The Oregon Supreme Court accepted review of the Oregon Court of Appeals’ decision in West Hills Dev. Co. v. Chartis Claims, Inc., 273 Or App 155 (2015), an insurance coverage case in which the Court of Appeals recognized a broad duty to defend an alleged additional insured based on vague complaint allegations and extrinsic evidence (i.e., evidence beyond the four corners of the complaint). The two issues on review relate to the duty to defend: (1) does an insurer have a duty to investigate facts outside the pleadings? (2) Must an insurer defend as long as a complaint does not definitively rule out coverage? Unlike Washington, Oregon duty to defend law has never required a duty to investigate. Given the Supreme Court’s recent opinions that have construed the duty to defend very broadly without reference to any extrinsic facts, the West Hills case could potentially change Oregon’s long-held rules for determining a duty to defend.
West Hills was the general contractor for a construction project. The named insured, L&T, was a subcontractor hired to install porch columns. The Chartis policy contained an endorsement naming West Hills as an additional insured. The coverage dispute arose after Chartis denied West Hills’ tender of defense under the additional insured provision. Chartis argued it had no duty to defend because the complaint did not mention L&T, did not mention improperly constructed porch columns, and did not allege that damage occurred during L&T’s ongoing operations (a requirement under the policy). The trial court held Chartis breached its duty to defend.
The Court of Appeals affirmed. It held Chartis could not rely on the lack of a reference to L&T in the complaint as a reason not to defend because extrinsic evidence permitted Chartis to identify L&T as a subcontractor on the project. The Court also held the complaint’s references to “columns” and “other components of each building” were sufficient to implicate L&T’s work on the project. On the timing issue, the Court of Appeals held that because the complaint was ambiguous as to when the damage occurred, it must be assumed for purposes of the duty to defend that covered damage occurred during the insured’s ongoing operations.
The Supreme Court accepted Chartis’ petition for review. Anticipated issues on review are whether an insurer owes a duty to investigate facts beyond the pleadings when determining whether it owes a duty to defend, and whether an insurer must defend when the complaint is ambiguous as to when the covered damage occurred. The Supreme Court’s opinion has the potential to change or clarify Oregon law on the duty to defend, at least in cases involving tenders of defense to multiple subcontractors in construction defect cases. For example, to what extent, if any, is a carrier for a painting subcontractor required to defend a general contractor based on a vague complaint and tender that neither rule in nor rule out the possibility that the painter’s work might have been involved? We will continue to monitor this appeal and report the Supreme Court’s ruling in a subsequent blog post.