National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

In reaching its decision, the Court considered whether a 2005 amendment to ORS 742.001 that excepts “surplus lines insurance policies” from ORS chapter 742, applies to modify the scope of ORS 742.061. ORS 742.061 provides that a plaintiff who brings an action on any policy of insurance may recover its attorney fees if the insurer does not settle within six months of the plaintiff’s filing of a proof of loss, and if the plaintiff recovers more than the insurer tendered.  Significantly, the Court did not expressly state that the 2005 amendment applies to ORS 742.061.  Instead, the Court held that “to the extent the 2005 amendment applies to ORS 742.061, that amendment does not apply to actions filed before its effective date.” The Court also noted that it expressed no opinion on how the 2005 amendment applies to other provisions of ORS chapter 742. As the plaintiffs’ action in the case at issue was filed prior to the effective date of the amendment, and as the Court held that the 2005 amendment does not apply retroactively, the amendment had no application to the plaintiffs’ action.

The Court then considered whether plaintiffs were entitled to attorney fees they sought under ORS 742.061.  The Court held that because the plaintiffs had timely submitted a proof of loss regarding the insurer’s duty to defend, and because the plaintiffs recovered more defense costs than the insurer had tendered, the plaintiffs were entitled to recover their costs for establishing the duty to defend. As the plaintiffs have not recovered any indemnification costs from the insurer, however, the Court held that the plaintiffs are not entitled to recover attorney fees related to the duty to indemnify.

The Court noted, though, that this decision does not preclude plaintiffs from recovering attorney fees in the future for the work that its attorneys have done, both at trial and on appeal, to establish the insurer’s duty to indemnify if the insurer did not settle with plaintiffs within six months of their filing a proof of loss and if plaintiffs recover on remand more indemnification costs than the insurer had tendered.

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.