Security National Insurance Co. A Texas Corp. v. Sunset Presbyterian Church

          Argued and submitted October 6, 2015.

         Washington County Circuit Court C124608CV; D. Charles Bailey, Jr, Judge.

          Kevin S. Mapes argued the cause for appellant. With him on the briefs were Phillip E. Joseph, James C. Prichard, and Ball Janik LLP.

          Thomas S. Christ argued the cause for respondent. With him on the brief was Cosgrave Vergeer Kester LLP.

          Before DeVore, Presiding Judge, and Hadlock, Chief Judge, and James, Judge.^[*]

          [289 Or. 194] Case Summary:

         This insurance dispute arises out of construction-defect litigation involving a church, its general contractor, one of the subcontractors, and the subcontractor's liability insurer. In settlement of the underlying litigation, the general contractor assigned its rights against subcontractors to the church. In this case, the insurer sought a judgment declaring that it had had no duty to defend the general contractor from the church's construction-defect claims under the policy that the insurer had issued to a particular subcontractor with an additional-insured endorsement. The church answered with several counterclaims. The parties fled cross-motions for summary judgment. The trial court granted the insurer's motion, denied the church's motion, and entered a judgment that dismissed the church's counterclaims. The church assigns error to the trial court's rulings, arguing that because the underlying complaint raised the possibility that the general contractor could be liable to the church for damage arising from the particular subcontractor's negligence, the insurer had a duty to defend all claims against the general contractor, its additional insured, including claims against the general contractor involving the negligence of other subcontractors. Held: The trial court erred in granting summary judgment for the insurer, in dismissing the church's counterclaims, and in denying the church a limited ruling declaring the insurer's duty to have defended the general contractor for its liability for the negligence of the particular subcontractor's work. The underlying complaint triggered the insurer's duty to defend the general contractor. Under ORS 30.140, however, the insurer's duty to defend under its policy does not extend to defend all claims. The insurer's duty to defend corresponds to the general contractor's potential liability that arises out of the fault of the particular subcontractor.

         Reversed and remanded.

          [289 Or. 195]

          DeVORE, P. J.

         This insurance dispute arises out of construction-defect litigation involving a church, its general contractor, one of the subcontractors, and the subcontractor's liability insurer. In the underlying litigation, the church had brought claims against the general contractor, who brought third-party claims against subcontractors. In settlement of that case, the general contractor assigned its rights against subcontractors to the church, Sunset Presbyterian Church (Sunset). In this case, the insurer, Security National Insurance Company (SNIC), sought a judgment declaring that it had had no duty to defend the general contractor, Andersen Construction Company (Andersen), from the church's construction-defect claims under the policy that SNIC had issued to a subcontractor, B&B Tile & Masonry Corporation (B&B). Sunset, now the assignee of Andersen, answered with counterclaims seeking recovery of $101, 005 in prior defense costs and asserting claims for breach of the duty to defend, equitable contribution, and equitable subrogation.

         The parties filed cross-motions for summary judgment. Relying on its prior rulings in the earlier case, the trial court granted SNIC's motion, denied Sunset's motion, and entered a judgment that dismissed Sunset's counterclaims and declared that SNIC had "no financial obligation" for Andersen's prior defense costs. Sunset assigns error to the trial court's rulings. For the reasons that follow, we agree that the court erred in granting SNIC's motion and in denying a part of Sunset's motion for partial summary judgment on SNIC's duty to have defended Andersen for liability from B&B's work. Accordingly, we reverse and remand.

         The relevant facts are undisputed but complicated. Sunset contracted with Andersen to construct a main building and related wings. Andersen subcontracted with B&B for the work involving masonry. Article 13 of Andersen's subcontract with B&B provided that B&B was required to cause its insurer to endorse its liability policies to add Andersen as an additional-insured for liability arising out of the operations performed for Andersen by B&B, acts of Andersen in connection with supervision of B&B, and claims for injuries [289 Or. 196] to B&B employees related to the construction. SNIC provided B&B with liability coverage that included a blanket additional-insured endorsement that added, as an insured, any person B&B was required by written contract to add as an insured to the policy.

         Upon discovering defects and water intrusion, Sunset filed contract and negligence claims against Andersen in 2010. In that underlying complaint, Sunset alleged, "Andersen hired subcontractors and suppliers to furnished [sic] labor, material, services, supplies or equipment for construction of * * * the Church." Sunset specified, "Architectural stone has been used to embellish the lower portions of the walls around the sanctuary." In a "non-exclusive list of faulty workmanship, " Sunset alleged, among other things, "Architectural stone has been terminated at the level of the finish grade along the base-of-wall at hard surfaces, contrary to Owens Corning manufacturer installation instructions." Sunset alleged "systemic building envelope deficiencies" and resulting property damage. Andersen tendered the defense of the Sunset litigation to SNIC, but SNIC refused to assume the defense of Andersen.

         In 2012, Sunset settled with Andersen and took an assignment of Andersen's rights against its subcontractors. Sunset settled Andersen's third-party claims against all the subcontractors except B&B. Sunset asserted Andersen's rights against B&B under Article 12, an indemnity provision of the subcontract. On a motion for partial summary judgment, the trial court concluded that B&B had a contractual duty to have defended Andersen against Sunset's claims for liability due to B&B's negligence, but that the subcontract was partially voided to the extent that Article 12 required B&B to indemnify Andersen for the negligence of Andersen or others. According to the court, the indemnity provision was partly void by reason of an anti-indemnity statute relating to construction contracts, ORS 30.140.^[1] In [289 Or. 197] a subsequent hearing on evidence of past defense costs, Sunset, as Andersen's assignee, contended that it was entitled to recover all of Andersen's defense costs, not just that portion attributable to B&B's negligence. Sunset offered no proof of the B&B portion of Andersen's defense costs. In the absence of proof of those costs, the trial court concluded that Sunset had failed to prove entitlement to damages for B&B's ...