After the flood
It will certainly take years and cost many millions of dollars for businesses in New Hampshire, Massachusetts and Maine that have been damaged by the flood of 2006 to recover. Many of those business are turning to their insurers to assist with that process. Notices of claims are being given, insurance policy terms and exclusions are being analyzed by trained professionals, damage assessments are being made (even as mold may be growing), and business interruption losses are being calculated. That process may take weeks, months or even years.
Only as this work is carefully accomplished is the policyholder in a position to start the process of settling on an insurance payment.
New Hampshire businesses, however, will find themselves in a far stronger position to negotiate their insurance coverage claims, or even litigate them as a last resort, because of a unique provision of New Hampshire law, RSA 491:22. One technical provision of New Hampshire’s broad declaratory judgment statute, the law serves as a powerful tool for the benefit of New Hampshire’s policyholders.
Any insured business in New Hampshire that has suffered property damage needs to be aware of this law, and be certain to follow its requirements. If properly used, RSA 491:22, and its sub-parts will force the insurance company to disprove coverage, and if the insurance policyholder “prevails” against its carrier, the insurance company must reimburse the policyholder for its attorney’s fees and court costs.
In the late 1960s, the New Hampshire Legislature amended the state’s declaratory judgment statute by adding one simple sentence that dramatically improves the ability of an insurance policyholder to obtain coverage from a recalcitrant insurance company. That statute, RSA 491:22-a, simply reads:
“In any petition under RSA 491:22 to determine the coverage of a liability insurance policy, the burden of proof concerning the coverage shall be upon the insurer whether he institutes the petition or whether the claimant asserting the coverage institutes the petition.”
In the language of the law, this is termed a “burden-shifting statute.” Where in the normal lawsuit, the plaintiff (here the policyholder) has the burden to prove his or her insurance contract covers the loss, in a claim under RSA 491:22-a, the burden is shifted to the insurance company to prove its coverage does not apply.
The importance of this shifted burden in the courtroom cannot be understated. It evens the playing field as policyholders deal with their insurance representatives.
But there is more. In the early 1970s, the law was amended again to assist policyholders further. It established that a New Hampshire policyholder forced to bring a declaratory judgment action against its insurance company under RSA 491:22-a should not be forced to bear the costs of the litigation if and when that policyholder “prevails” in its claim.
Policyholders purchase insurance to limit their out-of-pocket expenses in certain situations. One who has properly purchased insurance should not be faced with litigation expenses to compel an insurer to live up to its obligations, the New Hampshire federal court ruled in EnergyNorth v. Century Indemnity Company in interpreting RSA 491:22-b.
The legislative history of RSA 491:22-b makes it clear that the purpose of the statute was to force insurers to make early decisions to agree to defend and/or indemnify policyholders, or pay for the policyholders to pursue a declaration of coverage. There was no discussion of paying some of the policyholder’s fees and costs, but not others.
It is a tough statute that has as its central aim protecting the rights of all policyholders, including individuals of limited means, who seek to have their carriers stand beside them.
In fact, a review of the legislative record demonstrates that the senators who backed the amendment intended to make it more difficult for insurance companies to force policyholders to incur significant up-front legal costs before obtaining coverage.
In balancing the rights of the insurance company and the policyholder, there are other issues that the policyholder must keep firmly in mind.
If the policyholder is sued by a third party claiming property damage or bodily injury, the policyholder has only six months from the date of the writ, complaint or other pleading to file its declaratory judgment action under RSA 491:22-a. If that deadline is missed without a valid and excusable reason, the burden-shifting and attorneys’ fees benefits are forfeited. The consequences of that happening are evident, and although not fatal to the claim, can severely handicap the policyholder’s negotiating position.
Calculating this deadline is critical, and a “best estimate” may not be good enough. Moreover a “reservation of rights letter” from the carrier should not be relied upon as a basis for extending the six-month limitations period. This is a trap that the unwary may innocently find themselves falling into. There is no penalty for filing a claim early, and the penalty for being a day late is loss of the benefits of the statute.
Anyone who has represented policyholders in complicated insurance-recovery cases will confirm that these provisions of the New Hampshire statutes can be powerful tools in encouraging settlement or winning the case before a New Hampshire jury. The details of an effective overall strategy for obtaining the maximum insurance recovery are beyond the scope of this article. Ambiguity of policy terms, the role of experts, principles of economic analysis and valuing what may be long-term costs, are all issues of great importance, and each is magnified by the benefits that can obtained through the proper use of RSA 491:22.
Michael Quinn is a member of the McLane Law Firm’s insurance recovery group, whose attorneys have tried and settled numerous complex multimillion-dollar insurance-recovery actions for New Hampshire business.