Ninth Circuit Confirms Insurers' Apportionment Rights Under Oregon Law

Posted on August 19, 2010 by Diane Polscer

For more than a year, plaintiffs’ and insureds’ attorneys in Oregon have been citing MW Builders, Inc. v. Safeco Ins. Co. of Am., 2009 U.S. Dist. LEXIS 31234 (D. Or., Apr. 9, 2009), for the proposition that if a contractor’s negligence results in any covered property damage, then the insurer must pay for all repair costs attributable to the contractor.  Thus, the Ninth Circuit’s recent reversal of MW Builders represents a substantial victory for insurers embroiled in construction defect disputes.

In MW Builders, Inc. v. Safeco Ins. Co. of Am. 2010 U.S. App. LEXIS 13960 (9th Cir. Or. July 8, 2010), the Ninth Circuit held that “[t]he district court erred in granting MW Builders the entire arbitration award because that award included uncovered repair costs.”  The plaintiff argued that the entire amount of the underlying arbitration award should be covered because the award amount was less than the total, actual cost to repair damage caused by the insured subcontractor’s defective work.  The Ninth Circuit rejected this argument, explaining:

That the actual repair costs, excluding uncovered repairs, ended up exceeding the $620,000 arbitration award does not justify awarding MW Builders the entire award.  MW Builders was never entitled to recover all the repair costs from Safeco.  It was only entitled to recover a portion of the damage to the hotel caused by Safeco’s insured.

 

Although the Ninth Circuit’s opinion is unpublished, it can be cited pursuant to FRAP 32.1.  Unless and until Oregon’s Supreme Court or Court of Appeals issues a contrary decision, the Ninth Circuit’s opinion in MW Builders should provide a sound basis for apportionment arguments in Oregon.
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Insurer's Obligation To Search For Coverage - Expanding The Insurer's Duties

Posted on May 7, 2009 by Sara Thorpe

A recent case in California, takes an insurer’s duty to search for coverage a step farther than required to date and, while the insurer acted correctly on the coverage of which it was aware and acted promptly as it discovered additional coverage, that was not enough – it was found liable to the tune of $3.2 million (damages, interest, and attorneys fees).

Safeco Ins. Co. v. Parks (2009) 170 Cal.App.4th 992 (“Safeco II”), is a case every insurer should review.  The court’s decision flows from a rather bizarre set of facts, and a convoluted legal history, which will not be fully summarized here. The claimant was 16 year old Michelle Park’s boyfriend who was left by the side of the road in February 1999 to make his way home following his rude behavior towards his girlfriend. He was hit by a car which resulted in the need to amputate one of his legs.

Michelle’s parents were divorced. She lived with her father, Charles, and grandmother, Evelyn. Her mother lived with a man (Barnett) that had a homeowners policy with Safeco. The claim by the injured boyfriend was tendered under Barnett’s policy.  Safeco denied, was sued, and was ultimately (years and a court decision later) found to be correct.  See Safeco Ins. Co. v. Parks (2004)122 Cal.App.4th 779 (“Safeco I”).

During that bad faith case, discovery was sought of other policies issued by Safeco “providing coverage for the nature and extent of the damages alleged.”  Safeco objected to the discovery. Parks did not move to compel.

 

Behind the scenes (the Safeco II court tells us), Safeco knew Miller lived with her father. Safeco’s unit manager had apparently instructed the adjuster to determine whether Michelle had other applicable insurance. The court noted that Safeco’s claim file did not show it searched for policies for the adults with whom Michelle resided “nor did Safeco interview Michelle’s father or grandmother to determine whether they had Safeco policies that might cover her claim.”  No mention is made of whether the claimant’s lawyer deposed the father or grandmother or conducted any discovery for policies other than sending the request to Safeco, which the lawyer failed to pursue.

 

As it turns out the grandmother owned the home in which Michelle lived and had a homeowners policy with Safeco. Once this came to Safeco’s attention, Safeco acted promptly and paid policy limits.  But too much water was already under the bridge. There had been a policy limits demand and an excess judgment.

 

The lesson in all of this? Follow the claim supervisor’s instructions.  Search for logical sources of insurance coverage for a claim. Document any search conducted. Hindsight is always 20/20.
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