In Fred Shearer & Sons, Inc. v. Gemini Ins. Co., 2010 WL 3768022 (Or App Sep. 29, 2010), the court held that an insurance company could consider materials extrinsic to the complaint and the insurance policy to determine the duty to defend based on the facts presented.

Gemini Insurance Company (the “insurer”) issued insurance to TransMineral, a distributor of a stucco product. The policy had a so-called “vendors endorsement” that provided coverage to “all vendors of [TransMineral]” but “only with respect to ‘bodily injury’ or ‘property damage’ arising out of ‘your products’ … which are distributed or sold in the regular course of the vendor’s business,” subject to certain exclusions.

Fred Shearer & Sons (“Shearer”) was a subcontractor on a home repair and installed the stucco product on the exterior of the residence. The product allegedly failed, and the owners of the residence sued their general contractor who, in turn, sued Shearer and TransMineral.

Shearer tendered the defense of the lawsuit to the insurer on the theory that it was an insured as a vendor of TransMineral products. It based the tender on an “Exclusive Applicator Agreement” that it had entered into with TransMineral. That agreement granted Shearer the exclusive right to distribute TransMineral’s products. The insurer rejected the tender.

Shearer brought a (new, separate) lawsuit against the insurer seeking a declaration that it was an insured under the vendors endorsement. Before the trial court, shearer moved for partial summary judgment on this question, and the trial court granted the motion. Additional issues regarding the amount of the defense obligation were tried to the court, and the court again ruled in Shearer’s favor. The rulings were reduced to a limited judgment, which the insurer appealed.

The Court of Appeals affirmed the trial court. Before the Court of Appeals, the insurer argued that it was “impossible to tell from the pleadings in the underlying action or the policy language that Shearer sold or distributed the stucco product in the ordinary course of business,” that “the four corners of those documents – that is, the pleadings and the insurance policy – exclusively govern whether [it] owes any duty to defend” and that “nothing in [the underlying] allegations expressly or impliedly connotes that Shearer distributed or sold the TransMineral products.” 2010 WL 3768022 at 3 (internal quotations and some alterations omitted). The Court of Appeals rejected this argument as follows:

“When the question is whether the insured is being held liable for conduct that falls within the scope of a policy, it makes sense to look exclusively to the underlying complaint. …

“The same cannot be said with respect to whether a party seeking coverage is an ‘insured.’ The facts relevant to an insured’s relationship with its insurer may or may not be relevant to the merits of the plaintiff’s case in the underlying litigation. The plaintiff in the underlying case is required to plead facts that establish the defendant’s liability; the plaintiff often is not required to establish the nature of the defendant’s relationship to some other party or to
an insurance company in order to prove a claim….”

Id. at 5. The Court of Appeals also rejected the insurer’s other arguments as to the application of certain exclusions and the calculation and allocation of defense costs.