Opinion ID: 2773335
Heading Depth: 1
Heading Rank: 4

Heading: Stratford's Duty to Defend

Text: The district court stated that, in New Hampshire, 'the duty of an insurer to defend is the same whether its potential liability is either as a primary or as an excess carrier.' Old Republic, 2014 WL 309390, at  (quoting Universal Underwriters Ins. Co. v. Allstate Ins. Co., 592 A.2d 515, 517 (N.H. 1991)). [B]ecause Stratford concedes that its policy provides excess coverage, the district court concluded, it is obligated to share equally in the costs of defending its insureds in the underlying action. Id. Stratford appeals and argues that, as an excess insurer, its duty to defend should be excess to that of the primary insurer. In 2011, the New Hampshire Supreme Court noted that it ha[s] never addressed the precise issue of allocation of defense costs between a primary insurer and an excess insurer. Progressive N. Ins. Co. v. Argonaut Ins. Co., 20 A.3d 977, 983 (N.H. 2011). In that case, the court declined to review a trial court's requirement that an excess insurer pay its pro rata share of defense costs since the issue was not properly raised in the -19- notice of appeal. Id. at 980, 983. The court was also unwilling to hold that the trial court had committed plain error given the unsettled nature of the issue. Id. at 983. A previous New Hampshire Supreme Court decision, Universal Underwriters, had touched on the same issue briefly. In Universal Underwriters, the New Hampshire Supreme Court analyzed the coverage provided by two insurance companies, Universal and Allstate, for a leased vehicle when both purported to be excess carriers. Universal Underwriters, 592 A.2d at 516. The court held that Universal provided primary coverage up to $25,000, and that both Universal and Allstate provided co-primary coverage past that amount. Id. at 517. On the duty to indemnify, the court held that the cost of settlement in this case in excess of $25,000 is to be shared pro rata by Universal and Allstate. Id. On the duty to defend, however, the court split the total defense costs equally between the two carriers. Id. at 517-18. Rejecting the trial court's pro rata division, the New Hampshire Supreme Court stated that the duty of an insurer to defend is the same whether its potential liability is either as a primary or as an excess carrier. Id. at 517. The district court interpreted Universal Underwriters to require primary and excess carriers to equally share the costs of defense. See Old Republic, 2014 WL 309390, at . The majority rule is that the excess liability carrier is not obligated to -20- participate in the defense until the primary policy limits are exhausted. 14 Couch on Insurance § 200:41 (3d ed. 2014); see also id. § 200:38; Schneider Nat'l Transp. v. Ford Motor Co., 280 F.3d 532, 538 (5th Cir. 2002). The district court's contrary conclusion follows from the statement of the New Hampshire Supreme Court in Universal Underwriters, and the court's holding that the two insurers must split the defense costs equally despite the fact that only Universal provided primary coverage for the first $25,000. See Universal Underwriters, 592 A.2d at 517-18. Stratford nevertheless argues that Universal Underwriters cannot be taken at its word. Stratford stresses that it is not asking this court to overrule the New Hampshire Supreme Court on an issue of New Hampshire state law. Instead, Stratford claims that [i]t is . . . not at all clear that the Supreme Court of New Hampshire actually held that excess insurers must share defense costs equally with primary insurers given the context within which Universal Underwriters was decided and the citations on which it relies. First, Stratford argues that the New Hampshire Supreme Court would have explained its dramatic shift away from the general rule if this was actually its intent. Critically, a federal district court decision interpreting New Hampshire law two years before Universal Underwriters appears to follow the general rule. See Town of Stoddard v. N. Sec. Ins. Co., 718 F. Supp. 1062, 1065- -21- 66 (D.N.H. 1989) (Devine, C.J.). In that case, the district court differentiated between the primary and excess insurer, and held that the primary insurer alone was obligated to reimburse the insured for the costs of the defense. See id. at 1066. Stratford concedes that [i]t is certainly possible . . . that Universal Underwriters reflects the announcement by the Supreme Court of New Hampshire of a new position on the issue and a repudiation of the approach reflected in Town of Stoddard. But, [t]here is no indication . . . in Universal Underwriters itself that the court was introducing a new rule of law . . . . Second, Stratford argues that the two cases cited by the New Hampshire Supreme Court in Universal Underwriters do not support reading the decision as adopting a new rule. In Universal Underwriters, the court cited a decision from the Georgia Court of Appeals, Zurich Insurance Co. v. New Amsterdam Casualty Co., 160 S.E.2d 603, 605 (Ga. Ct. App. 1968); an earlier decision from the New Hampshire Supreme Court, Liberty Mutual Insurance Co. v. Home Insurance Indemnity Co., 351 A.2d 891, 895 (N.H. 1976); and a treatise, 14 Couch on Insurance § 51:148 (2d ed. 1982). See 592
In Zurich Insurance, the Georgia Court of Appeals stated that one insurer, Zurich, had a potential liability, either as primary or excess carrier, in either of which cases its duty to -22- defend was the same. 160 S.E.2d at 605.4 Zurich had defended the insured and paid the judgment when the other carrier refused. Id. at 604. Ultimately vindicated as the excess carrier, the Georgia Court of Appeals held that Zurich had a duty to defend its insured even though it was excess when the primary refused, but that it had a right to recover from the primary insurer in the same manner that its insured would have had. Id. at 606. A later case in Georgia cites Zurich Insurance for the uncontroversial position that an excess insurer ha[s] a duty to defend the claims against its insured after the primary insurer denied coverage and refused to defend. Motors Ins. Co. v. Auto-Owners Ins. Co., 555 S.E.2d 37, 39 (Ga. Ct. App. 2001). In Liberty Mutual, the New Hampshire Supreme Court held that two insurers provided primary coverage for an accident to varying limits. 351 A.2d at 895. On a motion for rehearing, the court clarified: As both policies afford primary coverage, Liberty Mutual and Home Insurance have a joint obligation to defend [the insured] and to share equally the costs of defense. Id. The case has no bearing on the respective duties to defend when one insurer is primary and the other excess. 4 Other Georgia cases that held that, whether an insurer is 'a primary or excess carrier, its obligation to defend is the same under the contract,' are limited to cases involv[ing] policies with excess clauses or coverage and defense agreements which are not expressly made excess. Cont'l Cas. Co. v. Synalloy Corp., 667 F. Supp. 1523, 1540 n.9 (S.D. Ga. 1983) (citations omitted). -23- The district court's reading of the statement in Universal Underwriters draws the most support from the second edition of Couch's treatise, published in 1982. The cited provision of the treatise explained: The duty to defend is absolute, even if the policy turns out to be excess insurance. For example, where a truck driver's car insurer and truck owner's insurer both covered the accident and each policy contained the defense provision, each had the duty to defend the driver against [the] injured party's claim, even if the car insurer's coverage was excess. 14 Couch on Insurance § 51:148 (2d ed. 1982) (collecting cases, including Zurich Insurance). In Hawaii, for example, [when] both primary and excess insurer[s] shared a duty to defend the action, each insurer was responsible for half of the costs and expenses of defending regardless of the pro rata division of principal liability. Id. (citing Indus. Indem. Co. v. Aetna Cas. & Sur. Co., 465 F.2d 934 (9th Cir. 1972)). Elsewhere in the treatise, however, the general rule is stated as follows: [w]here the insured maintains both primary and excess policies, . . . an excess liability insurer is not obligated to participate in the defense until the primary policy limits are exhausted. Id. § 51:36. The modern version of Couch's treatise on insurance law reaffirms that, [a]s a general rule, a true-excess insurer is not obligated to defend its insured until all primary insurance is exhausted or the primary insurer has tendered its policy limits. 14 Couch on Insurance § 200:38 (3d ed. 2014). However, the -24- treatise continues, a minority of jurisdictions have held an excess carrier's duty to defend may be triggered if there is a possibility that excess coverage may be reached. Id. The treatise cites Universal Underwriters for the proposition that [o]nce an excess carrier's obligation to defend arises, the duty to defend is the same as the duty of a primary insurer. Id. This reading of Universal Underwriters is plausible if we assume that the low threshold of $25,000 triggered both carriers' duty to defend and the New Hampshire Supreme Court then required them to split defense costs equally. It is still unclear how this rule, if New Hampshire has adopted this minority position, would apply to the facts of our case when the primary carrier had a coverage limit of $1,000,000 and the complaint does not estimate the damages sought. The New Hampshire Supreme Court has not provided clarity on its holding in Universal Underwriters regarding an excess insurer's duty to defend since that opinion was issued.5 When 5 The subsequent citations to Universal Underwriters by the New Hampshire Supreme Court have not focused on this part of the holding. See Peerless Ins. v. Vt. Mut. Ins. Co., 849 A.2d 100, 103 (N.H. 2004) (requiring two insurers to share defense costs equally after finding both excess provisions mutually repugnant); Progressive N. Ins. Co. v. Enter. Rent-A-Car Co. of Bos., Inc., 821 A.2d 991, 993-94 (N.H. 2003) (characterizing the decision as interpret[ing] [] conflicting provisions in the parties' insurance policies); Allstate Ins. Co. v. Armstrong, 738 A.2d 1280, 1282 (N.H. 1999) (quoting language concerning parties' attempts to limit the coverage required by New Hampshire's Financial Responsibility Law); Calabraro v. Metro. Prop. & Cas. Ins. Co., 702 A.2d 310, 313 (N.H. 1997) (characterizing the decision as one which discuss[ed] -25- denying Stratford's motion to alter or amend its decision, the district court stated that, if presented with the precise facts of this case, the New Hampshire Supreme Court might be inclined to revisit Universal Underwriters, and reassess that opinion's reliance upon Zurich Insurance . . . . The district court felt obligated to stand by its prior ruling given the law as currently enunciated by the New Hampshire Supreme Court. On appeal, Stratford invites certification to the New Hampshire Supreme Court, which Old Republic does not oppose. We are permitted to certify questions of law to the New Hampshire Supreme Court when questions of New Hampshire law are determinative of the case, and there is no controlling precedent from the New Hampshire Supreme Court. N.H. Sup. Ct. R. 34. In Progressive, the New Hampshire Supreme Court explicitly stated that it had never addressed the issue that we now find before us and that it could not say that the state law on the issue is settled. See 20 A.3d at 983. We conclude that certification is the appropriate route in this case given the important, and unsettled, question of New Hampshire law. We certify the following questions to the New Hampshire Supreme Court: two policies that contained conflicting excess coverage provisions). -26- 1) Under New Hampshire law, when is an excess insurer's duty to defend triggered? Does New Hampshire follow the general rule that the excess insurer's duty to defend is triggered only when the primary insurer's coverage is exhausted? If not, what rule as to allocation of defense costs and timing of payment does New Hampshire follow?