Oregon Federal Court Addresses Who Is An Insured
In Mt. Hood, LLC v. Travelers Cas. & Sur. Co., 2009 U.S. Dist. LEXIS 16775 (March 3, 2009), the U.S. District Court for the District of Oregon analyzed whether an individual and a corporation qualified as insureds under a policy issued to a condominium homeowners association. The HOA, Collins Lake Resort Homeowners Association, sued Mt. Hood, LLC and Kirk Hanna for damages based on breach of contract, negligence, negligent misrepresentation, and breach of fiduciary duties. The complaint alleged that Mt. Hood was the developer and that Hanna was both a board member of the HOA and a representative of Mt. Hood. The HOA alleged that Mt. Hood and Hanna were aware of construction defects at the resort and failed to inform the owners. The HOA also alleged that Hanna breached his fiduciary duty by assisting Mt. Hood in not paying its share of expenses and repair costs while Hanna was on the board of directors of the HOA. Mt. Hood and Hanna claimed that Travelers breached its insurance contract by denying the duty to defend.
Because the lawsuit did not allege that Mt. Hood was a board member or subsidiary of the HOA, Travelers argued that Mt. Hood did not qualify as an insured. Mt. Hood claimed that since the complaint alleged that Mt. Hood controlled the board and the HOA for a period of time, Mt. Hood was effectively on the board. The court rejected this argument. Following Oregon law, the court determined that it could only consider the complaint and the policy when analyzing the duty to defend. The court found that in reviewing the complaint, it was clear that there was no allegation that Mt. Hood itself was a member of the board, even if it did control the actions of the board. The court focused on the allegation in the complaint that Hanna had been elected as the sole board member. The court granted Travelers motion to dismiss as to Mt. Hood’s claims.
With respect to Hanna, Travelers argued he was not an insured because the claims were filed against Hanna outside the policy period as required by the policy. Travelers argued that because the suit was not brought within the policy period, there was no coverage. The court found, however, that because the policy only required that a “claim” for monetary damages be brought against the board member within the policy period, the demand for money damages prior to the complaint qualified as a “claim” under the policy. Travelers also argued that an exclusion for damages arising out of construction defects applied. The court found that the policy’s coverage for “breach of duty,” and the allegations in the complaint, were broad enough, such that claims for damages other than solely construction defects could be recovered. The court, therefore, rejected Travelers motion to dismiss the claim for breach of the duty to defend Hanna.
