Some readers may recall West Hills Development Co. v. Chartis Claims, Inc., 360 Or. 650 (2016), in which the Oregon Supreme Court reaffirmed the law governing the broad duty to defend in Oregon. After that case was decided, a dispute over attorney’s fees remained. Last month, the Oregon Court of Appeals affirmed a supplemental judgment awarding West Hills attorney’s fees, over the insurer’s objection that the “action should be recharacterized as a suit for equitable contribution as among coinsurers,” such that ORS 742.061 would not serve to provide attorney’s fees. See 2017 Or. App. LEXIS 279 (2017). ORS 742.061 provide that:
[I]f settlement is not made within six months from the date proof of loss is filed with an insurer and an action is brought in any court of this state upon any policy of insurance of any kind of nature, and the plaintiff’s recovery exceeds the amount of any tender made by the defendant in such action, a reasonable amount to be fixed by the court as attorney fees shall be taxed as part of the costs of the action and any appeal thereon.
The underlying case was a construction defect action; West Hills was the general contractor. West Hills sought coverage as an additional insured under its subcontractors’ general liability policies. Quanta Specialty Lines Insurance Company (Quanta) and Asset Protection Program Risk Retention Group, Inc. (RRG) undertook West Hills’s defense. One insurer, Oregon Auto, declined to participate in West Hills’s defense, and West Hills sued Oregon Auto for breach of contract and for equitable contribution and equitable subrogation, claims which were assigned to West Hills by Quanta and RRG.
The trial court found in favor of West Hills, ruling that “West Hills was an insured under the Oregon Auto policy, that Oregon Auto had owed a duty to defend, and that West Hills had been damaged in the amount of $28,884.42, the sum alleged in the contract claim.” West Hills also sought attorney’s fees totaling $83,617.75 for prosecuting the coverage action. The trial court ultimately awarded West Hills $74,867.75 in fees.
On appeal, Oregon Auto argued that because there was a self-insured retention in the Quanta policy, West Hills was a “’self-insurer,’ that ‘[i]n substance, if not form, this is an action for equitable contribution and, therefore, it is not an action to which ORS 742.06191) applies.’” Oregon Auto cited Certain Underwriters v. Mass. Bonding & Ins. Co., 235 Or. App. 99 (2010), in which the Oregon Court of Appeals held that a claim for equitable contribution did not qualify for attorney’s fees under ORS 742.061.
The court rejected the argument that West Hills was a self-insurer, declaring first that “Quanta’s SIR provision was irrelevant to Oregon Auto’s duty to defend West Hills. Oregon Auto has made no suggestion that it was entitled to withhold its defense in reliance on another company’s deductible provision.” The court rejected Oregon Auto’s reliance on Certain Underwriters, explaining that case involved “the demand of insurers against other insurers for equitable contribution” whereas here, “West Hills’ first claim was for breach of the contract’s duty to defend.” The court clarified that “[a]lthough it is true that West Hills’ second claim sought equitable contribution and the third claim asserted subrogation rights of Quanta and RRG, those claims do not justify recharacterizing the first claim on the policy, nor the action as a whole.”
The full ramifications of this case remain to be seen. For now, insurers should be aware that an insured’s claims for breach of contract and equitable subrogation may support an award of attorney’s fees, even if claims for equitable contribution do not.