The Oregon Supreme Court held yesterday that an insurer may be liable for a full jury award for property damages against its insured if the insurer fails to refute the insured’s factual position that it was impossible to determine what portion of the damage occurred during the policy period, if some damage took place during the policy period.
FountainCourt Homeowners’ Association v. FountainCourt Development, LLC, et al., 360 Or 341 (2016), arose from a construction defect lawsuit concerning water damage to FountainCourt, a condominium and townhouse development in Beaverton, Oregon. The FountainCourt homeowners’ associations sued the developers, the contractor, and some of the subcontractors responsible for FountainCourt’s construction. Sideco, Inc. was alleged to have installed siding and windows that failed to protect against water intrusion. A jury awarded plaintiffs over $2 million, apportioning $485,877.84 in damages to Sideco. FountainCourt, standing in the shoes of Sideco, then instituted a garnishment proceeding against Sideco’s insurers, including American Family Mutual Insurance Company (AFM).
AFM answered that it was not required to pay the Sideco judgment because some or all of the damages did not arise from “property damage” or an “occurrence” as defined in the insurance policy, because some or all of the damage fell outside the policy period, or because exclusions applied. The trial court, concluding FountainCourt had met its burden to prove coverage under the policy and AFM had failed to prove an exclusion applied, entered judgment for FountainCourt. (The trial court found the other insurer had proven an exclusion applied, so it was not liable.) The Oregon Court of Appeals affirmed.
The Oregon Supreme Court accepted AFM’s petition for review, and affirmed. The Court agreed FountainCourt had made a prima facie case that coverage under the policy was triggered and that AFM had failed to offer evidence in rebuttal. But the Court declined to review the prior rulings concerning exclusions, reasoning that AFM failed to preserve any alleged error for review. See id. at 352, 361-65. The Court rejected AFM’s assertion that the damages awarded by the jury in the underlying case were not necessarily for “property damage” as defined by the insurance policy, but also could have included the cost to repair Sideco’s “defective work.” See id. at 361. The Court rejected this concern, reasoning that the jury was instructed FountainCourt was required to “prove physical damage to their property,” and “was not instructed that it could award damages for ‘defective work.’” Id. The Court explained AFM had failed to persuade “that actual physical damage to property is not covered under an insurance policy merely because it may be associated with defective workmanship by an insured.” Id.
The Court decided FountainCourt had proven an “occurrence” within the meaning of the policy because there was no genuine dispute that “at least some property damage occurred when the AFM policies were in effect.” Id. at 365. Accordingly, when exactly portions of the damage occurred was not relevant to whether coverage under the AFM policy was triggered in the first place. See id. The timing of the damage was relevant, however, to allocation among multiple insurers. Because AFM had argued on appeal that it was not liable at all, not that liability was allocated incorrectly, the Court affirmed the trial “court[’s] implicit conclu[sion] that AFM was responsible for the entire amount and not a prorated amount, although some of the damage necessarily had occurred when the [other insurer’s] policy was in effect, given the court’s conclusion that that policy was triggered.” Id. at 367. The Court did not address how the timing of the damage might relate to exclusions, as it did not reach AMF’s exclusion arguments.
In the future, insurers should be mindful of the need to provide evidence of what portion of property damage fell within and outside the policy period in situations where the insurer is liable because at least some damage happened during the policy period.