Cogswell Farm Condo. Ass'n v. Tower Grp., Inc.

• Decision Date: 13 January 2015
• Docket Number: No. 2013–568,2013–568
• Citation: 167 N.H. 245,110 A.3d 822
• Parties: COGSWELL FARM CONDOMINIUM ASSOCIATION v. TOWER GROUP, INC. & a.
• Court: New Hampshire Supreme Court

167 N.H. 245

110 A.3d 822

COGSWELL FARM CONDOMINIUM ASSOCIATION

v.TOWER GROUP, INC. & a.

No. 2013–568

Supreme Court of New Hampshire.

Argued: June 18, 2014

Opinion Issued: January 13, 2015

McDowell & Osburn, P.A., of Manchester (Gordon A. Rehnborg, Jr. on the brief and orally), and Scott & Scott, P.A., of Londonderry (Michael J. Scott on the brief), for the petitioner.

Downs Rachlin Martin PLLC, of Lebanon (Katherine M. Strickland on the brief), for respondent Tower Group, Inc.

Primmer Piper Eggleston & Cramer, PC, of Manchester (Doreen F. Connor on the brief and orally), for respondent Acadia Insurance Company.

BASSETT, J.

In this declaratory judgment proceeding, the petitioner, Cogswell Farm Condominium Association (Cogswell), appeals an order of the Superior Court (McHugh, J.) finding that two exclusions in the insurance policies issued by the respondents, Tower Group, Inc. (Tower) and Acadia Insurance Company (Acadia), preclude coverage in the petitioner's underlying lawsuit against Lemery Building Company, Inc. (Lemery). We reverse and remand.

The trial court found, or the record supports, the following facts. Between June 2000 and November 2003, Lemery was responsible for the construction and development of 24 residential condominium units in Atkinson. The owners of the condominium units are now members of the petitioner association. Acadia issued Lemery a commercial general liability insurance policy, providing coverage from March 2000 to August 2002. Tower issued Lemery an identical policy, with coverage from August 2002 until November 2003.

In 2001, Lemery began selling the units to third parties.

In 2009, Cogswell sued Lemery and others, alleging negligence, breach of contract, and negligent supervision in the construction of the units. Cogswell asserted that the "weather barrier" components of the units—including the water/ice shield, flashing, siding, and vapor barrier—were defectively constructed and resulted in damage to the units due to water leaks.

In 2011, Cogswell filed a petition for declaratory judgment against Tower, seeking a declaration that its claims against Lemery were covered under Tower's policy. Cogswell later added Acadia as a party to the declaratory judgment action.

The respondents filed motions for summary judgment, arguing that Cogswell's claims against Lemery did not trigger coverage under their policies. The trial court entered summary judgment in favor of the respondents regarding coverage for Cogswell's breach of contract and negligent supervision claims against Lemery, but denied the motion as to the negligence claim. The court concluded that uncertainty existed regarding whether property damage to the condominium units occurred during the policy periods and, therefore, ordered that an evidentiary hearing be held to determine whether the negligence claim could proceed.

The only witness to testify at the evidentiary hearing was a construction consultant hired by Cogswell. As noted by the trial court in its order, the consultant opined regarding "numerous defects in the weather barrier" that caused "almost immediate[ ]" water damage to the exterior and interior finishes of the condominium units. The consultant observed that the damage went undetected for years and acknowledged that he was unable to discern the amount of damage that occurred prior to the expiration of each policy.

Following the hearing, Cogswell argued that its claims amounted to an "occurrence" under the policies, thereby triggering coverage. Cogswell also maintained that, although the exclusions contained within part J of each of the policies precluded coverage for damage to the defectively constructed weather barriers, the exclusions did "not exclude coverage for the resulting damage to the otherwise nondefective ‘exterior and interior finishes’ ... which directly resulted from water infiltration."

In response, the respondents again argued that Cogswell's claims did not trigger coverage under their policies. They also argued that, even if the trial court determined that coverage was triggered, two exclusions contained within the policies, J(1) and J(6), precluded coverage. Exclusion J(1) excludes coverage for "property damage" to property that Lemery "own[s], rent[s], or occup[ies]." Exclusion J(6) excludes coverage for property damage to "[t]hat particular part of any property that must be restored, repaired or replaced because ‘[Lemery's] work’ was incorrectly performed on it."

The trial court issued supplemental orders denying the respondents' motions for summary judgment on the negligence claim. The court credited the consultant as being "highly credible" and ruled that "the negligence alleged by [Cogswell], if proven, would in fact constitute an occurrence" under the insurance policies, thus triggering coverage. The court also ruled that a jury would decide whether any property damage occurred during the policy periods. The court further declined to rule on the applicability of exclusions J(1) and J(6), reserving that determination for the jury as well.

The respondents then filed motions for reconsideration, arguing that the interpretation and application of exclusions J(1) and J(6) presented questions of law for the court—rather than the jury—to decide, and that, as a matter of law, the exclusions precluded coverage. In its motion, Tower also challenged the trial court's decision to allow a jury to determine whether property damage occurred during the policy periods. In response, Cogswell conceded that the court could "determine as a matter of law the meaning of exclusions [J](1) and [J](6)," but argued that, because "factual issues exist concerning whether these exclusions apply in this case," a jury should decide such factual issues. Cogswell also asserted that exclusions J(1) and J(6) were inapplicable.

In ruling upon the motions, the trial court vacated the portion of its prior order allowing the jury to determine whether property damage occurred during the policy periods. The court agreed that the issue of whether the two exclusions applied presented a question of law for it to decide, and it determined that exclusions J(1) and J(6) both applied and excluded coverage. Accordingly, the court concluded that neither Tower nor Acadia had a duty to defend or an "obligation [to pay] any damages to [Cogswell] if [Cogswell] is successful in the underlying litigation [against Lemery]." This appeal by Cogswell followed.

"In reviewing a trial court's summary judgment ruling, we consider the affidavits and other evidence, and all inferences properly drawn from them, in the light most favorable to the non-moving party." Rivera v. Liberty Mut. Fire Ins. Co., 163 N.H. 603, 606, 44 A.3d 498 (2012). "Summary judgment may be granted only where no genuine issue of material fact is present, and the moving party is entitled to judgment as a matter of law." Id. "We review the trial court's application of the law to the facts de novo ." Id.

"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." Id. ; see RSA 491:22–a (2010). "The interpretation of insurance policy language is a question of law for this court to decide." Rivera, 163 N.H. at 606, 44 A.3d 498. "We review questions of law de novo. " Great Am. Dining v. Philadelphia Indem. Ins. Co., 164 N.H. 612, 617, 62 A.3d 843 (2013). We first look to the plain and ordinary meaning of the policy's words in context, "and we construe 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. at 616, 62 A.3d 843 (quotation omitted). "This is an objective standard." Id.

"The insurer asserting an exclusion of coverage bears the burden of proving that the exclusion applies." Rivera, 163 N.H. at 606, 44 A.3d 498. "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." Great Am. Dining, 164 N.H. at 616, 62 A.3d 843 (quotation omitted); see Colony Ins. Co. v. Dover Indoor Climbing Gym, 158 N.H. 628, 630, 974 A.2d 399 (2009) ("Ambiguity exists if reasonable disagreement between contracting parties leads to at least two interpretations of the language." (quotation omitted)).

On appeal, Cogswell first contends that the trial court erred in determining that exclusion J(1) operated to bar coverage for all the units at all times. Exclusion J(1) excludes coverage for " ‘[p]roperty damage’ to ... [p]roperty you own, rent, or occupy." "Property damage" is defined as either "[p]hysical injury to tangible property, including all resulting loss of use of that property" or "[l]oss of use of tangible property that is not physically injured." The term "you" refers to the insured, Lemery.

Cogswell concedes that exclusion J(1) excludes coverage for property damage that occurred while Lemery owned the condominium units—prior to its sale of the units to third parties beginning in 2001. However, Cogswell argues that coverage was not excluded under exclusion J(1) for damages sustained by the units after they had been sold by Lemery and while the policies were in effect. Notably, the respondents do not disagree with Cogswell. Neither do we: we conclude that the trial court erred in ruling that exclusion J(1) operated as an exclusion to bar coverage for each unit after it was sold. Because the units were sold at different times and the policies were in effect during two different time periods, on remand, the trial court must determine which units had been sold by Lemery but continued to be covered under the policies.

Cogswell next argues that the trial court erred in determining that exclusion J(6) applied to bar coverage. Exclusion J(6) precludes coverage for property damage to "[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’...