Today, the Oregon Supreme Court unanimously rejected a liability insurer’s attempt to avoid paying on a judgment entered against its insured in FountainCourt Homeowners’ Ass’n v. FountainCourt Dev., LLC. The Court held that an insurer cannot re-litigate an underlying lawsuit as part of an insurance-coverage lawsuit, and that a claimant must show only that some property damage occurred during the insurer’s policy period. In so holding, the Court eliminated a series of arguments frequently raised by Oregon liability insurers.
The case arose from an insurance-coverage action in which a homeowners association was seeking to collect on a judgment it obtained against a siding company following a construction-defect lawsuit. The jury in the construction-defect lawsuit found that the siding company’s negligent construction resulted in continuous and progressive water damage that caused property damage to the association’s buildings. When the association attempted to collect on the judgment, the sider’s insurer argued that it was entitled to re-litigate the merits of the construction-defect lawsuit and that the association was not entitled to coverage because it could not establish the specific amount of damages that occurred during its coverage period.
The Court rejected both positions.
The Court first concluded that an insurer is not entitled to a wholesale re-litigation of the construction-defect lawsuit in the insurance coverage action. The insurer argued that it was entitled to a new trial on the merits of the case against the sider because it was “not bound by the facts of the underlying lawsuit” and “not bound by the factual findings assumed within the judgment.” The Court rejected that argument, acknowledging that the question in the insurance-coverage lawsuit is whether the facts adduced in the underlying construction-defect case fall within the coverage provided by the policy. In other words, “the insurer is not, as [it] contends, entitled to second-guess or retry ‘the nature of [the sider]’s liability.’” The Court did, however, acknowledge that the insurer is entitled to litigate issues in the coverage action “such as whether an exclusion applies or whether the damages awarded are otherwise covered by the policy.” Importantly, this portion of the opinion eliminates the potential for inconsistent or contradictory decisions regarding the insured’s liability or damages.
Next, the Court rejected the insurer’s “injury-in-fact” argument, which relied on the position that the association could not establish that the property damage was caused by an “occurrence” because it could not establish the specific amount of damage during any one policy period. The Court concluded that a claimant must show only that some property damage occurred during the relevant policy period to trigger coverage, not the precise amount of damage that occurred during any one policy period. The Court refused to adopt the insurer’s strict trigger-of-coverage argument, citing the nature of continuous and progressive property damage that cannot be broken into discrete parts.
Finally, the Court addressed the issue of allocation of damages, but ultimately determined the issue was not properly preserved. In a telling portion of the opinion, however, the Court tacitly approved the trial court’s imposition of the “all sums” rule, citing prior decisions. The Court seemingly reserved application of the “pro rata” rule, which simply allocates damages based on an insurer’s time on risk, for contribution actions between insurers. While the Court did not go so far as to expressly adopt the “all sums” approach, it undoubtedly held that Oregon courts may utilize it under the appropriate circumstances.