Commercial Union Assur. Companies v. Gollan, 78-048

• Decision Date: 15 November 1978
• Docket Number: No. 78-048,78-048
• Parties: COMMERCIAL UNION ASSURANCE COMPANIES v. William F. GOLLAN et al.
• Court: New Hampshire Supreme Court

Page 839

394 A.2d 839

118 N.H. 744

COMMERCIAL UNION ASSURANCE COMPANIES v. William F. GOLLAN et al.

No. 78-048.

Supreme Court of New Hampshire.

Nov. 15, 1978.

Devine, Millimet, Stahl & Branch, Manchester (Andrew D. Dunn, Manchester, orally), for plaintiff.

Gallagher, Callahan & Gartrell, Concord (Edward E. Shumaker, III, Concord, orally), for defendant Lloyd G. Reynolds, Inc.

DOUGLAS, Justice.

This case presents issues concerning the effect of certain clauses in a liability insurance policy purchased by a contractor corporation. The corporation built a home whose roof collapsed shortly after its owners took possession.

In 1974 William and Gloria Gollan bought a parcel of land in Peterborough, New Hampshire, from Lloyd and Margaret Reynolds and hired Mr. Reynolds' construction firm, Lloyd G. Reynolds, Inc., to build a home on the lot. Shortly after the Gollans moved into their new home, the roof collapsed. The Gollans then sued the builder for cost of repair and incidental damages. The declaration alleged negligence and breach of warranty. Commercial Union Assurance Companies (Commercial Union) insured the builder under a liability policy. Claiming that certain coverage exclusions applied, Commercial petitioned the superior court for a declaratory judgment under RSA 491:22. The parties submitted an agreed statement of facts and Batchelder J., held in favor of the insurer. The builder's exceptions were reserved and transferred to this court. We reverse.

The trial court was correct in finding that the insurer must bear the burden of proving the absence of coverage. RSA 491:22-a (Supp.1977); Merchants Mut. Ins. Co. v. Transformer Serv. Inc., 112 N.H. 360, 248 A.2d 112 (1972). The question before us is whether the ordinary layman in the position of the insured could reasonably be expected to understand that certain exclusions qualified the policy's grants of coverage. See Commercial Union Assurance Cos. v. Derry, 118 N.H. ---, 387 A.2d 1171 (1978); Brown v. Laconia, 118 N.H. ---, 386 A.2d 1276 (1978); Aetna Ins. Co. v. State Motors, Inc., 109 N.H. 120, 125, 244 A.2d 64, 67 (1968).

Insurance policies have long been under attack in this jurisdiction for their confusing language. We recently noted that:

Although insurers have had over one hundred years to hone their policies into forms that would not ferry the unwary reader on a trip into Wonderland, they regrettably often fully merit the criticism that Chief Justice Doe (deploring the prolixity of complex verbiage in policies, DeLancey v. Insurance Co., 52 N.H. 581 (1873)) levelled at their predecessors. Moreover, as we have recognized, these policies usually are imposed on the consumer on a take-or-leave-it basis. . . . The pretense that the parties had bargained for the resulting contract of insurance is an absurdity.

Storms v. U. S. Fidelity and Guaranty Co., 118 N.H. ---, ---, 388 A.2d 578, 580 (1978).

The policy in the present case is entitled "Comprehensive General Liability Insurance" and is seventeen pages long. The top half of the standard-form first page contains blanks in which are typed the insured's name and address and the nature of his business, the amount of premiums, and the extent of coverage. The insured bought coverage for both bodily injury and property damage. The bottom half of the first page lists certain hazards for which coverage may be purchased. From the presence of numbers typed under the heading "advanced premiums," it is apparent that the builder purchased coverage for "Premises-Operations" and "Completed Operations." "Completed Operations Hazard" is explained in the "definitions" section on page four to include "property damage arising out of operations . . . after such operations have been completed . . . . 'Operations' includes materials, parts or equipment . . . ." The second page is almost entirely a blank form duplicate of page one. However, in eleven lines of print running from the bottom of page two to the top of page three, the reader is informed that "(t) he company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of (bodily injury or property damage) to which this insurance applies. . . ." Following this affirmative statement of coverage are fifteen pages of exclusions, limitations, definitions and amendments.

The very first exclusion (exclusion a) states "(t)his insurance does not apply: a) to liability assumed by the Insured under any contract . . . but this Exclusion does Not apply to a . . . warranty that Work performed by or on behalf of the named insured will be done in a workmanlike manner." (Emphasis added.) This section, coupled with the first page, the affirmative statement of coverage, the title "General Liability Insurance," and the special purchase of "completed operations hazard" indicates broad protection for the insured both during construction and upon completion of the building.

Commercial Union relied on the following three exclusions in refusing coverage:

This insurance does not apply: . . .

(L ) To property damages to premises alienated by the named insured arising out of such premises or any part thereof . . .

(n) To property damage to the named insured's products arising out of such products or any part of such products.

(O ) To property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith . . . .

The trial court correctly ruled that exclusions (L ) and (n) do not suspend coverage. However, the trial court found that exclusion (O ) modified the exception found in exclusion (a) for warranties of work performed to deny coverage. We disagree.

Exclusion (O ) is only one of the multitudinous exclusions contained in this policy. It is printed in small type seventy-eight lines below exclusion (a). The clear meaning of the exception in exclusion (a) is that the policy provides coverage for liability arising from defects in work warranted by the insured to be workmanlike. If Commercial Union intended exclusion (O ) to modify or negate exclusion (a), the exclusions should have been physically placed so that any reasonable person in the position of the insured would have understood that they be read together. Brown v. Laconia, supra; Storms v. United States Fidelity and Guaranty Co., supra.

All parts of an insurance agreement are to be given effect whenever reasonably possible. Rivier College v. St. Paul Fire & Marine Ins., 104 N.H. 398, 402, 187 A.2d 799, 803 (1963). But any reconciliation of contradictory clauses must result in a policy which reflects the insured's reasonable expectations. Brown v. Laconia, supra. Commercial Union suggests that the exception in exclusion (a) preserves warranty of quality and workmanship from the specific exclusion of contractual liability. Commercial Union suggests further that exclusion (L ), when read with the exception in exclusion (a), provides coverage for damages to the property of third persons resulting from breach of warranty but not for damages to the work product resulting from such a breach. This interpretation...