Wallace v. Nautilus Ins. Co.

Decision Date23 July 2019
Docket NumberCivil No. 18-cv-747-LM
Citation2019 DNH 113
PartiesJohn Wallace et al. v. Nautilus Insurance Company
CourtU.S. District Court — District of New Hampshire

John Wallace and Elizabeth Trase ("plaintiffs") hired McPhail Roofing, LLC ("McPhail") to replace the roofs on both of their houses. Shortly after McPhail finished construction, plaintiffs noticed that the roofs were leaking, and eventually replaced the roofs. Plaintiffs subsequently commenced an arbitration proceeding against McPhail, and were awarded the cost of replacing the roofs, compensation for the damage done to their property by the leaking, and attorneys' fees and expenses.

Nautilus Insurance Company ("Nautilus"), McPhail's commercial general liability insurer, defended McPhail in the arbitration. Nautilus paid plaintiffs on McPhail's behalf roughly 10% of the arbitrator's award, which included compensation for the damage to plaintiffs' houses and property caused by the leaking, such as landscaping damages, repainting, and attic cleaning and reinsulation. In addition, Nautilus paid expenses and fees plaintiffs incurred in pursuing the arbitration, including expert witness fees and pre- and post-judgment interest. Nautilus asserted, however, that its insurance policy with McPhail did not cover the cost of replacing the roofs or plaintiffs' attorneys' fees, and it refused to indemnify McPhail for those amounts.

After McPhail declared bankruptcy, plaintiffs brought this action against Nautilus, seeking a declaration that the unpaid portion of the arbitrator's award is covered by McPhail's insurance policy with Nautilus. See N.H. Rev. Stat. Ann. ("RSA") 491:22.

The court granted the parties' joint request to resolve this case on a stipulated record. The parties have submitted cross-motions for judgment on the stipulated record and, on May 16, 2019, the court heard oral argument.1

At the May 16 hearing, Nautilus requested the opportunity to file a supplemental memorandum addressing issues the court raised during oral argument. The court granted that request and the parties submitted supplemental memoranda. See doc. nos. 22 & 23. The court has considered the memoranda in resolving the parties' motions.


Plaintiffs own adjoining houses on Quarry Road in Yarmouth, Maine. In 2015, plaintiffs determined that the cedar shingle roofing on both their houses was deteriorating. In September 2015, plaintiffs entered into separate contracts with McPhail to replace the roofs on their houses. Both contracts called for McPhail to install "LifePine" roofs.

McPhail used subcontractors to complete the work and finished the roof replacements in the fall of 2015. In November 2015, after McPhail installed the roofs, both plaintiffs noticed several issues with their roofs, both aesthetically and otherwise.2 The plaintiffs withheld roughly a third of the agreed-upon contract price from the final payments due to McPhail under the contracts.

Plaintiffs contacted LifePine's owner, who referred them to Robert Fulmer, a roofing consultant in New Hampshire who the owner described as an expert in LifePine roofs. In January 2016, Fulmer conducted a detailed inspection of the roofs and found evidence of water leaking through both roofs during rainstorms. According to Fulmer, improper installation of theshakes on the roofs allowed rain to seep through to the roof decks (the plywood underneath the roofs) and eventually into the houses. Fulmer opined that the only way to cure the installation defects was to remove and replace the roofs entirely. Plaintiffs took Fulmer's advice and replaced both roofs, using another contractor.

Plaintiffs and McPhail were unable to resolve their dispute and proceeded to arbitration. Plaintiffs sought compensation for the damage caused by the leaking and for the replacement cost of the roofs. McPhail sought the remaining payment due under the parties' contracts. Nautilus, with whom McPhail held a general commercial liability policy (the "Policy"), defended McPhail in the proceeding.

On June 29, 2017, the arbitrator issued an award, finding that McPhail had failed to properly install the roofs in accordance with the manufacturer's instructions and applicable building codes. He further found that the remedy of removing and replacing the roofs was reasonable.

The arbitrator awarded Wallace $140,053.50 and Trase $160,065.62 against McPhail. At the parties' request, the arbitrator itemized the award of damages for each plaintiff. For Wallace, the arbitrator awarded damages for the replacement roof without shingles, the shingles themselves, attic cleaning,attic reinsulation, and repainting. For Trase, the arbitrator awarded damages for the replacement roof without shingles, the shingles themselves, and damage to her landscaping.

In addition, the parties stipulated that the arbitrator must award attorneys' fees and expenses to the substantially prevailing party. Because the parties could not agree on the amounts, the arbitrator issued a Supplemental Decision on March 29, 2018. He awarded plaintiffs $176,898.95, broken down separately into awards for attorneys' fees, expert witness fees, and other expenses, plus additional compensation for pre- and post-judgment interest. On May 10, 2018, the District of Maine entered a judgment confirming the arbitration awards against McPhail. Wallace & Trase v. Notinger as Ch. 7 Bankr. Trustee for McPhail Roofing, LLC, No. 2:18-cv-00188, Dkt. No. 4 (D. Me. May 10, 2018).

Nautilus promptly paid plaintiffs on McPhail's behalf what it determined was covered under the Policy. Specifically, Nautilus paid Wallace $14,961.70, which represented the itemized damages in the arbitrator's award for attic cleaning and reinsulation, as well as repainting, and $25,910.24 in expert witness fees and expenses. Nautilus paid Trase $873.63, which represented the itemized damages to her landscaping, and $24,566.32 in expert witness fees and expenses. Nautilusrefused to pay the remainder of the arbitrator's award, including the cost of replacing the roofs and the award of attorneys' fees.

Following McPhail's declaration of bankruptcy, plaintiffs obtained an assignment of McPhail's claims against Nautilus. In re McPhail Roofing, LLC, No. 17-11305-MAF, Dkt. No. 99 (Bankr. D.N.H. Aug. 22, 2018). This action followed.


Under New Hampshire law,3 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.'" Mass. Bay Ins. Co. v. Am. Healthcare Servs. Ass'n, 170 N.H. 342, 348 (2017) (quoting Cogswell Farm Condo. Ass'n v. Tower Grp., Inc., 167 N.H. 245, 248 (2015)); see RSA 491:22-a (2010). "The interpretation of insurance policy language is a question of law for this court to decide."Cogswell Farm, 167 N.H. at 248 (quotation omitted). The court first looks "to the plain and ordinary meaning of the policy's words in context, and . . . construe[s] 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. (quotation omitted). "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." Id.


The parties' dispute requires the court to answer two questions: First, does the Policy require Nautilus to indemnify McPhail, and therefore provide payment to plaintiffs, for the cost of removing and replacing plaintiffs' roofs? Second, does the Policy require Nautilus to pay plaintiffs' attorneys' fees incurred in the arbitration? The court addresses each question in turn.

I. Coverage for Cost of Replacement Roofs

Nautilus contends that it does not have a duty to indemnify McPhail for the cost of removing and replacing plaintiffs' roofs for two reasons. It argues: 1) the loss is outside the scope ofthe Policy's coverage; and 2) even if some portion of the loss is within the Policy's coverage, the loss is excluded by one or more Policy exclusions. Plaintiffs dispute both arguments.

A. Scope of Coverage

The Policy at issue in this case is a standard commercial general liability ("CGL") policy, the language of which has been subject to litigation in several jurisdictions for many years. Under the Policy, Nautilus agreed to "pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." Doc. no. 14-3 at 11. The Policy applies only if the "'bodily injury' or 'property damage' is caused by an 'occurrence' that takes place in the 'coverage territory.'" Id. Finally, the Policy defines an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id. at 24.

1. Occurrence

Nautilus contends that under New Hampshire law, the cost to replace defective workmanship—here, the roofs themselves—is not covered under the Policy because defective workmanship is not an occurrence. In support of its position, Nautilus reliesprimarily on Weedo v. Stone-E-Brick, Inc., 81 N.J. 233 (1979), a New Jersey Supreme Court case which has been cited often in various jurisdictions. Weedo holds that a standard CGL policy does not cover the cost to make good on faulty workmanship absent property damage or bodily injury. Although, as Nautilus concedes, Weedo has never been cited by a New Hampshire state court, New Hampshire law is consistent with its holding. See Hull v. Berkshire Mut. Ins. Co., 121 N.H. 230, 231 (1981) (holding that plaintiffs' claim was not covered by a standard CGL policy because "they allege no bodily injury or property damage . . . [or] damages caused by an accident" and instead had alleged only "a claim for money damages for the builder's defective work"); see also McAllister v. Peerless Ins. Co., 124 N.H. 676, 678 (1984) (holding that "defective work,...

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