Court May Look To Extrinsic Evidence To Determine Who Is An Insured
In Fred Shearer & Sons, Inc. v. Gemini Insurance Company, 2010 Or. App. LEXIS 1137 (Or. App. Sept. 29, 2010), the Oregon Court of Appeals held that a court may look beyond the policy and the complaint to extrinsic evidence in order to determine who qualifies as an insured. The Court expressly held that “the inquiry as to whether [the party seeking coverage] was an insured under the policy was not limited to the pleadings and the text of the policy. Id. The Court distinguished between looking at the conduct covered by a policy to determine a duty to defend and when the Court is determining who has status as an insured.
In Fred Shearer & Sons, a product vendor was sued for negligence in applying stucco to the exterior of a building and the vendor in turn sought a defense from the product distributor’s insurer on the theory that the vendor was an additional insured under the policy’s “vendors endorsement.” Id. The language of the endorsement provided coverage for vendors as additional insureds only if the vendor sells the distributor’s product in the “regular course of [the vendor’s] business.” Id. The court reasoned that a determination of whether the vendor qualified an additional insured would require the court to analyze whether the vendor sold the product “in the regular course of business.” Id. The court was concerned that a plaintiff, such as the one in this case, would have had no reason to allege facts in the complaint relevant to this endorsement; moreover facts related to whether the vendor was selling or distributing its product in the regular course of business likely would be irrelevant at trial. Id. The court was concerned that in many cases, facts establishing who is an insured or an additional insured “may or may not be relevant to the merits of the plaintiff’s case in the underlying litigation” and therefore those facts may or may not be plead in the complaint. Id. Thus, the court concluded that in order to determine whether a party is an “insured” as a threshold matter, it is permissible to examine extrinsic evidence.
The court rejected the insurer’s argument that no defense was owed to the vendor since the four-corners of the complaint exclusively govern the duty to defend and the complaint was insufficient to trigger coverage under the policy. Id. The court acknowledged that under the seminal case on point, Ledford v. Gutoski, courts are required to look only at the complaint and the policy to evaluate the insurer’s duty to defend. 319 Or. 397, 877 P.2d 80 (1994). The court distinguished Ledford from the present case and concluded that reliance only on the policy and the complaint is appropriate to determine whether alleged conduct triggers the policy – which was at issue in Ledford. In Ledford, unlike in this case, “the court was not concerned with the preliminary question: whether the party seeking coverage was actually an insured within the meaning of the policy.” Id. (emphasis in original). When the threshold matter is determining who is covered by the policy, reviewing extrinsic evidence is appropriate. Id.
After finding that the additional insured endorsement applied, the court found two exclusions inapplicable. The court found both exclusions ambiguous and the complaint could be read to allege damage outside the scope of the exclusions.
