On August 19, 2015, the Oregon Court of Appeals issued its opinion in West Hills Development Co. v. Chartis Claims, Inc., reaffirming the broad nature of an insurer’s duty to defend, even when that duty is owed to an “additional insured.”
Contracting parties rely on indemnity agreements and additional insured status to protect against liability arising from the other party’s negligence. Insurers, however, frequently ignore or summarily deny tenders from parties who qualify as additional insureds under the policies they issued. That is exactly what happened in West Hills. A general contractor was sued for alleged construction defects in a townhome project. The general contractor then tendered the defense of that lawsuit to a subcontractor’s insurer as an additional insured under the subcontractor’s insurance policy. The subcontractor’s insurer denied coverage, and the general contractor, West Hills, sued the insurer, Oregon Automobile Insurance Company (“Oregon Auto”), for breach of the duty to defend. The trial court agreed with West Hills, granting summary judgment in the contractor’s favor.
On appeal, Oregon Auto relied primarily on two arguments to justify its refusal to defend. First, the insurer argued that it could have no obligation to West Hills as an additional insured because the original construction defect did not identify its named insured, the subcontractor, by name. Noting the broad nature of the duty to defend under Oregon law, the Court of Appeals rejected that argument. “To trigger the duty to defend, a complaint needs only to make allegations with which a claim covered by the policy may be proven. The insurer is charged with the responsibility to recognize the insured’s exposure that the complaint presents.” The Court noted that the original complaint alleged damages arising from negligent supervision of subcontractors, and that Oregon Auto’s insured was a subcontractor, holding that “[i]t did not need to be identified in the complaint for the insurer to recognize its responsibility.”
Second, Oregon Auto looked to the language of its policy to support its failure to defend. Again, the Court of Appeals disagreed. The insuring language provided West Hills with additional insured status, “but only with respect to liability arising out of [the named insured’s] ongoing operations[.]” Oregon Auto argued that West Hills could not be an additional insured unless there were allegations of property damage while its insured subcontractor was still on the job. West Hills, in contrast, argued that there was coverage as long as liability arises from the subcontractor’s operations, even if the damage occurs later. The Court of Appeals declined to reach the reasonableness of the competing interpretations, finding it unnecessary.
This case involves only the duty to defend, and enough is alleged to have triggered the duty to defend – without resolution of the construction of this additional insured endorsement. The original complaint pleaded the possibility of damage occurring even within the narrower coverage Oregon Auto understands. The original complaint would permit proof of damages before [the named insured] finished its work.
For all policyholders, West Hills presents yet another appellate opinion affirming the broad nature of an insurer’s duty to defend. As long as a complaint includes allegations that could possibly result in a covered claim, the defense obligation is triggered. For owners, contractors, and others entitled to additional insured status, West Hills is of even greater value, as insurers cannot hide behind vague “ongoing operations” language to deny coverage. In the face of an insurer’s denial of an additional insured’s tender, the additional insured should be prepared to respond aggressively. The Court of Appeals’ opinion in West Hills is a valuable weapon in that fight.