United States District Court, D. New Hampshire
John Wallace et al.
Nautilus Insurance Company
MCCAFFERTY UNITED STATES DISTRICT JUDGE
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.
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.
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.
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.
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.
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.
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. 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
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.
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.
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.
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, attic reinsulation, and repainting. For
Trase, the arbitrator awarded damages for the replacement
roof without shingles, the shingles themselves, and damage to
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,
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 refused to pay the remainder of the
arbitrator's award, including the cost of replacing the
roofs and the award of attorneys' fees.
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.
New Hampshire law,  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.” 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.
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
Coverage for Cost of Replacement Roofs
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 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
Scope of Coverage
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.
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
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”).
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
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.
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
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 that resulted in property damage,