Oregon Supreme Court reaffirms broad nature of the duty to defend, even in the face of ambiguous or unclear allegations2020-04-23T00:34:36+00:00
12.14.2016 // THE POLICYHOLDER REPORT
Oregon Supreme Court reaffirms broad nature of the duty to defend, even in the face of ambiguous or unclear allegations

Back in August 2015, I wrote this post about the Oregon Court of Appeals opinion in West Hills Development Co. v. Chartis Claims, Inc., where the court confirmed that Oregon’s broad duty to defend extended to parties claiming rights as “additional insureds.” Last week, the Oregon Supreme Court affirmed that decision, broadly holding that “regardless of ambiguity or lack of clarity, the duty to defend is triggered if the complaint’s allegations, reasonable interpreted, could result in the insured being held liable for damages covered by the policy.”

As noted in my prior post, contracting parties rely on indemnity agreements and additional insured status to protect against liability arising from the other party’s negligence. Insurers, however, frequently ignore or summarily deny tenders from parties who qualify as additional insureds under the policies they issued. That is exactly what happened in West Hills. A general contractor was sued for alleged construction defects in a townhome project. The general contractor then tendered the defense of that lawsuit to a subcontractor’s insurer as an additional insured under the subcontractor’s insurance policy. The subcontractor’s insurer denied coverage, and the general contractor, West Hills, sued the insurer, Oregon Automobile Insurance Company (“Oregon Auto”), for breach of the duty to defend. The trial court agreed with West Hills, granting summary judgment in the contractor’s favor, and the Court of Appeals affirmed.

In ruling in favor of the additional insured last week in West Hills Development Co. v. Chartis Claims, Inc., the Oregon Supreme Court focused on the application of the four-corners rule, which holds that the duty to defend is determined by reference to two, and only two, documents: the allegations of the complaint and the terms of the insurance policy. “On its face, the four-corners rule seems clear. Applying that rule to real world complaints, however, can create more of a challenge. In particular, a complaint may not definitively allege the facts that ultimately will determine whether a claim is covered by the policy.” After a four-paragraph discussion of a 1949 Second Circuit opinion by Chief Judge Learned Hand, the Oregon Supreme Court reaffirmed long-standing Oregon law: that the duty to defend is triggered wherever “the court can reasonably interpret the allegations to include an incident or injury that falls within the coverage of the policy,” soundly rejecting the insurer’s argument that there is no duty to defend unless the complaint “rules in” coverage.

The Court rejected Oregon Auto’s argument that it had no duty to defend because the underlying complaint did not identify its insured subcontractor, L&T Enterprises, by name. “The complaint expressly alleged that West Hills was liable for subcontractor operations that had been performed for West Hills[.] … L&T may not have been identified by name in the complaint, but that is not the issue. The allegations of the complaint reasonably could be interpreted to result in West Hills being held liable for conduct covered by the policy: L&T’s operations for West Hills.”

Finally, the Court rejected Oregon Auto’s attempt to avoid its defense obligation on the grounds that its additional insured endorsement provided coverage only for liabilities arising from L&T’s “ongoing operations.” “The complaint alleges that damages had occurred by the time the owners purchased their townhomes. It is possible that the damages occurred earlier. Reasonably interpreted, then, the complaint could result in West Hills being held liable for conduct covered by the ploy.”

The Supreme Court’s opinion in West Hills doesn’t really break new ground in Oregon coverage law. Nonetheless, the case presents an important reminder of the broad nature of the duty to defend, whether that duty is applied to the named insured or to a contractually-required “additional insured.” Insurers cannot hide behind vague factual allegations in a complaint to avoid their defense obligations. Nor can insurers deny coverage solely based on poorly defined “ongoing operations” language. “[R]egardless of ambiguity or lack of clarity, the duty to defend is triggered if the complaint’s allegations, reasonably interpreted, could result in the insured being held liable for damages covered by the policy.” Oregon policyholders should not hesitate to force insurers to apply that broad standard and honor their contractual defense obligations.

ABOUT BALL JANIK LLP

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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Heather J. Oden
Oregon , Portland