Why This Case is Important:
Additional insured issues in Oregon are maturing with more published decisions providing guidance. In the Appellate Court decision PIH Beaverton LLC v. Red Shield Ins. Co., the court strengthened the "four corners" rule and its effect on determinations concerning the timing of alleged property damage. In doing so, the court pushed back on insurer efforts to utilize extrinsic evidence collected in the course of investigations into the calculus of the duty to defend. Those reading this case agree it could be the game-changer for those advocating the "four corners" rule and its effect on determinations concerning the timing of alleged property damage.
In determining the duty to defend a general contractor as an additional insured, an insurer may examine only the complaint and the policy. If the information from these two sources, "reasonably interpreted, could result in the insured being held liable for damages covered in the policy," there is a duty to defend. Any factual "[a]mbiguities are resolved in favor of the insured."
PIH arose out of a construction defect suit brought by two hotels against general contractor Super One, Inc. ("Super One") and subcontractor Gary Thompson dba Portland Plastering ("Thompson"), among others. Super One tendered the defense of both actions to Thompson based on its "additional insured" status in Thompson's general liability insurance. Thompson's insurer declined to defend, so Super One's insurers brought a separate suit for declaratory relief and contribution to Super One's defense costs. The trial court declared that Thompson owed a duty to defend, and Thompson appealed.
In upholding the trial court's ruling that Thompson had a duty to defend, the Court of Appeals followed another recent ruling from 2016, West Hills v. Chartis Claims, which held that in evaluating an insurer's duty to defend, the "four corners" of only two documents mattered – the complaint and the insurance policy. The West Hills decision disallowed the use of extrinsic evidence in analyzing the duty to defend. Additionally, any ambiguities arising from the information culled from these two documents is to be resolved in favor of the insured.
In PIH, the Court further broadened this rule, with two holdings regarding the timing of damages that poke holes in insurers' usual arguments against their duty to defend. The Court stated that extrinsic information may not be considered in a duty to defend analysis, even to determine timing that is otherwise unclear based on the complaint. It held that an insurer should look only to the complaint and the policy to determine if damages could have occurred during the policy period, and that regardless of the absence of specific allegations regarding "ongoing operations" or naming the subcontractor and its work, the insurer need only determine if "the allegations in the complaint reasonably could be interpreted to result in … being held liable for conduct covered by the policy."
The Court did note that an insurer may still look to extrinsic evidence in determining if a general contractor is in fact an additional insured, a small exception carved out by Fred Shearer & Sons, Inc. v Gemini Ins. Co. but following PIH, it is harder than ever for subcontractors to pass the buck on their duty to defend.
Case law on additional insured issues in Oregon is far from developed when compared to other jurisdictions, accordingly this case has been closely watched by all stakeholders. Both builders and subcontractors have argued the basic question surrounding this case in all forums, but this decision provides definitive guidance for both counsel and carriers when preparing and reviewing responses to additional insured demands. Already, the decision has triggered a flurry of requests for reconsideration to previously declined tenders by proactive builders. In the event this matter proceeds for review to the Oregon Supreme Court, we will keep you updated.