The Oregon Court of Appeals heard oral argument in ZRZ Realty Co. et al v. Beneficial Fire and Casualty Insurance, CA No. A121145, on January 10, 2008 concerning several issues including whether it is the insurer or the insured that has the burden of proving whether damage is unintended or unexpected under a policy of insurance.

This insurance coverage case involved environmental contamination of the policyholder’s land and the nearby Willamette River in Oregon where the policyholder operated a vessel scrapping business for many years. The trial court originally found that the all of the subject policies provided coverage for losses arising by “accident” which the court held to mean an “unexpected and unintended event.” In determining whether the insured’s potential liability on an environmental contamination claim was the consequence of an unexpected and unintended event, the trial court placed on the insurer, Lloyd’s, the burden of proving that the event was “expected or intended” rather than requiring the insured, Zidell, to prove that the damage was “unexpected and unintended.”

At oral argument, Lloyd’s argued that “expected or intended” was a part of the coverage grant, therefore, the burden of proof of “unexpected and intended” should be with Zidell. Lloyd’s argued that the burden of proof was on Zidell because this term was part of the coverage grant. Further, the trial court recognized that the unexpected and unintended issue is a condition, rather than exclusion. If the panel accepts Zidell’s interpretation, the insurer argued that any grant of coverage that was less than unconditional and promised to pay any claim, under any condition, for any amount, would engulf the entire policy. Lloyd’s also argued that the burden of proof of unexpected and unintended damage should be on the party who files the declaratory judgment action.

Zidell’s counsel argued that the issue of “unexpected and unintended,” was an exclusion and therefore the burden of proof rested with the insurer. Zidell’s counsel argued that the party seeking the benefit of specific policy language had the burden of proof and because Lloyd’s was attempting to benefit from establishing that Zidell expected or intended that its discharge of waste would cause third party property damage, it therefore should carry the burden of proving the term. Zidell’s counsel further argued that “unexpected or unintended” was an exception to an affirmative grant of coverage and thus an exclusion that Lloyd’s was required to prove.

A decision from the court is anticipated later this year.