U.S. Fidelity & Guar. Co., Inc. v. Johnson Shoes, Inc., 82-119

• Decision Date: 24 March 1983
• Docket Number: No. 82-119,82-119
• Citation: 123 N.H. 148,461 A.2d 85
• Parties: UNITED STATES FIDELITY & GUARANTY CO., INC. v. JOHNSON SHOES, INC.
• Court: New Hampshire Supreme Court

Page 85

461 A.2d 85

123 N.H. 148

UNITED STATES FIDELITY & GUARANTY CO., INC. v. JOHNSON SHOES, INC.

No. 82-119.

Supreme Court of New Hampshire.

March 24, 1983.

Wiggin & Nourie, Manchester (Gregory A. Holmes, Manchester, on brief, and William S. Orcutt, Manchester, on brief and orally), for U.S. Fidelity & Guar. Co., Inc.

McLane, Graf, Raulerson & Middleton P.A., Manchester (Wilbur A. Glahn, III, Manchester, on brief), and orally, and James C. Hood, Manchester, on brief, for intervenor Eli Fishman.

Devine, Millimet, Stahl & Branch P.A., Manchester (Lee C. Nyquist, Manchester, on brief and orally), for intervenor Cohas Realty Corp.

DOUGLAS, Justice.

This appeal involves issues arising out of a declaratory-judgment petition filed by United States Fidelity & Guaranty Co., Inc. (USF & G) to determine its obligation to provide coverage and to defend its insured, Johnson Shoes, Inc., in two underlying lawsuits. USF & G denied that it had a duty to provide coverage and to defend on two grounds: (1) that no "occurrence," as defined by the policy, had occurred during the coverage period; and (2) that the property damage was of the type explicitly excluded from coverage by the terms of the policy. We affirm the order of the trial court that USF & G must provide coverage and a defense in the underlying actions.

For a period of approximately twenty years preceding its termination of business in November 1972, Johnson Shoes, Inc., leased premises in Manchester from the intervenor Cohas Realty Corporation. During this twenty-year period, Johnson Shoes, Inc., had a comprehensive general liability policy with USF & G. The premises was unoccupied after Johnson Shoes, Inc., terminated its business in November 1972.

In August 1973, after a period of heavy rains, oil which had apparently escaped from an underground storage tank located on the leased premises, spilled over onto neighboring property up to one-half mile away. Previously, in 1971, the maintenance man for Johnson Shoes, Inc., had reported to his superiors that he believed that the underground oil tank was leaking.

Cohas Realty Corporation, the owner of the leased premises, paid more than $200,000 to clean up the surrounding premises and the neighboring property, and then sued Johnson Shoes, Inc., for reimbursement of the clean-up expenses. In addition, Florence Duckoff, a principal in Cohas Realty Corporation, filed suit against Eli Fishman in his capacity as a corporate officer and director of Johnson Shoes, Inc., and another corporation, for damages to the premises. Cohas Realty Corporation and Eli Fishman were permitted by the court to intervene in the declaratory-judgment action brought by USF & G because Johnson Shoes, Inc., had gone bankrupt and failed to make an appearance.

After a hearing in February 1982 on the petition for declaratory judgment, the Superior Court (Flynn, J.) ruled that USF & G was obligated to defend Johnson Shoes, Inc., and Eli Fishman in the two underlying lawsuits, and to provide coverage for damage to property other than the leased premises. On February 23, 1982, Cohas Realty Corporation requested a clarification of the court's findings of fact made during the hearing. In response to this request, the court ruled that all findings of fact made during the declaratory-judgment proceeding were "for the purpose of reaching a decision on ... [USF & G's] petition with respect to policy coverage and are not intended to be controlling in the underlying civil actions."

USF & G argues that the trial court erred when it ordered the insurer to assume the defense of the actions against its insured based upon facts alleged in the underlying writs, without allowing the introduction of extrinsic evidence to supplement the allegations. It is well-settled law in New Hampshire that an insurer's obligation to defend its insured is determined by whether the cause of action against the insured alleges sufficient facts in the pleadings to bring it within the express terms of the policy, even though the suit may eventually be found to be without merit. Hersey v. Maryland Casualty Co., 102 N.H. 541, 542-43, 162 A.2d 160, 162 (1960). The duty of an insurer to defend is not necessarily coextensive with its duty to pay. We draw a distinction, however, between groundless suits giving rise to the duty to defend, and actions which, even if successful, would not be within the policy and against which the insurer has no duty to defend. Id. at 543, 162 A.2d at 162.

In determining whether a duty to defend exists based upon the sufficiency of the pleadings, we consider the reasonable expectations of the insured as to its rights under the policy. See Town of Epping v. St. Paul Fire & Marine Ins. Co., 122 N.H. 248, 252, 444 A.2d 496, 498 (1982); Lariviere v. New Hampshire Ins. Group, 120 N.H. 168, 172, 413 A.2d 309, 312 (1980). In this case, the pertinent coverage provision of the insurance policy expressly obligates USF & G to defend Johnson Shoes, Inc., against improper lawsuits:

"The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies, caused by an occurrence, and the Company shall have the right and duty to defend any suit against the Insured seeking damages on account of such ... property damage, even if any of the allegations of the suit are groundless, false or fraudulent ...."

(Emphasis added.)

In our opinion, a reasonable person in the position of the insured would understand this provision as obligating the insurer to come to his defense in any action in which the pleadings alleged facts to bring it within the terms of the policy, unless some other provision of the policy barred coverage. We find that Johnson Shoes, Inc., would have had a reasonable expectation that USF & G would defend based on the express language of this provision of the policy. We find no error in the trial...