Oregon Policyholders and Judgment Creditors Get Big Win on Insurance Coverage Issues2020-04-23T00:34:41+00:00
08.06.2014 // THE POLICYHOLDER REPORT
Oregon Policyholders and Judgment Creditors Get Big Win on Insurance Coverage Issues

Oregon Court of Appeals Decision Handed Down Today in FountainCourt Homeowners Ass’n v. FountainCourt Development, LLC

The Oregon Court of Appeals handed down a lengthy opinion upholding a money judgment awarded in favor of a judgment creditor in its garnishment action against American Family Insurance Company. FountainCourt Homeowners Ass’n v. FountainCourt Development, LLC, Or App (August 6, 2014), initially arose out of a homeowner association’s claim against the original sider (and others) for construction defects associated with the FountainCourt Townhomes and Condominiums. In 2010, the Association’s case went to trial. The jury returned a verdict against the sider in the amount of $485,877.84. (Note:  Ball Janik LLP did not represent any parties in this case.)

Following trial, the homeowners association sent the sider’s insurance company, American Family, a request to pay the money judgment entered in the association’s favor under its policy. American Family refused to pay, claiming that its policy did not cover the judgment awarded to the association. The association thereafter filed a motion to show cause as to why American Family’s insurance policy should not be garnished to cover the association’s money judgment against its insured, the sider. The trial court granted a show cause hearing and, after the evidence presented, entered a judgment in the association’s favor against American Family in the amount of $433,958.16. A supplemental judgment was later entered by the court allowing for attorney fees against American Family in the amount of 68,538.00 pursuant to ORS 742.061.

On appeal, American Family argued both the money judgment and award of attorney fees were improper. The Court of Appeals agreed as to the attorney fee award, finding that the association had failed to properly assert a right and basis to recovery of attorney fees in its original motion to show cause – a requirement of ORCP 68C(2). As to the remainder of American Family’s arguments, the Court of Appeals sided with the association.

Importantly, the Court of Appeals rejected American Family’s arguments that the association: (1) had failed to meet its prima facie burden of proof as to whether the original money judgment against the sider was covered by American Family’s coverage grant, (2) was not entitled to the entirety of its judgment against the sider in light of the “your work” exclusion under American Family’s policy, and (3) had failed to satisfy its burden that the entirety of its money judgment against the sider was for property damages that occurred during American Family’s policy period. As to this last point, American Family argued that the trial court’s ruling was in error because it had inconsistently held that the association met its burden of proof that another carrier for the sider had coverage for the sider’s judgment under its coverage grant.[1] According to American Family, the trial court’s ruling meant that the judgment against its insured, the sider, necessarily included property damage which occurred outside its policy period.

The Court of Appeals acknowledged that the trial court had found that another insurance carrier’s coverage grant had been triggered and that such policy preceded that of American Family. However, according to the Court of Appeals, that decision did not automatically render the judgment against American Family inconsistent and/or invalid. According to the Court of Appeals:

In the case of continuing and progressive water damage, the award of damages is not tied to discrete instances of property damage along a time continuum; instead the liability for property damage may be the same in every triggered policy period. That is so because the scope of repair – to replace the damaged structural components and eliminate the water intrusion – does not necessarily change depending on the year in which the damage occurred. Accordingly, given the nature of the injury, it is possible that both Clarendon and American Family could be liable for the same damage.

There are two big takeaways from the Court of Appeals’ decision in FountainCourt. First, judgment creditors and insureds need not segregate at trial or in a garnishment proceeding between what is covered and uncovered. So long as an insured and/or judgment creditor has made a prima facie showing that the damages awarded in an underlying action fall within a policy’s coverage grant, the burden then shifts to the insurance carrier to segregate out, where possible, what part of the judgment is not covered based on one or more of its exclusions. Second, property damage of the kind typically pled and awarded in construction defect cases, absent a valid exclusion, can trigger one or more policy periods. As to this last point, it should be noted that the Court of Appeals did not consider (as it was not raised) any potential effect a continuing or progressive property damage exclusion might have on whether multiple policy periods can be triggered by virtue of the damages alleged and proven in a construction defect context such as FountainCourt. The full opinion is available here.


[1] The trial court went on to find that exclusions in the second carrier’s policy prohibited coverage. On appeal, the Court of Appeals did not address the merits of this decision by the trial court as to the second carrier.

 

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Ball Janik LLP was founded in 1982 with six lawyers and a four-person support staff in Portland, Oregon. Since our firm’s inception, we have expanded our capabilities, our professionals, and geographic footprint. What started as a firm focused in real property and land use (known then as Ball Janik & Novack), has grown to include the insights of a team of 30-plus attorneys, with a combined six centuries of experience, and capabilities including Real Estate and Land Use, Construction Defect, Commercial Litigation, Insurance Recovery, Construction and Design, Employment, Finance and Corporate, Public Agencies and Schools, and Community Associations. With offices in Florida and Oregon, our regional growth has earned us a national reputation for upholding the rights of our clients.

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Adele J. Ridenour
Portland, Oregon
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