Oregon Supreme Court Issues Important CD Coverage Decision Regarding Time of Property Damage and Allocation Issues
The Oregon Supreme Court has issued an important decision on insurance coverage for construction defect and other progressive injury claims late last week in Fountaincourt Homeowners' Association v. Fountaincourt Development LLC, 360 Or. 341, -- P.3d --- (September 22, 2016).
In Fountaincourt, the Court held the insurer was liable for the full amount of the underlying judgment, since it had not shown what property damage occurred outside of the policy period, and since the insured had proven some of the damage occurred during the insurer's policy period. Based on the Supreme Court's ruling, the burden of proof on this important allocation issue regarding the timing of property damage falls on the insurer. While the Supreme Court declined to adopt an "all sums" approach, the practical effect may be nearly the same, unless the insurer can carry its burden of proof to demonstrate what damage occurred outside of its policy period(s).
The Fountaincourt case arose out of a homeowner association's claim against the siding contractor (and others) for construction defects. The Association's case went to trial. The jury returned a verdict against the sider. Following trial, the Association sought to garnish the sider's liability policies (issued by American Family) to cover the judgment. The trial court granted a show cause hearing and, after the evidence presented, entered a judgment against American Family for the full amount of the underlying judgment against the sider.
In the Court of Appeals, American Family argued the Association had failed to establish the entirety of its money judgment was for property damages that occurred during American Family's policy period. The Court of Appeals rejected American Family's argument. While claiming it was not deciding the "all sums" issue, the Court of Appeals nonetheless announced a rule very close to "all sums." It concluded an insured need only establish that the judgment reflects damages that occurred during the policy period and that all of the awarded damages could have been during that policy period. At that time, the burden shifts to the insurer to prove that some portion of the damages does not reflect property damage occurring during the policy period. American Family appealed.
The Oregon Supreme Court acknowledged the trial court had necessarily applied an "all sums" allocation to find that American Family was liable in the underlying garnishment proceeding for the entire amount of the judgment rather than a pro-rated amount allocable to its policy periods. It also cited with approval to the Court of Appeal's decision in Cascade Corp. v. American Home Assurance Co., 206 Or. App. 1, 8-10 (2006) finding that while a pro rata approach was suitable in determining allocation among insurers in contribution actions, it did not provide a basis for reducing the insurer's liability to its insured.
Based on the Supreme Court's decision in Fountaincourt, to avoid liability for the full amount of an underlying judgment or settlement, insurers will need to be sure to present sufficient factual evidence and expert testimony to bear its burden of proof on the timing of property damage, particularly as to what damage occurred before, or after, its policy period(s). This is more easily said than done and invites a "battle of the experts."
The Court's decision in Fountaincourt should not have significant impact on contribution actions between insurers, where the insurer seeking contribution will have the initial burden to show some of the damage occurred during the other insurer's policy period(s), at which time the burden would shift to the targeted insurer to refute that contention and to demonstrate that no covered damage occurred during its periods.
Note the Court's decision in Fountaincourt will not have application to environmental pollution claims, as Oregon law already expressly provides for an "all sums" approach for these claims, by statute, based on the Oregon Environmental Cleanup Assistance Act ("OECAA"), specifically ORS 465.480(3) ("An insurer with a duty to pay defense or indemnity costs, or both, to an insured for an environmental claim under a general liability insurance policy * * * must pay all defense or indemnity costs, or both, proximately arising out of the risk pursuant to the applicable terms of its policy, including its limit of liability, independent and unaffected by other insurance that may provide coverage for the same claim.").