M. Mooney Corp. v. U.S. Fidelity & Guar. Co.

Decision Date03 December 1992
Docket NumberNo. 91-425,91-425
Citation618 A.2d 793,136 N.H. 463
CourtNew Hampshire Supreme Court

Wescott, Millham & Dyer, Laconia (Peter V. Millham, on the brief and orally), for plaintiff.

Devine, Millimet & Branch, P.A., Manchester (Eileen Fox, on the brief and orally), for defendant.

JOHNSON, Justice.

The defendant, United States Fidelity & Guaranty Company (USF & G) appeals from an order of the Superior Court (McHugh, J.) in a declaratory judgment action. The court found coverage for the plaintiff, M. Mooney Corp. (Mooney), under insurance policies issued by USF & G for claims relating to defective work performed by Mooney's subcontractors. We affirm.

Mooney is a general contractor engaged in major construction projects throughout the State. For each year relevant to this appeal, Mooney held a USF & G comprehensive general liability insurance policy and paid a premium for broad form property damage and completed operations coverage.

In 1983, Mooney entered into a contract with MARA Development Corp. to construct the 52-unit Ram's Horn Condominium project at Loon Mountain. Mooney hired subcontractors for aspects of the project, including roofing work and fireplace and chimney masonry. The project was completed in 1986, and all units were sold to individual owners. Thereafter, unit owners began to identify defects in the project.

In the spring of 1988 a chimney fire damaged one unit. Investigators attributed the fire to inadequate clearance between the fireplace masonry and wood framing, and further inspections revealed charring adjacent to fireplaces in four other units. Although no evidence of fire or charring appeared in any of the forty-seven remaining units, the State fire marshal prohibited use of fireplaces in all units pending correction of the hazard.

In October 1988, Ram's Horn on Loon Mountain Condominium Association (Ram's Horn) sued Mooney. Mooney sought coverage under its USF & G policy for three of Ram's Horn's claims: 1) that defective construction of fireplaces and chimneys resulted in the fire marshal's order closing all fireplaces; 2) that defective roofs caused water damage to interior areas; and 3) that unit owners consequently suffered loss of use of their property. Ram's Horn alleged damages for the value of lost use of their property and for the cost of repairs.

Mooney incurred great expense in reconstructing chimneys to the fire marshal's satisfaction and in repairing structures damaged by leaking roofs. USF & G paid Mooney for repairing actual damage in the five burned and charred units, but denied coverage for claims based on defective masonry and roofing work and based on the loss of use and repairs of fireplaces in the forty-seven units that were not burned or charred. USF & G maintained that there had been no "occurrence" to trigger its duty to defend or pay Mooney for loss of use and repairs in the forty-seven unburned units, and that policy exclusion (3) and exclusion (p) are further grounds for denying coverage. Following a bench trial, the trial court determined that the chimney fire was an "occurrence" and that no exclusions applied. The trial court directed USF & G to cover claims for damages attributable to lost use and the cost of repairs associated with the roof leaks and the owners' inability to use fireplaces.

On appeal, USF & G raises four arguments for reversing the trial court. USF & G first argues that claims for repairs and loss of use of fireplaces in the forty-seven unburned units do not allege "property damage" caused by an "occurrence." Second, USF & G contends that exclusion (p) precludes coverage for claims arising from the fire marshal's "withdrawal" of defective fireplaces. Third, USF & G argues that exclusion (3) bars coverage for the fire and water damage that resulted from the subcontractors' shoddy masonry and roofing work because Mooney accepted that work when it deemed the project complete. Finally, USF & G objects to the trial court's consideration of testimony of Mooney's independent insurance agent in finding exclusion (3) inapplicable. Examining the fine print of Mooney's policy, recognizing that the insurer bears the burden under RSA 491:22-a of establishing no coverage, Laconia Rod & Gun Club v. Hartford Acc. & Indemn. Co., 123 N.H. 179, 182, 459 A.2d 249, 250 (1983), and resolving ambiguities in favor of the insured, we affirm.

I. "Property Damage" and "Occurrence"

In a simple declaratory sentence followed by pages of conditions and exclusions, USF & G agreed to pay "all sums which the insured shall become legally obligated to pay as damages because of ... property damage ... caused by an occurrence" and promised to defend its insured in any suit "seeking damages on account of such ... property damage." The terms "property damage" and "occurrence" are defined on the policy jacket as follows:

" '[P]roperty damage' means:

. . . . .

loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.

" '[O]ccurrence' means an accident, including continuous or repeated exposure to conditions, which results in ... property damage neither expected nor intended from the standpoint of the insured."

(Emphasis added.) Mooney contends that it is covered for claims for damages relating to the forty-seven fireplaces closed by the fire marshal after the fire, since unit owners lost use of property even though the units were not physically injured. USF & G argues that loss of use of the uninjured fireplaces was not caused by an "occurrence," because none of the forty-seven units suffered physical damage and nothing resembling an "occurrence" is alleged in Ram's Horn's pleadings.

As a preliminary matter, we note that the question we address here is different from that addressed in Coakley v. Maine Bonding & Cas. Co., 136 N.H. 402, 618 A.2d 777 (decided November 25, 1992). In Coakley, we refined the definition of "damages" compensable under a general liability policy to "include only those costs which are remedial, not preventive." Id. at ----, 618 A.2d at 786. We relied on this distinction to hold that the term "damages" includes the cost of cleaning up existing damage to groundwater beneath a landfill, but not the cost of investigating and implementing a plan to prevent further migration of contaminants into the groundwater. Id. at ----, 618 A.2d at 785.

The parties do not contend, and we find no reason to conclude, that Ram's Horn's claims for lost use and repairs seek anything but remedial compensation for diminished property value resulting from leaky roofs and unusable fireplaces. For example, a measure of damages for a leaking roof could be the cost of repairing the roof. See id. at ----, 618 A.2d at 783 (citing Moulton v. Groveton Papers Co., 114 N.H. 505, 513, 323 A.2d 906, 911 (1974)). This is not to say that implementing remedial measures could not incidentally prevent future harm in this case. Similarly, if the unit owners' inability to use their fireplaces constituted "property damage" under the policy, then a trial court could reasonably find that possible measures of the resulting harm include the value of lost use and enjoyment and the cost of restoring fireplaces to working order. The fire marshal prohibited further use of the fireplaces until satisfactory repairs were made. The cost of repairs to remedy an otherwise permanent loss of fireplaces would not be a preventive expenditure, because it would fund restoration of "property damage" (defined as "loss of use" under the policy), rather than prevention of future harm.

We turn to whether the loss of use of fireplaces constituted "property damage" caused by an "occurrence." That the fire and charring in five units gave rise to certain covered claims is undisputed in this case; USF & G apparently conceded this point, for it paid for repairs to these five units. Applying the policy language to these facts, we consider whether the fire that caused physical damage to one unit also caused the loss of use of fireplaces in the remaining units.

The fire that damaged one unit of the Ram's Horn complex sparked an investigation which revealed hazardous conditions in all units. Pursuant to his duties under RSA chapter 153, the fire marshal prohibited further use of fireplaces in all units. Under these facts, there is a clear causal link between the occurrence of the fire and the fire marshal's order that resulted in the loss of use of tangible property in all units.

We address an issue embedded in USF & G's first argument before we draw this analysis to its natural conclusion and find "property damage" caused by an "occurrence" in the fireplace claims. USF & G never directly disputes that the fire that burned one unit constituted an "accident ... which result[ed] in ... property damage," but asserts instead that the facts pleaded by Ram's Horn do not allege loss of use caused by an occurrence. Ram's Horn's writ charged that improper design and construction of the fireplaces resulted in the fire marshal's issuance of an order closing the fireplaces, and that this caused damages including the cost of repairs and loss of use of property. Nowhere in Ram's Horn's writ is the occurrence of the fire alleged. USF & G presumes that it must confront only the facts actually in the pleadings and accordingly argues that there is no coverage for claims alleging defective work.

The terms of Mooney's policy do not sustain USF & G's argument that coverage must arise only from alleged facts rather than from underlying facts. The insurer pledged in broad terms to defend any suit "seeking damages on account of ... property damage, even if any of the allegations of the suit are groundless." The policy does not expressly restrict this duty to cases in which the pleadings alone allege sufficient facts to constitute covered claims.

Instead, USF...

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