Last year our partner Seth Row reported on an Oregon Court of Appeals decision, West Hills Development Co. v. Chartis Claims, Inc., 273 Or App 155 (2015).
In West Hills, Oregon Auto Insured, a subcontractor, and the liability policy named the general contractor as an additional insured. In an underlying lawsuit by homeowners alleging construction defects, the complaint alleged that the general contractor had negligently supervised its subcontractors, who themselves were negligent, but did not name or identify Oregon Auto’s insured subcontractor. The policy provided that the general contractor, West Hills, was an additional insured “only with respect to liability arising out of [the subcontractor’s] ongoing operations performed for [West Hills].” Oregon Auto refused to defend. In West Hills’ subsequent lawsuit, both the trial court and the court of appeals held that Oregon Auto owed its additional insured a defense.
Earlier this month, the Oregon Supreme Court affirmed in an opinion that has several takeaways for insureds in duty-to-defend disputes. West Hills Development Co. v. Chartis Claims, Inc., 360 Or 650 (Dec. 8, 2016).
- The Oregon Supreme Court held fast to the general guidelines for an insurer’s duty to defend, including the “four corners” rule, i.e., compare the allegations in the complaint to the insurance policy’s terms to determine the duty to defend.
- Although the court of appeals had held that extrinsic evidence (that outside the four-corners rule) could be used to determine whether a person was an insured, the Oregon Supreme Court sidestepped that issue by distinguishing the precedent relied on by the court of appeals, Fred Shearer & Sons v. Gemini Ins. Co., 237 Or App 468 (2010), from the present case. In Shearer, the court of appeals held that extrinsic evidence could be used to determine who was an additional insured if an open class of potential additional insureds was dependent on their relationship to the named insured. In West Hills, the general contractor was specifically named as an additional insured, so the Oregon Supreme Court concluded that extrinsic evidence was not necessary for the analysis.
- In an analysis of current case law on the duty to defend, summarized in a manner favorable to insureds, the Oregon Supreme Court rejected Oregon Auto’s argument that there is no duty to defend unless the complaint rules in coverage. The court held, quoting Bresee Homes, Inc. v. Farmers Ins. Exchange, 353 Or 112 (2012), that the question on duty to defend is whether, “[r]egardless of the presence of ambiguity or unclarity in the complaint, * * * the court can reasonably interpret the allegations to include an incident or injury that falls within the coverage of the policy.” Here, even though the insured subcontractor was not named or identified in the complaint, and even though the work of other subcontractors was at issue, the court determined that the allegations could reasonably be interpreted to include an incident subject to potential coverage under the policy.
- In a case of ambiguous complaints when there is doubt whether the allegations state a claim within the coverage of a liability insurance policy, that doubt will be resolved in the insured’s favor.
The duty to defend is a separate contractual benefit for the insured (or additional insured), and once again the Oregon courts have rejected liability insurers’ efforts to chip away at that benefit. While this ruling will be helpful for Oregon insureds, these insureds still have fewer protections than Washington insureds. See Miller Nash Graham & Dunn attorney Vanessa Wheeler’s post of May 25, 2016, “Different Approaches to the Duty to Defend in Oregon and Washington.“