§ 11.1 Insurance Basics

• Library: Construction Law in Oregon (OSBar) (2019 Ed.)

§ 11.1 INSURANCE BASICS

§ 11.1-1 CCB Insurance Requirements

Pursuant to ORS 701.073, all licensed contractors

shall have in effect public liability, personal injury and property damage insurance covering the work of the contractor that is subject to this chapter, including the covering of liability for products and completed operations according to the terms of the policy and subject to applicable policy exclusions, for an amount not less than the applicable amount set forth in ORS 701.081 or 701.084.

It is important to note that ORS 701.073 imposes obligations on contractors; it does not impose any obligations on insurance companies. 5 Star, Inc. v. Atl. Cas. Ins. Co., 269 Or App 51, 59, 344 P3d 467, rev den, 357 Or 743 (2015) (the statute "creates a legal obligation for contractors, but it does not specify that insurers must cover particular losses"). Thus, it is the contractor's obligation to ensure that it purchases insurance sufficient to satisfy ORS 701.073, as the statute cannot be used to expand the scope of the insurer's obligations under the policy actually written. 5 Star, Inc., 269 Or App at 59.

§ 11.1-2 Types of Insurance Typically Implicated in Construction Disputes

This chapter will focus on commercial general liability (CGL) insurance because it is the type of insurance most often implicated by construction disputes. However, it is important to be aware of other potential sources for insurance.

PRACTICE TIP: As a first step, it is wise to identify and follow-up on all policies of insurance, held by any involved party, that might provide coverage related to the loss. As discussed further in § 11.4-1, failure to provide notice to an insurer can potentially impair coverage.

A brief, noncomprehensive review of potentially applicable insurance follows in § 11.1-2(a) to § 11.1-2(d).

§ 11.1-2(a) CGL Coverage

Licensed contractors in Oregon are required to possess insurance consistent with ORS 701.073. The insurance requirement is most commonly met by the purchase of CGL coverage. As discussed further in § 11.2, CGL policies typically include coverage for liability due to "bodily injury," "property damage," and "personal and advertising injury" that takes place during the policy period as a result of an occurrence. CGL policies are liability policies, meaning they provide protection for third-party claims against an insured. CGL policies will not ordinarily provide any coverage absent a claim or suit by a third party.

§ 11.1-2(b) First-Party Coverage

First-party coverage refers to coverage for damage to the insured's own property. Homeowner's insurance is a classic example of first-party coverage, as it allows an insured to pursue a claim for property damage, such as fire damage to the insured's own home. First-party coverage is not typically implicated in construction disputes because usually there is a third party (e.g., the property owner) claiming that a contractor failed to properly perform his or her work, leading to damage. This typical scenario triggers the contractor's CGL coverage rather than the owner's first-party coverage.

However, there are scenarios when first-party coverage may be relevant to a construction dispute. For example, if construction defects have caused such extensive damage that a portion of the building collapses, then first-party coverage may be available. See, e.g., Hennessy v. Mut. of Enumclaw Ins. Co., 228 Or App 186, 206 P3d 1184, adh'd to on recons, 229 Or App 405 (2009) (affirming trial court's finding of limited coverage for a "collapse" claim when a building's stucco separated from the underlying wall).

Further, typical first-party policies include some form of liability coverage. This will not generally help a homeowner in a construction dispute because the homeowner is not facing a liability claim but, more likely, bringing such a claim against a contractor. However, when the first-party insured is a business or an association (e.g., a condominium or homeowners' association), care should be paid to determining who else may qualify as an insured under the policy. For example, most first-party policies include the insured's "real estate manager" as an insured. Thus, if the manager of a homeowners' or condominium association fails in his or her duties to, for example, maintain the building, liability coverage for that manager may be found in the...