West Hills Development Company v. Chartis Claims, Inc., et al., and Oregon Automobile Insurance Company, 273 Or App 155 (2015)
by Megan Ferris and Kristin Welsh
In West Hills Development Company v. Chartis Claims, Inc., et al., and Oregon Automobile Insurance Company (hereinafter “West Hills v. Oregon Auto”), the dispute in this arose from an insurer’s refusal to defend a general contractor as an additional insured in an action brought by a homeowners association for construction defects.
West Hills Development Company (“West Hills”), acting as the general contractor, hired L&T to install porch columns in the construction of the Arbor Terrace Townhomes. Id at 157. In accordance with the contract between West Hills and L&T, L&T added West Hills as an additional insured to its insurance policy issued by Oregon Automobile Insurance Company (“Oregon Auto”). Id. The insurance policy at issue specifically named West Hills as an additional insured.
Due to alleged construction defects, the Arbor Terrace Homeowners Association (homeowners) filed suit against West Hills for negligent supervision and specific defects such as insufficient weatherproofing “at wood posts supporting the soffits.” Id. at 158. The complaint also recommended certain remedies such as to “re-clad columns with moisture tolerant assemblies.” Id. Lastly, the homeowners alleged the defects had already started to cause property damage when they purchased their homes. Id.
Based on the allegations in the complaint, West Hills tendered its defense to Oregon Auto. Id. at 159. Oregon Auto denied the tender because the complaint did not specifically name L&T or address L&T’s scope of work. Id. Oregon Auto further noted that the policy only triggered its duty for damages that occurred during the “subcontractor’s ongoing operations” and that there was no evidence that damages arose during L&T’s ongoing operations on the project i.e. during construction. West Hills brought an action for a declaratory judgment regarding Oregon Auto’s responsibility to defend West Hills in the homeowners’ lawsuit. The trial court held that Oregon Auto had breached its contractual duty to defend West Hills.
On appeal by Oregon Auto, it argued that it had no duty to defend West Hills because the complaint did not allege any possibility of liability against West Hills covered by Oregon Auto’s policy. Id. at 161. The Oregon Court of Appeals affirmed the trial court’s decision. The Court held that an allegation in the complaint that could impose liability against its insured L&T for conduct that the policy covers triggers an insurer’s duty to defend. Id. at 161 (emphasis added).
The Court held that the “complaint needs only to make allegations with which a claim covered by the policy may be proven.” Id. at 162. The Court further charged the insurer with the responsibility to make this determination. Id. Although the homeowners’ complaint did not specifically name L&T or “porch columns,” the Court of Appeals held that the allegation against West Hills for negligently supervising its subcontractors was sufficient to trigger Oregon Auto’s duty to defend since L&T was one of the subcontractors on the Arbor Terrace Townhomes for which the homeowners sued. Id. at 163. The Court held that as long as West Hill’s liability could have resulted from L&T’s conduct in some way, the complaint appropriately triggered Oregon Auto’s duty to defend.
The Court leaned heavily on Bresee Homes, Inc., 353 Or at 114-115, in determining whether that the complaint triggered Oregon Auto’s duty to defend. Id. at 163. The Court held that as long as nothing in the complaint forecloses the possibility of damage during coverage, the insurer’s duty is triggered. Id. at 167. The Court refused to require the insured to provide evidence of facts beyond those alleged in the complaint. Id. at 168. The Court emphasized the homeowners’ allegation that the property damage had started before they purchased the property because this would likely mean the damage had occurred before the project was complete. Id. at 168. Therefore, even though Oregon Auto’s policy only covered damage for “ongoing activities” the Court held that because the homeowners alleged damage before the purchase, this was sufficient to fall under this policy—it would not interpret this clause to mean the duty was terminated at the end of L&T’s work. Id. at 165.
The Court, in relying on Fred Shearer & Sons, Inc. v. Gemini Ins. Co., 237 Or App 468 (2010), also used extrinsic evidence to determine whether West Hills was an insured and whether Oregon Auto had a duty to defend West Hills. Id. The Court held that the exclusion of L&T from the complaint was not dispositive because the Court could analyze extrinsic evidence. The Court held that the West Hills’ tender letter to Oregon Auto could be and would be used as extrinsic evidence in determining whether West Hills was an additional insured because the higher standard invoked in the Oregon Evidence Code did not apply. Id. at 164. The Court held the tender letter was relevant because it demonstrated that Oregon Auto had received notice that West Hills could be its additional insured, which informed Oregon Auto that its duty to defend was at issue. Id. at 164.