Tred R. Eyerly | Insurance Law Hawaii | August 21, 2019
The court determined that portions of an arbitration award against the insured contractor based upon faulty workmanship were covered by the policy. Wallace v. Nautilus Ins. Co., 2019 U.S. Dist. LEXIS 122219 (D. N. H. July 23, 2010).
Plaintiffs, owners of adjoining homes, hired McPhail Roofing, LLC to replace the roofs of their houses. After installation, the plaintiffs found several problems with their roofs and withheld roughly a third of the agreed-upon contract price from final payments due to McPhail. A roofing consultant found evidence of water leaking through both roofs during rainstorms. Improper installation of the shakes on the roofs allowed rain to seep through to the roof decks (the plywood underneath the roofs) and eventually into the houses. The only way to cure the installation defects was to remove and replace the roofs entirely.
Plaintiffs and McPhail went to arbitration. Plaintiffs sought compensation for the damage caused by the leaking and for the replacement costs of the roofs. McPhail sought the remaining payment under the contracts. Nautilus defended McPhail under this CGL policy.
The arbitrator issued awards against McPhail, $140,053.50 to one owner and $160,065.62 to the other owner. Pursuant to the parties’ stipulation, the arbitrator also awarded plaintiffs $176,898.95 for attorneys’ fees, expert witness fees and other expenses, including pre- and post- judgment interest.
Nautilus paid a portion of the award for attic cleaning and re-insulation, repainting, expert witness fees and expenses. Nautilus determined the rest of the award, including replacing the roofs and award of attorneys’ fees, was not covered under the policy. McPhail declared bankruptcy and plaintiffs obtained an assignment of McPhail’s claims against Nautilus, eventually bringing suit against Nautilus.
Agreeing that defective workmanship alone was not an occurrence under New Hampshire law, plaintiffs argued that the occurrence here was not the defective workmanship itself, but rather the leaking caused by the defective roofs, which resulted in property damage. The court agreed.
The damage for the cost of replacing the roofs was not covered, however. The arbitrator found that plaintiffs were entitled to the replacement cost of the roofs because: (1) the roofs were installed defectively; and (2) plaintiffs’ consultant advised them that the only way to cure the installation defects was to remove and replace the roofs. No New Hampshire case held that a CGL policy covered the cost of replacing defective work any time property damage resulted from it.
Next, the court turned to whether the policy covered the award of attorneys’ fees. The Supplementary Payments provision included Nautilus’ obligation to pay “costs taxed against the insured.” Plaintiffs argued the phrase was ambiguous and should be construed in their favor. The court noted that several jurisdictions had interpreted the phrase to include an award of attorneys’ fees, but noted that a Hawaii federal district court case held that the phrase excluded attorneys’ fees. CIM Ins. Corp. v. Masamitsu, 74 F. Supp. 2d 975 (D. Haw. 1999). The court went the the majority position, finding that “costs taxed against the insured” in the Supplementary Payments provision included attorneys fees.