Oregon's Supreme Court Holds The Structure Of A Policy Determines The Allocation Of Burden Of Proof, And Finds "Damages To Any . . . Other Fixed Or Moveable Thing Whatsoever" Applies To Damage To A Riverbed
In ZRZ Realty Co. v. Beneficial Fire and Cas. Ins. Co., 2010 Or. LEXIS 791 (October 14, 2010), the Oregon Supreme Court held that the way parties structure an insurance agreement determines whether an insured bears the burden of proving that damages are covered under the grant of coverage or whether the insurer bears the burden of proving that the damages fall within an exclusion of coverage. The Court also held that the terms of a marine insurance policy providing protection and indemnity coverage applied to damage to sediment in a river.
This case involves insureds who were in the business of dismantling decommissioned ships at a site on the Willamette River in Portland, Oregon. The dismantling process resulted in the release of some pollutants directly into the river and some pollutants onto the land, which further led to pollutants leaching into the groundwater and the river. From 1956 to 1983, the insureds purchased three types of insurance policies that are at issue in this case: comprehensive general liability policies, marine excess coverage policies, and marine protection and indemnity policies. In 1994, the Oregon Department of Environmental Quality (DEQ) notified the insureds that they were potentially responsible for cleaning up environmental contamination at the site. In response to DEQ’s notice, the insureds sought defense and indemnity from the insurer from whom they had bought insurance policies. The insurer declined coverage, and the insureds brought this action for breach of contract and declaratory relief.
The first issue the Court addressed on review was whether a policy’s requirement that any damage, in this case to the environment, be neither intended nor expected is part of a limited grant of coverage to which the insureds would have to prove entitlement or an exclusion from a broad grant of coverage for which the insurer would have to prove justification. Affirming the Court of Appeals’ allocation of the burden of proof, the Court noted that Oregon authorities allocate the burden of production and persuasion based upon whether a policy grants limited coverage or broad coverage subject to an exclusion, and concluded that respecting the way the parties chose to structure the policy is the appropriate method to classify the limitation. The Court found that method both permits parties to structure their agreements in a way that allocates the burden of proof and avoids putting courts in the difficult position of “divining the ‘essence’ of contractual provisions that logically may serve either as a grant of limited coverage or an exclusion from a broad grant of coverage.” In this case, the insured bore the burden of persuasion when the limitation on expected or intended damage was part of the coverage grant through the definition of “occurrence.” The insurer bore the burden for those policies where the coverage grant did not include this limiting language.
On the second issue regarding whether “damage to any harbor, dock (graving or otherwise), slipway, way, gridiron, pontoon, pier, quay, jetty, stage, buoy, telegraph cable or other fixed or moveable thing whatsoever” includes damage to river sediments, the Court reversed the holding of the Court of Appeals. Applying Oregon’s established rules for interpreting insurance policies, the Court determined that because the parties’ differing interpretations of the insurance provision were each plausible, and because examination of the remainder of the policy did not remove ambiguity in the meaning of the provision, the Court interpreted the phrase “any * * * other fixed or moveable thing whatsoever” broadly in favor of the insureds to include damage to the sediment in the river within the scope of coverage.
