Drop Anchor Realty Trust v. Hartford Fire Ins. Co.

• Decision Date: 01 July 1985
• Docket Number: No. 83-392,83-392
• Citation: 126 N.H. 674,496 A.2d 339
• Parties: DROP ANCHOR REALTY TRUST Charlotte Marshall, Trustee, v. HARTFORD FIRE INSURANCE COMPANY & a.
• Court: New Hampshire Supreme Court

Page 339

496 A.2d 339

126 N.H. 674

DROP ANCHOR REALTY TRUST Charlotte Marshall, Trustee, v. HARTFORD FIRE INSURANCE COMPANY & a.

No. 83-392.

Supreme Court of New Hampshire.

July 1, 1985.

Steven Eric Feld, of Portsmouth, by brief and orally, for plaintiff.

Boynton, Waldron, Doleac, Woodman & Scott P.A., Portsmouth (Ralph R. Woodman, Portsmouth, on the brief and orally), for defendants.

BATCHELDER, Justice.

This action arose from damage to the Drop Anchor Motel (the motel), which is owned by the plaintiff. Located on Ocean Boulevard in Hampton Beach, the motel sustained extensive wind and water damage during the blizzard of 1978. At the time of the blizzard, insurance policies with the defendants covered damage to the property from a variety of causes, including damage due to wind, but not damage due to flooding. During the course of this dispute, the central question has been whether the damage sustained in the blizzard was due to wind or to flooding. In these cross appeals by both parties from a verdict in favor of the plaintiff, we affirm in part, reverse in part, and remand.

On January 29, 1982, after unsuccessful attempts by the parties to reach an agreement on the amount of damages compensable under the policies, the plaintiff filed suit in superior court, alleging that the defendants had in bad faith failed to satisfy their obligations under the policies. During the course of the trial, the plaintiff moved to amend the ad damnum by increasing it to $100,000 from $75,000. The Court (Contas, J.) failed to rule on the motion.

At the close of the plaintiff's case, the defendants moved for a directed verdict, alleging, among other things, that the plaintiff had not sustained its burden on the issue of consequential damages. The motion was denied, subject to the defendants' exception.

The trial was held before a jury which, by special verdict, found that the plaintiff was entitled to compensatory damages in the amount of $12,000 and to damages due to the bad faith of the defendants in the amount of $12,000.

After the trial, the defendants' attorneys, Ralph R. Woodman and Patti Blanchette, conversed with several of the jurors in the court parking lot. Using information he had learned as a result of this conversation, Attorney Woodman the next day filed a motion to reconvene the jury together with a supporting affidavit which stated that the jurors had indicated that the jury had improperly calculated the amount of damages by factoring in 15% interest. Four days later, the court held a hearing on the motion. Over the plaintiff's objection, the court reconvened the jury for the purpose of answering special questions as to whether it had included interest in the verdict. When the jury responded that $10,000 in interest had been included, the court remitted the verdict in that amount.

In a subsequent order dated August 30, 1982, the court found that the defendants had in bad faith prolonged the litigation and were thus liable to the plaintiff for its reasonable attorney's fees and litigation expenses. The court awarded the plaintiff $11,710.26 for such fees and expenses.

On appeal, both parties claim that the trial court committed reversible error. The defendants challenge both the denial of their motion for a directed verdict on the issue of consequential damages and the award of attorney's fees to the plaintiff. The plaintiff objects to the amount of attorney's fees awarded and to the failure of the trial court to rule on its motion to amend the ad damnum, and raises several issues concerning the trial court's remittitur order.

The defendants moved for a directed verdict with respect to the three types of consequential damages claimed by the plaintiff: increased insurance premiums, loss of good will and business reputation, and lost profits for the 1978 season. A defendant is entitled to a directed verdict if "the plaintiff offers no evidence from which reasonable men can infer the burden of proof has been sustained." Williams v. Duston, 79 N.H. 490, 491, 111 A. 690, 691 (1920). In reviewing the denial of a directed verdict, we "consider the evidence most favorable to the plaintiff." Sargent v. Alton, 102 N.H. 476, 478, 160 A.2d 345, 346 (1960). "We will not upset denials of motions for non-suit, dismissal, directed verdict, or judgment n.o.v. where there is sufficient evidence in the record to support the ruling." Reid v. Spadone Mach. Co., 119 N.H. 457, 462, 404 A.2d 1094, 1097 (1979). We address each of the three types of consequential damages claimed by the plaintiff in turn, beginning with the claim of consequential damages for increased insurance premiums.

After the plaintiff instituted the present action, the defendants notified the plaintiff that one of its policies with the defendants had been cancelled and that the remaining policies would not be renewed, thus forcing the plaintiff to obtain new insurance. The evidence clearly established that the premiums under the new insurance policies were higher than the premiums under the policies with the defendants.

Consequential damages are reasonably forseeable losses that flow from a breach of contract. Petrie-Clemons v. Butterfield, 122 N.H. 120, 124, 441 A.2d 1167, 1170 (1982). In the instant case, the plaintiff alleged that the defendants had breached their contractual obligation to compensate the plaintiff for damages compensable under the policies, that the defendants, in their handling of the plaintiff's claims, had failed to comply with their implied obligations of good faith and fair dealing, and that the defendants' failure to satisfy the plaintiff's claims in good faith had caused the claimed consequential damages. The plaintiff presented no evidence, however, that the consequential damages with respect to increased insurance costs had flowed from the alleged breach of the defendants' obligation to settle the plaintiff's compensable claims. Although the increased cost of insurance resulted from the defendants' cancellation or nonrenewal of the policies, the plaintiff never claimed that the insurance cancellation and nonrenewals themselves amounted to a breach of the defendants' contractual obligations. Since no evidence was presented that the increased insurance costs resulted from the claimed contractual breach, the defendants were entitled to a directed verdict with respect to this aspect of the claimed consequential damages. We now turn to the consequential damages claimed for loss of good will and business reputation and lost profits.

At trial, evidence was presented that, as a result of the deteriorated condition of the property, the plaintiff was ousted from the Hampton Beach Chamber of Commerce, thereby denying the plaintiff the benefit of inclusion in chamber advertisements and forcing it to expend $1,500 in advertising; that complaints about the condition of the premises were made to Mr. and Mrs. Fiurmas, the managers of the motel, and to the chamber of commerce; and that the rental income per available unit sharply dropped during the 1978 season. In light of this evidence, we find that the trial court properly denied the defendants' motion for a directed verdict with respect to the claimed damages for loss of good will and reputation and lost profits.

The court's award of attorney's fees presents two issues for review. The first is whether the evidence supported the findings by the jury and by the court of bad faith on the part of the defendants. If these findings were proper, we must also decide whether the amount of fees awarded was reasonable. We affirm on both issues.

"Where an individual is forced to seek judicial assistance to secure a clearly defined and established right, which should have been freely enjoyed without such intervention, an award of counsel fees on the basis of bad faith is appropriate." Harkeem v. Adams, 117 N.H. 687, 691, 377 A.2d 617, 619 (1977). Thus, we have held that an "insured is entitled to attorney's fees 'if the insurer acted in bad faith in promoting unnecessary litigation.' " Johnson v. Phenix Mut. Ins. Co., 122 N.H. 389, 394, 445 A.2d 1097, 1099 (1982) (quoting Lawton v. Great Southwest Fire Ins. Co., 118 N.H. 607, 615, 392 A.2d 576, 581 (1978)). "Whether the defendant's delay was in fact in bad faith ... [is a] question [-] for the jury." Lawton v. Great Southwest Fire Ins. Co., supra at 612-13, 392 A.2d at 580.

In reviewing the reasonableness of the findings of bad faith by the jury and by the court, we note that "serious financial injuries may often result from an insurer's refusal or delay to make payment." Id. at 611, 392 A.2d at 579. We also recognize that " '[w]here the owner of a heavily mortgaged motel or other business property suffers a substantial ... loss, the owner may be placed in financial distress....' " Id. (quoting Reichert v. Gen. Ins. Co. of America, 59 Cal.Rptr. 724, 428 P.2d 860, 864 (1967)). For these reasons, an insurer is not permitted to delay payment "to coerce the insured into accepting less than full performance of the insurer's contractual obligations...." Id. 118 N.H. at 612, 392 A.2d at 580.

To determine whether the defendants breached their obligations of good faith and fair dealing, we examine one measure of the defendants' good faith: the settlement history of the case. In guaging the reasonableness of the defendants' settlement offers, we examine them in light of the jury's award of $14,000 in damages.

The premises were inspected by agents of the defendants on April 28, 1978. At that time, a settlement offer of $3,000 was made. Over the next several weeks, the defendants' estimate of covered damages was increased to $5,100 and then to $5,500. The amount of recovery that the plaintiff could have obtained under these estimates would have been reduced by depreciation and by the amount of the insured deductibles under the policies. When suit was filed the following January, the defendants paid into court $5,500 as the acknowledged value...