides
coverage, the policy contains an ambiguity and will be construed
against the insurer.” Id.
DISCUSSION
The parties’ dispute requires the court to answer two
questions: First, does the Policy require Nautilus to indemnify
McPhail, and therefore provide payment to plaintiffs, for the
cost of removing and replacing plaintiffs’ roofs? Second, does
the Policy require Nautilus to pay plaintiffs’ attorneys’ fees
incurred in the arbitration? The court addresses each question
in turn.
I. Coverage for Cost of Replacement Roofs
Nautilus contends that it does not have a duty to indemnify
McPhail for the cost of removing and replacing plaintiffs’ roofs
for two reasons. It argues: 1) the loss is outside the scope of
7 the Policy’s coverage; and 2) even if some portion of the loss
is within the Policy’s coverage, the loss is excluded by one or
more Policy exclusions. Plaintiffs dispute both arguments.
A. Scope of Coverage
The Policy at issue in this case is a standard commercial
general liability (“CGL”) policy, the language of which has been
subject to litigation in several jurisdictions for many years.
Under the Policy, Nautilus agreed to “pay those sums that the
insured becomes legally obligated to pay as damages because of
‘bodily injury’ or ‘property damage’ to which this insurance
applies.” Doc. no. 14-3 at 11. The Policy applies only if the
“‘bodily injury’ or ‘property damage’ is caused by an
‘occurrence’ that takes place in the ‘coverage territory.’” Id.
Finally, the Policy defines an “occurrence” as “an accident,
including continuous or repeated exposure to substantially the
same general harmful conditions.” Id. at 24.
1. Occurrence
Nautilus contends that under New Hampshire law, the cost to
replace defective workmanship—here, the roofs themselves—is not
covered under the Policy because defective workmanship is not an
occurrence. In support of its position, Nautilus relies
8 primarily on Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (1979), a
New Jersey Supreme Court case which has been cited often in
various jurisdictions. Weedo holds that a standard CGL policy
does not cover the cost to make good on faulty workmanship
absent property damage or bodily injury. Although, as Nautilus
concedes, Weedo has never been cited by a New Hampshire state
court, New Hampshire law is consistent with its holding. See
Hull v. Berkshire Mut. Ins. Co., 121 N.H. 230, 231 (1981)
(holding that plaintiffs’ claim was not covered by a standard
CGL policy because “they allege no bodily injury or property
damage . . . [or] damages caused by an accident” and instead had
alleged only “a claim for money damages for the builder’s
defective work”); see also McAllister v. Peerless Ins. Co., 124
N.H. 676, 678 (1984) (holding that “defective work, standing
alone, did not result from an occurrence, and indeed was not
property damaged within the meaning of the policy”).
Plaintiffs do not dispute that New Hampshire law holds that
defective workmanship alone is not an occurrence under the
Policy’s language. They argue, however, that the occurrence for
purposes of the Policy in this case is not the defective
workmanship itself, but rather the leaking caused by the
defective roofs, which resulted in property damage. The court
agrees.
9 In High Country Assocs. v. N.H. Ins. Co., 139 N.H. 39
(1994), the New Hampshire Supreme Court addressed the issue of
what constitutes an “occurrence” for purposes of a standard CGL
policy. The plaintiffs brought an underlying suit against a
construction company that had built several condominium units.
The plaintiffs alleged that the company’s negligent construction
“resulted in substantial moisture seepage into the buildings,
causing mildew and rotting of the walls, and loss of structural
integrity.” Id. at 41. The construction company held a
standard CGL policy with the defendant insurer, and the
plaintiffs brought a declaratory judgment action against the
insurer seeking indemnification under the policy. The superior
court granted the insurer’s motion for summary judgment, holding
that the allegations of damage in the underlying suit did not
constitute an occurrence as defined in the CGL policy.
The New Hampshire Supreme Court reversed, holding that the
plaintiffs had alleged an occurrence: the “actual damage to the
buildings caused by exposure to water seeping into the walls
that resulted from the negligent construction methods of High
Country Associates.” Id. at 43. The court added:
the property damage described in the amended writ, caused by continuous exposure to moisture through leaky walls, is not simply a claim for the contractor’s defective work. Instead, the plaintiff in the underlying suit alleged negligent construction
10 that resulted in property damage, rather than merely negligent construction as in Hull and McAllister.
Id.
As in High Country, there was an occurrence here—water
leaking through the poorly constructed roofs. Indeed, prior to
this lawsuit, Nautilus recognized that there was an occurrence,
because it agreed that the damage to Wallace’s attic and Trase’s
landscaping was covered under the Policy and compensated
plaintiffs accordingly. Thus, despite Nautilus’ assertion to
the contrary, as in High Country, this case deals with
“negligent construction that resulted in an occurrence, rather
than an occurrence of alleged negligent construction.” Id. at
45.
2. Damages because of property damage
The fact that there was an occurrence that caused property
damage, however, does not end the court’s inquiry. The Policy
provides that Nautilus is obligated to pay the “sums that the
insured becomes legally obligated to pay as damages because of
applies.” Doc. no. 14-3 at 11 (emphasis added). Thus, the
relevant question is whether the cost of removing and replacing
the roofs is considered damages because of plaintiffs’ property
damage.
11 Nautilus argues that this cost is not damages because of
property damage under the Policy. It relies generally on cases
that provide that the cost of repairing and replacing faulty
workmanship is not compensable under a standard CGL policy, and
notes that plaintiffs offer no case law that supports their
broad interpretation of the Policy’s language.
In response, plaintiffs offer two arguments in favor of
coverage. First, they assert that in both houses, the roof
decks—the sheets of plywood underneath the roofs themselves—
were damaged by the water leaking from the inadequately
constructed roofs. They contend that the roof decks are
property and that, therefore, damage to the roof decks
constitutes property damage caused by an occurrence. Plaintiffs
further argue that the physical damage to the roof decks could
not be repaired without removing the roofs and that, as such,
the cost of removing and replacing the roofs is covered under
the Policy.4 Second, they contend that the damages for the roof
replacement costs are “causally linked” to the leaking and are
therefore damages incurred “because of” property damage under
the Policy.
4 Such damages—the cost of removing and replacing undamaged property in order to replace damaged property—are often referred to as “rip-and-tear” damages.
12 a. Rip-and-tear damages
The arbitrator found that plaintiffs’ houses had
experienced water infiltration caused by McPhail’s failure to
install the roofs as required by LifePine’s Roofing Installation
Instructions and that the installation failed to comply with
applicable building codes. He further found that because of
these defects, there was water intrusion in Wallace’s attic and
the roof decks on both houses, and damage to Trase’s
landscaping.
Plaintiffs assert that because the roof decks, which
constitute their property, are directly underneath the roofs,
the physical damage to the roof decks could not be repaired
without removing the roofs themselves. They contend that as
such, they are entitled to recover the cost of removing and
replacing the roofs.
No New Hampshire case has addressed the question of whether
so-called “rip-and-tear” damages are covered under a standard
CGL policy. Case law from other jurisdictions, however,
supports the principle that such damages fall within the scope
of coverage of such policies. See Carithers v. Mid-Continent
Cas. Co., 782 F.3d 1240, 1251 (11th Cir. 2015) (affirming
district court’s holding that cost of replacing a defectively-
constructed balcony was covered under standard CGL policy when
13 it was necessary to remove the balcony to repair property damage
to the plaintiff’s garage); Clear, LLC v. Am. & Foreign Ins.
Co., No. 3:07CV00110JWS, 2008 WL 818978, at *9 (D. Alaska Mar.
24, 2008) (interpreting standard CGL policy to provide coverage
for “the reasonable costs to repair property damage caused by
the defective work . . ., including the cost of removing and
replacing property that was not injured when that removal and
replacement was necessary in order to fix the damage caused by”
the defective workmanship). Nautilus did not address
plaintiffs’ argument concerning rip-and-tear damages in its
filings.
During oral argument, however, in response to the court’s
questioning, Nautilus’ counsel stated that although the roof
decks on both houses were stained by the leaking from the
defective roofs, they did not need to be repaired or replaced.5
Nautilus’ counsel represented that the roof decks on both houses
were re-used when the replacement roofs were constructed.
Nautilus’ counsel invited plaintiffs’ counsel to correct him if
he misspoke; plaintiffs’ counsel did not do so. During the
5 Although the Trase house had a full roof deck, the Wallace house apparently used only pieces of a roof deck which were attached to purlins, and otherwise did not use a roof deck. The difference in construction between the two houses is not material to the court’s analysis.
14 arbitration, several witnesses testified, consistent with
Nautilus’ counsel’s representations during oral argument, that
the roof decks were reused when plaintiffs replaced McPhail’s
roofs. See Stip. Rec. at R-3.92-93 (Wallace testimony); id. at
R-3.220-22 (Sean Urqhardt testimony);6 id. at R-4.98-99 & 4.251
(Robert Fulmer testimony).
Thus, even assuming that rip-and-tear damages are covered
under the Policy, plaintiffs did not incur such damages in this
case. The stipulated record shows that contrary to plaintiffs’
representation in their motion, the roofs did not need to be
removed to “replace the water-damaged roof deck below.” Doc.
no. 16 at 10. The roof decks were not replaced but were instead
re-used when plaintiffs replaced McPhail’s roofs. For these
reasons, plaintiffs’ arguments concerning “rip-and-tear” damages
are not applicable to the facts of this case.
b. Causal link
In response to Nautilus’ argument that repairing or
replacing defective workmanship does not fall within the scope
of the Policy’s coverage, plaintiffs argue that the damages for
roof replacement costs are “causally linked” to the property
damage caused by the occurrence. In support, plaintiffs assert
6 Sean Urqhardt is the caretaker for plaintiffs’ property.
15 that in his decision, the arbitrator had to decide whether the
extent of the leaking and resulting damage justified the full
replacement cost of the roofs. They argue:
The very first point the Arbitrator made in deciding that issue was that there had been leaking that caused property damage, making clear that the existence of property damage from leaking was an important factor in deciding to award the full replacement cost. (Id.) One could easily imagine, in fact, that the Arbitrator would have determined that a different remedy was appropriate had there been the same defective work but no damage from leaking. See, e.g., Restatement (Second) of Contracts § 348 (1981) (“If an award based on the cost to remedy the defects would clearly be excessive . . . damages will be based instead on the difference between the market price that the property would have had without the defects and the market price of the property with the defects.”). Because the Arbitrator’s own analysis demonstrates that the property damage from leaking was an important factor in awarding the damages at issue, the damages are “causally linked” to the property damage.
Doc. no. 16 at 12.
Plaintiffs’ argument mischaracterizes the arbitrator’s
decision. Nowhere in his decision does the arbitrator suggest
that the damage to plaintiffs’ property was the basis for, or
even a factor in, his determination that plaintiffs are entitled
to recover the cost of the roof replacements from McPhail.
Rather, in awarding plaintiffs the cost of replacing the roofs,
the arbitrator stated:
I focus on the situation the Owners faced. When Bolen became involved, he referred the Owners to Fulmer as an expert who [sic] he hoped could mediate between the Owners and McPhail. Fulmer advised the Owners that
16 the only way to cure the installation defects was to remove and replace the roofs. There is no dispute that interlayment could not be retrofitted into the roofs; in order to fulfill the installation instruction and code requirement of interlayment, the roofs had to be replaced. Faced with a recommendation made by the expert referred by the manufacturer, it was reasonable for the Owners to rely on that advice in choosing the remedy.
Doc. no. 14-1 at 8. Thus, the arbitrator found that plaintiffs
were entitled to the replacement cost of the roofs because: (1)
the roofs were installed defectively; and (2) plaintiffs’
consultant advised them that the only way to cure the
installation defects was to remove and replace the roofs. The
arbitrator’s reasoning is not dependent on or influenced by
damage to plaintiffs’ property.
In their motion, plaintiffs rely on M. Mooney Corp. v. U.S.
Fid. & Guar. Co., 136 N.H. 463, 466 (1992) to support their
broad interpretation of the Policy’s language as to the “causal
link” necessary to trigger the Policy’s coverage. In Mooney,
the plaintiff hired a contractor to build 52 condominium units.
After the units were completed and sold, a chimney fire damaged
one unit. Inspection of the other units showed charring
adjacent to fireplaces in four other units.
The fire marshal investigated the fire and determined that
the contractor had improperly constructed the fireplaces. He
17 ordered that no fireplaces could be used until the defects were
repaired and the fire hazard eliminated.
The contractor held a standard CGL policy with the
defendant. The defendant agreed that the policy covered the
cost of repairing the five damaged units but denied coverage for
the other forty-seven units that were repaired by order of the
fire marshal. The New Hampshire Supreme Court held that the
loss of use of the fireplaces in the other forty-seven units was
considered “property damage” under the policy.
Mooney is not applicable to the facts of this case. In
Mooney, “loss of use” was defined as “property damage” in the
policy. Therefore, the plaintiff’s loss of use of the forty-
seven fireplaces and the units themselves was specifically
considered “property damage” under the policy. As such, the
plaintiff’s loss of use of the fireplaces and the units was, by
definition, covered under the policy. Here, however, plaintiffs
make no claim that the cost of replacing their roofs is itself
property damage or that any specific Policy provision covers
that cost. Thus, plaintiffs’ reliance on Mooney is misplaced.
In their supplemental memorandum, plaintiffs offer several
cases that purportedly support their theory that a standard CGL
policy covers the cost of repairing defective work merely
because the work resulted in an occurrence that caused property
18 damage. See doc. no. 23 at 4. None of the cases plaintiffs
offer, however, stands for the proposition that a CGL policy
covers the cost of replacing defective work any time property
damage results from it. Instead, at best, the cases plaintiffs
cite stand for the proposition that when a contractor’s
defective workmanship leads to property damage caused by an
occurrence that also damages the defective work itself, the cost
of repairing that work may be considered property damage covered
under a standard CGL policy. See Crownover v. Mid-Continent
Cas. Co., 772 F.3d 197, 206–07 (5th Cir. 2014) (holding that
standard CGL policy covered cost of replacing HVAC units
defectively installed because the defective installation caused
“property damage” to the HVAC units themselves); Forrest Const.,
Inc. v. Cinc. Ins. Co., 703 F.3d 359, 365–66 (6th Cir. 2013)
(holding that subcontractor’s negligent construction that caused
damage to property and the construction project itself was
covered under CGL policy); Limbach Co. LLC v. Zurich Am. Ins.
Co., 396 F.3d 358, 363 (4th Cir. 2005) (holding that standard
CGL policy covered cost of repairing “property damage” to
subcontractor’s work damaged by contractor’s defective
workmanship); Auto-Owners Ins. Co. v. Pozzi Window Co., 984 So.
2d 1241, 1248–49 (Fla. 2008) (holding that where windows in home
constructed by the defendant were damaged by defective
19 installation, damage to the windows was considered property
damage and covered by a CGL policy); Lamar Houses, Inc. v. Mid-
Continent Cas. Co., 242 S.W.3d 1, 10 (Tex. 2007) (holding that
construction defects in house that damaged the house itself
constituted “property damage” sufficient to trigger the duty to
defend or indemnify under a CGL policy); Am. Family Mut. Ins.
Co. v. Am. Girl, Inc., 673 N.W.2d 65, 75-78 (Wis. 2004) (holding
that damage to warehouse constructed by contractor caused by the
contractor’s improper soil preparation constituted “property
damage” caused by an occurrence under standard CGL policy);
Corner Const. Co. v. U.S. Fid. & Guar. Co., 638 N.W.2d 887, 895
(S.D. 2002) (holding that subcontractor’s defective insulation
work that caused damage to general contractor’s work was
property damage covered by CGL policy).
Even if that property damage principle were consistent with
New Hampshire case law, it is not applicable to the
circumstances presented in this case. The arbitrator’s decision
makes clear that because of the leaking, “there was some water
intrusion in [Wallace’s] attic and in the area near the French
doors in [Trase’s] house. It is also clear that water was
getting through the three layers of shakes to the roof deck,
something that would not have occurred had there been
interlayment.” Doc. no. 14-1 at 8. Plaintiffs do not argue,
20 and the arbitrator did not find, that the leaking from the
defective roofs caused damage to the roofs themselves.
No New Hampshire case stands for the proposition that
plaintiffs argue for here: that a CGL policy covers the cost of
replacing defective work any time property damage results from
it. Nautilus’ argument, that such a principle is inconsistent
with New Hampshire law, is persuasive. Therefore, the damages
for the cost of replacing plaintiffs’ roofs are not covered by
B. Exclusions
Because the court has determined that the damages for the
cost of replacing plaintiffs’ roofs falls outside the scope of
the Policy’s coverage, the court does not address the parties’
arguments as to whether any exclusions apply.
II. Attorneys’ Fees
During the arbitration hearing, the parties stipulated
“that the substantially prevailing party in this action must be
awarded attorney’s fees in an amount to be determined by the
arbitrator, together with expenses.” Doc. no. 14-2 at 3. After
the arbitrator ruled in plaintiffs’ favor as to McPhail’s
liability, plaintiffs submitted legal bills and documentation to
21 the arbitrator to support their request for fees and expenses.
McPhail objected.
In a supplemental decision, the arbitrator awarded
plaintiffs $176,898.85 in attorneys’ fees and expenses, breaking
down the award as follows: $127,933 in attorneys’ fees;
$44,328.46 in expert witness expenses; and $4,637.49 in other
expenses. Nautilus paid plaintiffs amounts awarded for expert
witness and other expenses, as well as pre- and post-judgment
interest. It asserted, however, that the award of attorneys’
fees was not covered by the Policy and refused to pay that
amount on McPhail’s behalf. Plaintiffs now seek a declaration
that the arbitrator’s attorneys’ fees award is covered by the
Policy.
Nautilus, which bears the burden of showing that coverage
does not exist, makes two arguments. First, it refers to the
Policy’s “Supplementary Payments” provision, which provides that
Nautilus is obligated to pay all “costs taxed against the
insured” in any suit that Nautilus defends, as well as any pre-
and post-judgment interest. The Supplementary Payments
provision, however, does not mention attorneys’ fees. Nautilus
contends that, therefore, it is not obligated to pay such fees
on McPhail’s behalf. Second, Nautilus argues that attorneys’
22 fees cannot be considered “damages because of property damage”
as that phrase is interpreted under New Hampshire law.
Plaintiffs concede that the Supplementary Payments
provision does not reference attorneys’ fees. They argue,
however, that the court should interpret the phrase “costs taxed
against the insured” to include attorneys’ fees. They also
argue that attorneys’ fees should be considered damages under
A. Attorneys’ Fees as “Costs Taxed Against the Insured”
The Policy’s “Supplementary Payments” provision provides in
relevant part:
1. We will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend:
. . .
e. All costs taxed against the insured in the “suit.”7
f. Prejudgment interest awarded against the insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any prejudgment interest based on that period of time after the offer.
g. All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the
7 Nautilus does not dispute that the arbitration is considered a “suit” for purposes of the Supplementary Payments provision.
23 part of the judgment that is within the applicable limit of insurance.
Doc. no. 14-3 at 17-18. Plaintiffs urge the court to interpret
the phrase “costs taxed against the insured” to include
As plaintiffs concede, the Policy does not define “costs
taxed” in the Supplementary Payments provision or elsewhere.
Plaintiffs also correctly state that no courts applying New
Hampshire law have construed the phrase “costs taxed” in the
insurance policy context. Plaintiffs contend that “costs taxed”
as used in the Policy is ambiguous and, therefore, under New
Hampshire law, should be construed against Nautilus to encompass
attorneys’ fees. The court agrees.
Although no court has construed the phrase “costs taxed” in
the insurance policy context under New Hampshire law, several
courts have interpreted the phrase under other state law to
include an award of attorneys’ fees. See Ferrell v. W. Bend
Mut. Ins. Co., 393 F.3d 786, 796 (8th Cir. 2005) (holding that
under Arkansas law, an attorneys’ fee award in an underlying
dispute “was part of the ‘costs’ taxed against the insured”);
R.W. Beck & Assocs. v. City & Borough of Sitka, 27 F.3d 1475,
1484 n.13 (9th Cir. 1994) (noting that under Alaska law,
“insurance policy provision providing for payment of ‘costs
taxed against the insured’ covered attorneys’ fees”); St. Paul
24 Fire & Marine Ins. Co. v. Hebert Const., Inc., 450 F. Supp. 2d
1214, 1234-35 (W.D. Wash. 2006) (The “Court concludes that the
‘costs taxed’ provision includes the attorneys’ fees made a part
of the judgment in the state-court action . . . . the plain,
ordinary meaning of the ‘costs taxed’ clause in the [insurance]
policies includes attorneys’ fees.”); see also Hunters Ridge
Condo. Ass’n v. Sherwood Crossing, LLC, 395 P.3d 892, 905 (Or.
2017) (noting that under Oregon law, the term “costs” as used in
an insurance policy is ambiguous and should be construed against
the drafter to include attorneys’ fees); Mid-Continent Cas. Co.
v. Treace, 186 So. 3d 11, 12 (Fla. Dist. Ct. App. 2015) (holding
that identical language in a CGL policy included attorneys’ fees
under Florida law); Emp’rs Mut. Cas. Co. v. Donnelly, 154 Idaho
499, 503 (Idaho 2013) (interpreting Idaho law and holding that
“[a]ll costs taxed against the insured” includes attorneys’
fees); Ins. Co. of N. Am. v. Nat’l Am. Ins. Co., 37 Cal. App.
4th 195, 206–07 (Cal. 1995) (holding that attorneys’ fees are
costs taxed against an insured in standard Supplementary
Payments provision of an insurance contract under California
law); but see CIM Ins. Corp. v. Masamitsu, 74 F. Supp. 2d 975,
993 (D. Haw. 1999) (holding that interpreting the phrase “costs
taxed against the insured” to exclude attorneys’ fees is
consistent with Hawaii law).
25 Nautilus does not directly address plaintiffs’ argument as
to the interpretation of “costs taxed against the insured.”
Instead it argues simply, and without offering case law to
support its position, that “[g]iven that the policy does provide
for payments of costs, pre-judgment interest, and post-judgment
interest, the omission of a similar provision for attorneys’
fees demonstrates that attorneys’ fees are not compensable as a
supplementary payment.” Doc. no. 14 at 18. The court
disagrees.
Nautilus’ argument misses the obvious point: there is an
ambiguity as to whether attorneys’ fees are compensable as
“costs taxed against the insured” under the Supplementary
Payments provision. Thus, to draw an inference in Nautilus’
favor from the absence of the reference to attorneys’ fees would
be contrary to New Hampshire law, which construes ambiguities
against the insurer. See, e.g., Cogswell Farm, 167 N.H. at 248
(“If more than one reasonable interpretation is possible, and an
interpretation provides coverage, the policy contains an
ambiguity and will be construed against the insurer.”). As the
Seventh Circuit aptly stated when interpreting a CGL policy
under Illinois law,
If an insurer does not wish to underwrite attorney’s fees charged against its insureds, it need only add words of exclusion to its contracts. Here, the four words “exclusive of attorney’s fees”, inserted into
26 the policy after the word “costs”, would have accomplished State Farm’s goal. In the absence of this qualification, the district court correctly decided that the insurance policy’s coverage of costs included attorney’s fees.
Littlefield v. McGuffey, 979 F.2d 101, 105 (7th Cir. 1992).
Indeed, the standard CGL policy was subsequently amended to
make that very distinction. Section 1.e. of the Supplementary
Payments section now reads that the insurer will pay with
respect to any “suit” against an insured it defends: “All court
costs taxed against the insured in the ‘suit.’ However, these
payments do not include attorneys’ fees or attorneys’ expenses
taxed against the insured.” ISO Properties, CGL Form CG 00 01
12 07, at 8 (2007).8 The addition of this sentence only
highlights the ambiguity in the phrase “costs taxed against the
insured” in the Policy at issue in this case. See, e.g., Pan
American v. Aetna, 505 F.2d 989, 1001 n.10 (2d Cir. 1974)
(holding that a subsequent change in an insurance contract to
language which is asserted to be ambiguous is evidence of that
ambiguity).
For these reasons, the court construes “costs taxed against
the insured” in the Supplementary Payments provision of the
Policy to include attorneys’ fees. Therefore, Nautilus is
8 Available at http://www.tmsic.com/pdfs /CommercialGeneralLiabilityCoverageForm_OccurrenceBasis.pdf.
27 obligated to pay plaintiffs the attorneys’ fees assessed in the
arbitrator’s decision on McPhail’s behalf.
B. Attorneys’ Fees as Damages
Because the court holds that the Policy obligates Nautilus
to pay plaintiffs’ attorneys’ fees as awarded by the arbitrator
on McPhail’s behalf, the court does not address the parties’
arguments as to whether attorneys’ fees are also compensable as
damages under the Policy.
C. Additional Attorneys’ Fees
RSA 491:22-b provides as follows: “In any action to
determine coverage of any insurance policy pursuant to RSA
491:22, if the insured prevails in such an action, he shall
receive court costs and reasonable attorneys’ fees from the
insurer.” In their complaint and in their motion, plaintiffs
request attorneys’ fees and costs incurred in this action
pursuant to the statute.
The court has determined that plaintiffs are not entitled
to coverage under the Policy for the cost of replacing their
roofs. They are, however, entitled to reasonable attorneys’
fees incurred in the arbitration under the Policy.
28 Whether plaintiffs are prevailing parties under RSA 491:22
is not readily apparent from New Hampshire case law and has not
been briefed by the parties. Because a declaratory judgment
action under RSA 491:22-b is a “broad remedy which should be
liberally construed,” Gen. Linen Serv. Co. v. Charter Oak Fire
Ins. Co., 951 F. Supp. 15, 17 (D.N.H. 1995) (internal citations
and quotation marks omitted), the court is inclined to grant
plaintiffs their costs and reasonable attorneys’ fees incurred
in this action.
In fairness to Nautilus, however, the court will hold in
abeyance its ruling as to this issue to allow the parties to
confer to attempt to reach an agreement as to whether plaintiffs
are entitled to costs and attorneys’ fees incurred in connection
with bringing this action and, if so, the appropriate award of
such costs and attorneys’ fees. As provided further below, the
parties shall notify the court as to whether they have reached
an agreement within 21 days of the date of this order. If
agreement is not reached, the parties are granted an opportunity
to brief the issue. Plaintiffs’ brief shall address whether the
court’s ruling in this order entitles them to costs and
reasonable attorneys’ fees under RSA 491:22-b and, if so, the
amount of costs and attorneys’ fees they request along with
29 supporting documentation, and Nautilus shall then file a
response.
CONCLUSION
For the foregoing reasons, Nautilus’ motion for judgment on
the stipulated record (doc. no. 14) is granted to the extent it
seeks a declaration that Nautilus has no duty to indemnify
McPhail for the costs of replacement roofs and the cost of
shingles, but denied to the extent it seeks a declaration that
it has no duty to indemnify McPhail for attorneys’ fees awarded
to plaintiffs in the arbitration. Plaintiffs’ motion for
judgment on the stipulated record (doc. no. 16) is granted to
the extent it seeks a declaration that Nautilus has a duty to
indemnify McPhail for attorneys’ fees awarded to plaintiffs in
the arbitration, but denied to the extent it seeks a declaration
that Nautilus has a duty to indemnify McPhail for the costs of
replacement roofs and the cost of shingles.
The court holds in abeyance its ruling as to whether
plaintiffs are entitled to costs and reasonable attorneys’ fees
incurred in bringing this suit under RSA 491:22-b. The parties
shall notify the court as to whether they have reached an
agreement as to costs and fees within 21 days of the date of
this order. If the parties cannot reach an agreement,
30 plaintiffs shall file a brief in support of their request within
14 days of the day notification is provided to the court.
Nautilus shall then have 14 days to file a response.
SO ORDERED.
__________________________ Landya McCafferty United States District Judge
July 23, 2019
cc: Counsel of Record