You’re sued. You tender the defense of the lawsuit to your insurer, but it refuses to defend you. You settle the case and then file a lawsuit against your insurer for what it should have paid to defend you while sitting out of the fight. You win in the trial court, in the Court of Appeals, and the Oregon Supreme Court. Under Oregon law, you get your attorney fees for this fight with the insurer about attorney fees, right?

Not if, despite all appearances, you were not the insured, but really a “self insurer” all this time, fighting with your insurer about paying for a fair share of your own defense costs. That’s what one Oregon insurer recently argued, and what the Oregon Court of Appeals soundly rejected in a decision issued today.

In West Hills Devel. Co. v. Chartis Claims, Inc., West Hills was a general contractor that built a townhouse project. After it was sued for defective construction of this project, West Hills tendered the defense of the lawsuit to Oregon Auto and several other insurers. Oregon Auto had written its policy to one of the subcontractors for West Hills, which included an endorsement naming West Hills as an “additional insured.”

Oregon Auto declined to pay any share of the defense costs for West Hills, arguing that the complaint did not trigger its duty to defend because the complaint did not explicitly “rule in” the possibility of a covered judgment because it supposedly did not allege negligence by the subcontractor or that damages to the townhouses occurred during the subcontractor’s “ongoing operations.” On appeal, in December of last year the Oregon Supreme Court rejected this standard, holding that ambiguous allegations are enough to trigger the duty to defend — as long as the allegations do not “rule out” coverage.

So, Oregon Auto lost round one to West Hills. Following this victory (and appeal described above), the Oregon Court of Appeals took up a separate appeal regarding the trial court’s supplemental judgment awarding attorney fees to West Hills for prevailing against Oregon Auto. This is the appeal decided yesterday.

In this appeal, Oregon Auto argued that West Hills was not really acting as an insured at all, but was actually a “self insurer” based on the $25,000 self-insured retention that West Hills had paid under its policy with one of its other insurers that did pick up the defense. Under this wine-into-water view of things, West Hills was its own insurer for the first $25,000 in defense costs. And, because insurers cannot recover fees in contribution fights among themselves, Oregon Auto owed nothing for its loss to West Hills.

This puzzling bit of alchemy didn’t fly. The Oregon Court of Appeals rejected this argument because Oregon Auto’s duty to defend was not subject to any SIR at all, which meant that it should have picked up the defense from the first dollar billed by the defense lawyers:

The “self-insured retention” under Quanta’s [the other insurer’s] policy — a deductible provision — does not transform West Hills into a recognized “self-insurer” or the true equivalent of an insurance company. A deductible provision in Quanta’s policy does not make West Hills a co-insurer along with Oregon Auto and other insurers. The simple fact remains that, because West Hills was an additional insured under Oregon Auto’s policy, Oregon Auto owed West Hills a defense from the first dollar of expense and without regard to another insurer’s deductible.

This holding keeps the teeth in Oregon’s fee-shifting statute in insurance litigation in rejecting Oregon Auto’s attempt to ride shotgun with another insurer’s SIR. Under West Hills, payment of an SIR to one insurer cannot simultaneously shield other insurers from paying an insured’s attorney fees incurred in coverage litigation.