CC 06C12550; CA A136397; On review from the Court of Appeals.*fn1
The opinion of the court was delivered by: Durham, J.
Argued and submitted May 13, 2010.
Before Balmer, Chief Justice, and Durham, De Muniz, Kistler, Walters, and Linder.*fn2
The decision of the Court of Appeals is reversed. The judgment of the circuit court is reversed, and the case is remanded to that court for further proceedings.
Plaintiff, Bresee Homes, Inc. (Bresee), seeks review of a Court of Appeals decision that affirmed a trial court judgment in favor of defendant, Farmers Insurance Exchange (Farmers). Bresee Homes, Inc. v. Farmers Inc. Exchange, 227 Or App 587, 206 P3d 1091 (2009). The dispute concerns the correct interpretation of the commercial general liability (CGL) policy that Farmers sold to Bresee. For the reasons explained below, we reverse.
The trial court granted a motion for summary judgment in favor of Farmers and denied the cross-motion for partial summary judgment filed by Bresee. On review, this court examines the summary judgment record, in accordance with ORCP 47 C, to determine whether the pleadings and any supporting documents on file show that there is no genuine issue as to any material fact and that the moving party is entitled to prevail as a matter of law. Jones v. General Motors Corp., 325 Or 404, 420, 939 P2d 608 (1997). Bresee's claims allege that Farmers breached its obligations under the policy (a) to defend Bresee against a claim against Bresee, and (b) to indemnify Bresee against any liability for damages arising out of the claim. Those are separate obligations requiring a separate analysis. Paxton-Mitchell Co. v. Royal Indemnity Co., 279 Or 607, 610-11, 569 P2d 581 (1977).
On July 15, 2005, the Joneses filed an action against Bresee for breach of contract and negligence regarding the construction of their home. The Joneses alleged that, on April 2, 1999, they had contracted with Bresee, a contractor, for the construction of a custom home in Salem. They alleged that Bresee had failed to install flashing properly and that the exterior synthetic stucco, known as the Exterior Insulated Finish System (EIFS), leaked water into the interior and failed. They sought $52,580 in damages from Bresee, consisting of both the cost to repair the siding work and damages arising from the failure of the siding.
According to Bresee, Farmers had sold a CGL policy to Bresee that was in effect over various successive periods from the late 1980s to June 17, 2003. When Bresee received the Joneses' complaint, Bresee tendered the Joneses' claims to Farmers and requested a defense and indemnification under the CGL policy. When Bresee tendered the Joneses' claims, Farmers, acting through its lawyer, denied the tender, citing the "products - completed operations hazard" exclusion in the policy. We discuss the pertinent provisions of the CGL policy and the exclusion below.
Bresee filed this action against Farmers for breach of contract and for a declaratory judgment, asserting, as noted above, that Farmers had contractual obligations to provide a defense against the Joneses' action and to indemnify Bresee for any liability to the Joneses. Farmers filed a motion for summary judgment and argued that the "products - completed operations hazard" endorsement to the CGL policy precluded any liability to Bresee. Bresee filed a cross-motion for partial summary judgment and argued that the endorsement did not apply and that, even if it did, the court should conclude that the Joneses' complaint, reasonably construed, could be read to include a covered loss, i.e., property damage occurring before completion of construction and damages arising from the failure of a product installed by a subcontractor.
Bresee also contended that extrinsic evidence of Farmers's adjustment and settlement of multiple nearly identical EIFS damage claims by other homeowners against Bresee was relevant for two reasons. First, it constituted some evidence of how the parties intended the CGL policy to apply to similar claims by homeowners against Bresee. Second, it amounted to some proof that Farmers had waived its position that the "products - completed operations hazard" endorsement precluded any coverage of the Joneses' claim against Bresee.
The trial court, as noted, granted Farmers's motion for summary judgment and denied Bresee's cross-motion for partial summary judgment. The trial court determined, as an initial matter, that the property damage claimed by the Joneses was included within the coverage portion of the Farmers CGL policy. However, the court ultimately concluded that the "products - completed operations hazard" policy provision defeated any claim for coverage. The trial court also determined that Bresee's claim for a defense was not well taken because Bresee, in submitting evidence on summary judgment, had not established when Bresee's subcontractor had completed the work and when the alleged damage had occurred.
The Court of Appeals did not separately analyze Bresee's claims for a defense against the Joneses' claim and for coverage under Farmers's CGL policy. That court concluded, however, that the trial court was correct in deciding that the policy was unambiguous and afforded no coverage to Bresee. The Court of Appeals affirmed the trial court's decision to grant summary judgment against Bresee. This court granted Bresee's petition for review.
Bresee's claims for a defense and for coverage under the CGL invoke separate contractual obligations governed by different legal standards. We begin with Bresee's claim for a defense against the Joneses' action.
This court examines two documents to determine whether an insurer has a duty to defend an action against its insured: the insurance policy and the complaint in the action against the insured. Marleau v. Truck Insurance Exchange, 333 Or 82, 89, 37 P3d 148 (2001). As this court has explained:
"An insurer has a duty to defend an action against its insured if the claim against the insured stated in the complaint could, without amendment, impose liability for conduct covered by the policy
"In evaluating whether an insurer has a duty to defend, the court looks only at the facts alleged in the complaint to determine whether they provide a basis for recovery that could be covered by the policy[.] * * * An insurer should be able to determine from the face of the complaint whether to accept or reject the tender of the defense of the action.
"The insurer has a duty to defend if the complaint provides any basis for which the insurer provides coverage. Even if the complaint alleges some conduct outside the coverage of the policy, the insurer may still have a duty to defend if certain allegations of the complaint, without amendment, could impose liability for conduct covered by the policy. Any ambiguity in the complaint with respect to whether the allegations could be covered is resolved in favor of the insured."
Ledford v. Gutoski, 319 Or 397, 399-400, 877 P2d 80 (1994) (emphasis in original; citations omitted).
Regardless of the presence of ambiguity or unclarity in the complaint, the key question is whether the court can reasonably interpret the allegations to include an incident or injury that falls within the coverage of the policy. Blohm et al v. Glens Falls Ins. Co., 231 Or 410, 416, 373 P2d 412 (1962). As this court observed in Marleau, "[N]either the failure to identify correctly the claims nor the failure to state them separately defeats the duty to defend." 333 Or at 91. As long as the complaint contains allegations that, without amendment, state a basis for a claim covered by the policy, the duty to defend arises. Id. The inclusion in the complaint of other allegations describing claims that fall outside the policy's coverage is immaterial. See Abrams v. General Star Indemnity Co., 335 Or 392, 400, 67 P3d 931 (2003) (if the complaint contains allegations of covered conduct, the insurer has a duty to defend even if the complaint also contains allegations of excluded conduct). Any ambiguity concerning potential coverage is resolved in favor of the insured. Ledford, 319 Or at 400.
We turn now to the provisions of the CGL policy that Farmers issued to Bresee. The parties agree that the following policy terms were in effect between June 17, 1998, and June 17, 2003; that the parties renewed the policy annually; and that the policy pertains to the claim that the Joneses filed against Bresee.
The policy, as pertinent to this dispute, consists of a broad insuring agreement stating the insurer's promise to pay specified damages and to defend the insured against claims brought against the insured to recover those damages. A list of exclusions from coverage follows the insuring agreement. Finally, the policy sets out a list of definitions of terms and phrases in the policy. We set out below those relevant parts of the policy:
"Throughout this policy the words 'you' and 'your' refer to the Named Insured shown in the Declarations, and any other person or organization ...