United States: Flood Damage Insurance Coverage: New Hampshire Law Provides Powerful Tool For Policyholders

Originally published in Portsmouth Herald

It will take years and cost millions of dollars for businesses in New England that have been damaged by Hurricane Irene to recover. Many of those businesses will seek assistance from insurers. Even now, notices of claims are being given, insurance policy terms and exclusions are being analyzed, damage assessments are being made, and business interruption losses are being calculated. Once these tasks have been completed, an insurance policyholder is in a position to start the process of settling on an insurance payment.
New Hampshire businesses will find themselves in a stronger position to resolve their insurance coverage claims because of a unique provision of New Hampshire's insurance declaratory judgment law. That law, known as "RSA 491:22-a," is a powerful tool that benefits New Hampshire's policyholders. Any business in New Hampshire that has suffered insured damage needs to be aware of this law, and carefully follow its requirements. Properly used, RSA 491:22-a forces the insurance company to disprove coverage. If required to litigate, and if the policyholder "prevails," the insurance company must reimburse the policyholder for its attorney's fees under the provisions of this law; an unusual provision in American law.
The State's declaratory judgment statute includes one simple sentence that dramatically improves the ability of a policyholder to obtain coverage from a recalcitrant insurance company. it 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 case, the plaintiff has the burden to prove his or her insurance contract covers the loss, in a claim under RSA 491:22-a, the burden shifts to the insurance company to prove its coverage does not apply. The importance of this shifted burden in the courtroom cannot be understated.
As importantly, if a New Hampshire policyholder is required to file a declaratory judgment action in court under RSA 491:22-a, the costs of the litigation if and when that policyholder "prevails" on its claim are assessed to the insurer. The language of the law is clear:
In any action to determine coverage of an insurance policy pursuant to RSA 491:22, if the Policyholder prevails in such action, he shall receive court costs and reasonable attorneys' fees from the insurer.

The purpose of this unusual provision is to compel insurers to make early decisions to agree to defend and/or indemnify policyholders. When the law was being reviewed by the Senate Judiciary Committee, a key Senator explained that:
It has been a serious problem for insurance companies to try to get out of defending their clients when they have been sued. They then ask for a declaratory judgment action which delays the case and a large percentage of the time the Policyholder wins. This is to get the expenses for the policyholders and it may [deter] the insurance companies from refusing to defend their clients.

In fact, the author of this article has been involved in a recent case involving seven-figure losses, in which one recalcitrant insurance company was hit with an attorney's fees award that was significantly higher than the amount of loss at issue against that carrier.
There is a balance in the law that works to the benefit of the insurance company, and which 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 6 months from the date of the writ, complaint or other pleading to file its declaratory judgment action. If that deadline is missed without a valid and excusable reason, the burden shifting and attorneys fees benefits are forfeited. This is a potential 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 benefit of the statute.
The details of an effective strategy for obtaining the maximum insurance recovery are beyond the scope of this article, as are the details of national flood insurance. 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. The ultimate value of each of these other issues, however, is diminished if a Policyholder fails to understand and take full advantage of RSA 491:22-a.
Michael Quinn is a member of the McLane Law Firm's Insurance Recovery Group, with his Partners Bruce W. Felmly and Barry Needleman.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.