Oregon District Court Predicts Oregon State Courts Would Consider Extrinsic Evidence Of The Date A Claim Was Noticed To An Insured When Analyzing The Duty To Defend Under A Claims-Made Policy
The issue of whether evidence beyond the “eight corners” of the complaint against an insured and the policy issued to an insured can be considered to determine an insurer’s duty to defend its insured under a claims-made policy has not been addressed by Oregon’s appellate courts. In the recent Oregon District Court opinion, Harris Thermal Transfer Products, Inc. v. James River Insurance Co., 2010 U.S. Dist. LEXIS 72673 (July 19, 2010), Oregon District Court Judge Paul Papak examined the issue and determined that a rigid application of the eight-corners rule would systematically subvert the intentions of the parties to a claims-made insurance contract and result in a distortion of the terms of their agreement. The District Court predicted that, if presented with the issue, the Oregon Supreme Court would not apply the “eight-corners” rule barring consideration of extrinsic evidence of the date a claim was noticed to an insured when analyzing an insurer’s duty to defend under a claims-made policy.
In Harris, the plaintiff brought an action for breach of contract and for declaratory relief against its insurer for the insurer’s failure to undertake Harris’ defense in a claim against it under a claims-made and claims-reported policy. The parties filed cross-motions for summary judgment on the coverage issue, which resulted in Judge Papak’s opinion. After determining that Oregon law applied to the dispute, the District Court determined that Oregon’s appellate courts have not considered whether the “eight-corners” rule must be properly applied to a claims-made, as opposed to occurrence-based, policy. The District Court noted that with claims-made policies, but not occurrence-based policies, the date that a claimant advises the insured that a claim is being made is material to determining whether there is coverage for the claim. The District Court found persuasive analysis on this issue from an opinion from the First Circuit, and quoted from that opinion: “the [eight-corners] rule cannot be rigidly applied in the context of claims-made policies where the determinative event is the timing of the claim, a fact that likely will be . . . irrelevant to the merits of the underlying tort suit, and therefore absent from the pleadings.” Edwards v. Lexington Ins. Co., 507 F3d 35, 40-41 (1st Cir 2007).
The District Court held that to bar extrinsic evidence of the date a claim was noticed to an insured when analyzing an insurer’s duty to defend under a claims-made policy would improperly subvert the purpose and terms of the agreement between the insured and its claims-made insurer by requiring the insurer to undertake the insured’s defense under circumstances where it did not agree to do so and where the insured had no contractual right to expect it. The District Court went on to state that the rigid application of the broadest formulation of the “eight-corners” rule to claims-made policies would create circumstances in which the party alleging claims against the insured could, by choosing whether or not to allege the date a claim was first made against the insured, control whether the claims-made insurer would be required to undertake its insured’s defense. As Oregon acknowledges that “[t]he primary and governing rule of the construction of insurance contracts is to ascertain the intention of the parties,” Totten v. New York Life Ins. Co., 298 Or 765, 770 (1985), and because rigid application of the “eight-corners” rule would systematically subvert intentions of the parties to a claims-made insurance contract and distort the terms of their agreement, the District Court predicted that, if presented with the issue, the Oregon Supreme Court would not apply the “eight-corners” rule to bar consideration of extrinsic evidence of the date a claim was noticed to an insured when analyzing an insurer’s duty to defend under a claims-made policy.
