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PIH Beaverton LLC v. Red Shield Insurance Co.

Court of Appeals of Oregon

January 10, 2018

PIH BEAVERTON LLC, successor in interest to Truck Insurance Exchange, Farmers Insurance Exchange, Hanover Insurance Company, and Austin Mutual Insurance Company, Plaintiff-Respondent,
v.
RED SHIELD INSURANCE COMPANY, a foreign insurer, Defendant, and AMERICAN STATES INSURANCE COMPANY, a foreign insurer, Defendant-Appellant.

          Argued and Submitted December 20, 2016

         Multnomah County Circuit Court 130912779; Kelly Skye, Judge.

          Thomas M. Christ argued the cause for appellant. With him on the briefs was Cosgrave Vergeer Kester LLP.

          Nicholas A. Thede argued the cause for respondent. With him on the brief were James C. Prichard, Kyle A. Sturm, and Ball Janik, LLP.

          Before DeHoog, Presiding Judge, and Aoyagi, Judge, and Haselton, Senior Judge.[*]

         [289 Or. 789] Case Summary:

         This is an action between insurance companies concerning the duty to defend against claims arising out of construction defects. Defendant was the liability insurer of a subcontractor hired by a general contractor to do construction work on two hotels. The parties' dispute arose when the eventual owners of the two hotels brought suits against the general contractor, alleging that negligent work by the general contractor and others had resulted in water intrusion and related damage. The general contractor tendered the defense of both actions to its liability insurers and, based on an additional-insured endorsement in the subcontractor's liability policy, to defendant. After defendant declined to defend the general contractor, several of the general contractor's insurers (plaintiffs) brought this separate action against defendant, seeking, in part, declaratory relief and contribution from defendant to the costs of defending the general contractor. Following summary judgment proceedings, the trial court entered a limited judgment declaring that defendant owed a duty to defend the general contractor in the construction defect actions. On appeal, defendant argues that it did not have a duty to defend the general contractor under its insurance policy, because the allegations in the construction defect complaints did not trigger a duty to defend. Held: The trial court did not err in concluding that defendant owed the general contractor a duty to defend. An insurer is obligated to defend if the allegations in a complaint could, potentially, result in the insured being held liable for damages covered by the policy. The allegations in the construction defect complaints were suffcient to trigger defendant's duty to defend the general c ontract or.

         Affrmed.

         [289 Or. 790] DEHOOG, P.J.

         This is an action between insurance companies concerning the duty to defend against claims arising out of construction defects. Defendant American States Insurance Company was the insurer of Gary Thompson dba Portland Plastering (Thompson), a subcontractor hired by general contractor Super One, Inc. (Super One) to do construction work on hotels in Portland and Beaverton. The parties' dispute arose when the eventual owners of the two hotels sued Super One, alleging that negligent work by Super One and others had resulted in water intrusion and related damage. Super One tendered the defense of both actions to its insurers and, relying on its status as an "additional insured" on Thompson's insurance policy, also to defendant. After defendant declined to defend Super One, several of Super One's insurers (plaintiffs) brought this separate action seeking, in part, declaratory relief and contribution from defendant to the costs of defending Super One.[1] Following a hearing on the parties' cross-motions for partial summary judgment, the trial court entered a limited judgment declaring that defendant owed a duty to defend Super One in the construction defect cases. Defendant appeals that judgment, assigning error to the trial court's grant of plaintiffs' motion and the denial of its own motion. We conclude that the trial court did not err in concluding that defendant owed Super One a duty to defend. Accordingly, we affirm.

         In an appeal involving cross-motions for partial summary judgment where "the losing party assigns error both to the grant of summary judgment to the other party and to the denial of its own motion for summary judgment, we review to determine 'whether there are any disputed issues of material fact and whether either party was entitled to judgment as a matter of law.'" Hynix Semiconductor Mfg. America v. EWEB, 276 Or.App. 228, 230-31, 367 P.3d 927 (2016) (quoting Vision Realty, Inc. v. Kohler, 214 Or.App. [289 Or. 791] 220, 222, 164 P.3d 330 (2007)). Here, there are no disputed material facts; the only question is one of law.

         To provide context for the underlying facts, we begin with the legal principles governing an insurer's duty to defend.

"An insurer's duty to defend, according to the widely accepted 'four-corners' rule, is determined by comparing the complaint to the insurance policy. The rule refers to the four corners of the complaint; it also sometimes is referred to as the eight-corners rule (for the four corners of the complaint plus the four corners of the policy). However denominated, under that rule, one compares the allegations in the complaint to the insurance policy's terms. If the allegations in the complaint assert a claim covered by the policy, then the insurer has a duty to defend. If the allegations do not assert a claim covered by the policy, then the insurer has no duty to defend. By limiting the analysis to the complaint and the insurance policy, the four-corners rule generally prevents consideration of extrinsic evidence."

West Hills Development Co. v. Chartis Claims, 360 Or. 650, 653, 385 P.3d 1053 (2016) (West Hills) (citations omitted).

         In West Hills, the Supreme Court acknowledged that applying the four-corners rule to real world complaints can be challenging. Id. at 660. Ambiguities are resolved in favor of defending the insured:

"'Where the complaint does not state facts sufficient to bring the case clearly within or without the coverage, the general rule is that the insurer is obligated to defend if there is, potentially, a case under the complaint within the coverage of the policy. In other words, in case of doubt as to whether or not the allegations of a complaint against the insured state a cause of action within the coverage of a liability policy sufficient to compel the insurer to defend the action, such doubt will be resolved in the insured's favor.'"

Id. at 662 (quoting Blohm et al v. Glens Falls Ins. Co., 231 Or. 410, 415-16, 373 P.2d 412 (1962) (internal quotation marks and citation omitted)); see also Bresee Homes, Inc. v. Farmers Ins. Exchange, 353 Or. 112, 117, 293 P.3d 1036 (2012) ("Any ambiguity concerning potential coverage is resolved in favor of the insured."). Additionally, it does not matter if there are [289 Or. 792] also claims in the complaint that are outside of the insurance coverage; "[a]s long as the complaint contains allegations that, without amendment, state a basis for a claim covered by the policy, the duty to defend arises."[2] Bresee Homes, Inc., 353 Or at 117.

         Having set out the legal framework for our analysis, we turn to the facts. Defendant issued a general liability policy to Thompson, which Thompson renewed several times.[3] The policy required defendant to pay all sums that the insured became legally obligated to pay as damages due to property damage to which the policy applied. The policy also imposed a duty on defendant to defend the insured against any lawsuit seeking those damages. The insurance policy's provisions, however, apply only to property damages occurring "during the policy period."

         The policy contains an "additional insured" endorsement that modifies the definition of who is an "insured" under the policy. The endorsement states, in part, that an "insured" includes

"any person or organization for whom [Thompson is] performing operations when [Thompson] and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on [Thompson's] policy. Such person or organization is an additional insured only with respect to liability arising out of [Thompson's] ongoing operations performed for that insured. A person's or organization's status as an insured under this endorsement ends when [Thompson's] operations for that insured are completed."

         [289 Or. 793] The language of the endorsement changed in the course of a policy renewal, but not in any substantive way ...


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