U.S. Fidelity Guaranty Co., Inc.v.Johnson Shoes

Supreme Court of New Hampshire HillsboroughMar 24, 1983
123 N.H. 148 (N.H. 1983)
123 N.H. 148461 A.2d 85

No. 82-119

Decided March 24, 1983

1. Insurance — Duty To Defend — Determination 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.

2. Insurance — Duty To Defend — Scope The duty of an insurer to defend is not necessarily coextensive with its duty to pay.

3. Insurance — Duty To Defend — Scope The supreme court draws a distinction between groundless suits giving rise to an insurer's 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.

4. Insurance — Duty To Defend — Determination In determining whether an insurer's duty to defend exists based upon the sufficiency of the pleadings, the supreme court considers the reasonable expectations of the insured as to its rights under the policy.

5. Insurance — Duty To Defend — Determination In a declaratory judgment action, the trial court did not err when it ordered insurer to assume the defense of actions against its insured based upon the pleadings in the underlying actions where the supreme court found that a reasonable person in the position of the insured would understand the pertinent provision in the insured's policy 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; also, where the supreme court found no error in the trial court's conclusion that the insurer's obligation to defend could be determined based upon the pleadings; and furthermore, where the record showed that the trial court went well beyond the facts as alleged in the underlying writs, and heard extensive evidence regarding coverage under the policy.

6. Insurance — Coverage — Burden of Proof The burden of establishing noncoverage is upon the insurer.

7. Appeal and Error — Findings — Tests for Overturning The supreme court's function in reviewing the trial court's findings is not to decide whether the supreme court would have found differently but to determine whether a reasonable person could find as did the trial judge.

8. Insurance — Liability for Damage or Injury — "Occurrence" In a declaratory judgment action to determine insurer's obligation to defend, where insured, a corporation, had occupied leased premises for twenty years preceding its termination of business in November 1972, and where during this period the insured had a comprehensive general liability policy with the insurer which defined "occurrence" as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the Insured," and further, where in August 1973 oil which had apparently escaped from an underground storage tank, located on the then unoccupied premises, spilled over onto neighboring property and where previously, in 1971, a maintenance man for the insured had reported to his superiors that he believed that the underground oil tank was leaking, the trial court's finding that the occurrence took place no later than November 1971, during the coverage period, was supported by sufficient evidence and the insurer failed to meet its burden of establishing noncoverage with regard to the timing of the occurrence.

9. Insurance — Liability for Damage or Injury — Exclusions In a declaratory judgment action to determine insurer's obligation to defend, where insured, a corporation, had occupied leased premises for twenty years preceding its termination of business in November 1972, and where during this period the insured had a comprehensive general liability policy with the insurer which contained the exclusion that "This insurance does not apply . . . to property damage to property in the care, custody or control of the Insured . . .", and further, where in August 1973, oil which had apparently escaped from an underground storage tank, located on the then unoccupied premises, spilled over onto neighboring property and where previously, in 1971, a maintenance man for the insured had reported to his superiors that the underground oil tank was leaking, the trial court properly concluded that the exclusion did not apply where testimony before the trial court clearly supported a finding that in the underlying action by the owner of the leased premises against the insured the alleged property damage was to property beyond the leasehold of the insured and not in its "care, custody or control" and the trial court also received into evidence a copy of insured's lease agreement from which it could have reasonably found that the property damage alleged in the other underlying action was to property which was not in the possessory control of the insured; accordingly, the supreme court held that the trial court properly ordered the insurer to provide coverage for damage to property other than the leased premises.

10. Estoppel — Collateral Estoppel — Estoppel Not Found In a declaratory judgment action to determine insurer's obligation to defend, the trial court did not err in ruling that all findings of fact made during the declaratory judgment proceedings were not intended to be controlling in the underlying actions, since the trial court recognized that the issue whether the insured exercised control over the oil tank which leaked so as to trigger potential liability for the damaged property was entirely distinct from the issue whether the insured exercised exclusive control over the damaged property for the purpose of determining the insurer's duty to defend and that the former issue would have to be litigated in the underlying negligence actions.

Wiggin Nourie, of Manchester (Gregory A. Holmes and William S. Orcutt on the brief, and Mr. Orcutt orally), for United States Fidelity Guaranty Co., Inc.

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

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


This appeal involves issues arising out of a declaratory-judgment petition filed by United States Fidelity Guaranty Co., Inc. (USFG) to determine its obligation to provide coverage and to defend its insured, Johnson Shoes, Inc., in two underlying lawsuits. USFG 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 USFG 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 USFG. 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 USFG 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 USFG 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 . . . [USFG's] petition with respect to policy coverage and are not intended to be controlling in the underlying civil actions."

[1-3] USFG 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 USFG 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 USFG would defend based on the express language of this provision of the policy. We find no error in the trial court's conclusion that USFG's obligation to defend could be determined based upon the pleadings in the underlying actions. Furthermore, the record in this case shows that the trial court went well beyond the facts as alleged in the underlying writs, and heard extensive evidence regarding coverage under the policy.

USFG contends that the trial court erred in finding that an "occurrence" had taken place during the policy period, and that coverage was not excluded by the terms of the policy. The burden of establishing noncoverage is upon the insurer. Robbins Auto Parts, Inc. v. Granite State Ins. Co., 121 N.H. 760, 764, 435 A.2d 507, 509 (1981); RSA 491:22-a (Supp. 1979).

The policy issued to Johnson Shoes, Inc. defines "occurrence" as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the Insured." USFG argues that the evidence showed that the "occurrence" which gave rise to the underlying claims took place in August 1973, after the policy issued to Johnson Shoes, Inc. had been cancelled. The trial court found, based upon all the evidence, that the "occurrence" took place no later than November 1971, during the coverage period.

[7, 8] Our function in reviewing the trial court's findings is not to decide whether we would have found differently but to determine whether a reasonable person could find as did the trial judge. Belknap Textiles, Inc. v. Belknap Industries, Inc., 121 N.H. 28, 30, 424 A.2d 1141, 1142 (1981). Upon review of the record, we find that there was sufficient evidence before the trial court to support its finding that the occurrence took place during the coverage period, and that USFG failed to meet its burden of establishing noncoverage with regard to the timing of the occurrence.

We find no merit to USFG's argument that the policy explicitly excluded coverage. USFG relies upon an exclusion which states: "This insurance does not apply . . . to property damage to property in the care, custody or control of the Insured . . . ."

Whether the property damage comes within this exclusion depends upon the sufficiency of the evidence that, at the time the property was damaged, it was in the possessory, and not merely the proprietary, control of the insured. See Mead v. Travelers Ins. Co., 111 N.H. 27, 30, 274 A.2d 792, 794 (1971). Testimony before the trial court clearly supported a finding that in the underlying action by Cohas Realty Corporation against Johnson Shoes, Inc. the alleged property damage was to property beyond the leasehold of Johnson Shoes, Inc., and not in its "care, custody or control." The trial court also received into evidence a copy of the lease agreement between Cohas Realty Corporation and Johnson Shoes, Inc., from which it could have reasonably found that the property damage alleged in the action by Florence Duckoff against Eli Fishman was to property which was not in the possessory control of Johnson Shoes, Inc. Because there was sufficient evidence that the property damaged was not in the possessory control of Johnson Shoes, Inc., the trial court properly concluded that the exclusion did not apply. We hold that the trial court properly ordered USFG to provide coverage in the underlying actions for damage to property other than the leased premises.

USFG argues that the trial court erred in ruling that all factual findings made in the declaratory-judgment action were not intended to control the underlying actions. It interprets this order to mean that the declaratory-judgment action does not collaterally estop the parties from relitigating issues that have already been fully litigated.

In raising this issue, USFG misunderstands the effect of the trial court's order. By ruling that its findings of fact were limited to the declaratory-judgment action, the trial court determined that Johnson Shoes, Inc. did not exercise exclusive care, custody, or control over the damaged property, and thus the exclusion in the liability policy was inapplicable. This finding was made for the purpose of determining USFG's duty to defend, if any, in the underlying lawsuits. The trial court recognized that the issue of whether Johnson Shoes, Inc. exercised control over the oil tank so as to trigger potential liability for the damaged property was entirely distinct and would have to be litigated in the underlying negligence actions. USFG is correct that to the extent any issue was litigated and determined in the declaratory-judgment action, the doctrine of collateral estoppel bars the parties to the first action, or their privies, from relitigating the question in the underlying suits. See Scheele v. Village District, 122 N.H. 1015, 1019, 453 A.2d 1281, 1284 (1982). By making this statement, we draw no conclusions as to the collateral-estoppel effect of any of the trial court's particular findings, but we intend only to provide guidance during the impending litigation of the underlying lawsuits.

Affirmed.

All concurred.