On December 8, 2016, the Oregon Supreme Court upheld the determination of the Court of Appeals holding that plaintiff/respondent West Hills Development Company (“West Hills”) was an insured under a policy of insurance issued by Oregon Automobile Insurance Company (“OAIC”) and was entitled to a defense, but did so on alternative grounds. The Oregon Supreme Court found that there was no question regarding whether West Hills was an additional insured under the policy in question, and questions regarding the duty to defend were properly resolved under the “four corners” or “eight corners” rule..
The underlying lawsuit arose from West Hills’ work as the general contractor for a townhome development in Sherwood, Oregon (“Arbor Terrace”). West Hills hired multiple subcontractors, including L&T Enterprises, Inc. (“L&T”). West Hills was added as an additional insured (“AI”) on L&T’s insurance policy with OAIC. The language of the AI endorsement provides that West Hills is an insured “only with respect to liability arising out of [L&T’s] ongoing operations performed for [West Hills].” The Arbor Terrace homeowners association sued West Hills, alleging that negligence of West Hills’ subcontractors had caused defects which lead to water damage and that West Hills was liable for that negligence due to negligent hiring and supervision. The complaint alleged that damages occurred before the owners purchased their units, but did not provide any further detail regarding timing of damage.
The Court found, contrary to the argument of the parties and the determinations of the lower courts, that the language of the AI endorsement made clear that West Hills was an additional insured under the policy. Accordingly, the Court proceeded under the four corners” or “eight corners” rule, applying the principle that ambiguities in the complaint be resolved in favor of the insured, in order to determine if the duty to defend was triggered. The Court found that, although the complaint did not specifically name L&T or specifically allege that West Hills was liable for the negligence of L&T, the allegations of the complaint presented facts that “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.” The Court rejected OAIC’s argument that the allegations of the complaint were barred by the “ongoing operations” language in the AI endorsement. The Court noted that the language covers claims “arising from” ongoing operations, and that the complaint’s vague statement did not rule out damage occurring during ongoing operations. Accordingly, the Court found that OAIC had a duty to defend West Hills based on the allegations of the complaint and the language of the insurance policy.
Soha and Lang attorneys are available to assist insurer clients in understanding and addressing the impact of this decision both during the claims handling process and after an allegation of bad faith claims handling has been made.
Disclaimer: The opinions expressed in in this blog are those of the author and do not necessarily reflect those of Soha and Lang, P.S. or its clients.