In the recent case West Hills Development Company v. Chartis Claims, Inc., et al., 273 Or App 155 (2015) (“West Hills”), the Oregon Court of Appeals provided further guidance to Oregon insurers on their handling of tenders of defense from parties who contend that they are additional insureds. In particular, the court addressed the scope of an exception to the four-corners rule. The four-corners rule generally limits an insurer’s determination of the duty to defend inquiry to the facts alleged in the underlying complaint. The exception, which has only recently been recognized in Oregon, allows the consideration of facts not alleged in the complaint when the issue is whether the tendering party has the status of an insured under the insurance policy, as opposed to the issue of whether liability for the insured’s conduct is covered. In West Hills, the court explained that such extrinsic facts need not rise to the level of “evidence” that would be admissible in court. Instead, the court held that, where a tender letter contained the tendering party’s representations of information that was relevant to the issue of whether the tendering party was an additional insured, and the insurer could readily verify that information, that information was sufficient to establish additional insured status.
West Hills involved a general contractor involved in the construction of townhomes. The townhome owners association brought a lawsuit against the general contractor, alleging that the general contractor negligently supervised its subcontractors, and that there was inadequate weatherproofing at wood posts. The general contractor was expressly designated in its subcontractor’s insurance policy as an additional insured, but only for liability arising from the subcontractor’s ongoing operations performed for the general contractor.
Asserting additional insured status under that provision, the general contractor tendered the complaint to the subcontractor’s insurer. The complaint did not mention the subcontractor, and as such, contained no facts necessary to establish additional insured status because it contained no facts to show that any of the general contractor’s liability arose from the subcontractor’s work for it. However, in its tender letter the general contractor reported that the subcontractor performed work for the general contractor that was described in the complaint. The insurer denied the tender.
The insurer argued to the Court of Appeals that information about the subcontractor’s work was not extrinsic “evidence” that could be considered in determining whether the insurer had a duty to defend, because they were arguments that would not be considered as “evidence” at trial. The Court of Appeals rejected that argument, explaining that the existence of duty to defend did not depend upon whether facts from outside the complaint met any evidentiary standard. Instead, it was enough that the tender letter’s report that the subcontractor had been involved in the construction put the insurer on notice that that its duty to defend was at issue, particularly in light of the fact that that the insurer could readily verify the reported information. The court, however, did not say that the insurer had to accept the information as true.
The court, however, did not resolve the parties’ dispute regarding the meaning of the additional insured provision’s limitation of “liability arising out of [the subcontractor’s] ongoing operations.” The insurer had argued that phrase meant that in order for coverage to apply, property damage must occur while the subcontractor was still on the job. The general contractor argued that phrase to provide broader coverage for any liability for property damage that arose from the subcontractor’s operations, even if such damage occurred after the subcontractor completed its work and left the job. The court held it unnecessary to decide that issue, because the allegations of the complaint pleaded the possibility of damage occurring within the narrower meaning offered by the insurer. The issue of the meaning of the “ongoing operations” limitation will continue to be litigated before Oregon trial courts until the Court of Appeals resolves it.
Finally, the West Hills decision provides no guidance on the related issue of whether an insurer who provided additional insured coverage limited to the subcontractor’s “ongoing operations” may rely upon evidence from outside the complaint to show that the subcontractor did not conducted any relevant operations during the policy period, in order to deny the duty to defend.