§ 11.6 Remedies

LibraryConstruction Law in Oregon (OSBar) (2019 Ed.)
§ 11.6 REMEDIES

If an insured and insurer cannot agree on the availability or scope of coverage, or if another dispute arises between the parties, there are several potential remedies available to both parties. Some of these are discussed in § 11.6-1(a) to § 11.6-2(d).

§ 11.6-1 Remedies for Insureds and Judgment Creditors

§ 11.6-1(a) Breach of Contract

An insurance policy is a contract, so an insured who believes coverage is being improperly denied always has the option to sue for breach. The suit would mirror any other breach-of-contract action except that, as noted in § 11.1-4, insurance policies are interpreted under a different set of rules whereby extrinsic evidence is not allowed and unresolvable ambiguities are interpreted in favor of the insured. Further, because the duty to defend is typically analyzed based on just the insurance policy and underlying complaint, claims for breach of the duty to defend can often be decided as a matter of law without any need for discovery.

It should also be noted that the doctrines of waiver and estoppel are slightly modified in the insurance context. This is relevant where the insured claims that, usually due to some representation made or position taken by the insurance company, the insurer has waived its right, or should be estopped from asserting its right, to claim that an exclusion or some other policy provision bars coverage.

Under Oregon law, "[i]t is well established that waiver and estoppel cannot be invoked to create coverage or to negate an express exclusion in a policy of insurance." Holman Erection Co., Inc. v. Employers Ins. of Wausau, 142 Or App 224, 226 n 3, 920 P2d 1125, rev den, 324 Or 394 (1996); see also DeJonge v. Mut. of Enumclaw, 315 Or 237, 241, 843 P2d 914 (1992) (distinguishing "between using estoppel affirmatively, to create a right to coverage not contained in the insuring clauses of the policy, and using it defensively, to preserve a right to coverage already acquired by preventing its forfeiture"); ABCD ... Vision, Inc. v. Fireman's Fund Ins. Companies, 304 Or 301, 307, 744 P2d 998 (1987).

Waiver or estoppel can be employed to argue that the insurer cannot rely on a condition of forfeiture, such as a notice or cooperation condition, because it failed to raise the issue in its coverage position letter, but it cannot generally be employed to expand the scope of coverage. A potential exception exists where the insurer "dissuade[d] the insured from reading or understanding" the provision at issue. DeJonge, 315 Or at 246.

Setting aside the issues of waiver and estoppel—which rarely apply—what does a standard CGL policy typically cover in a construction-defect case? As discussed in § 11.2-2 regarding the requirement for "bodily injury" or "property damage," CGL policies do not typically cover construction defects without associated physical damage to something other than the insured's work.

When physical damage exists, there is typically coverage for the costs to repair that damage, but what about the costs to reach the damage (e.g., in the case of damage to framing) and to put the building properly back together again? Unfortunately, Oregon's state courts have not answered this question.

The Ninth Circuit, however, has addressed this issue under Oregon law and ruled that only the cost to repair damage is covered: "Safeco is obligated under the CGL policies to provide coverage for the damages to the Hotel, but not for the repair of the EIFS." MW Builders, Inc. v. Safeco Ins. Co. of Am., 267 F App'x 552, 555 (9th Cir 2008). Thus, the cost of replacing the insured's defective work is not covered under the Ninth Circuit's interpretation of Oregon law. It is still not clear, from MW Builders or otherwise, whether the costs directly attributable to reaching the damage will be covered, but these costs are typically quite small compared to the cost (which is typically not covered according to the Ninth Circuit) of reconstructing the insured's work after repairing covered damages.

§ 11.6-1(b) Attorney Fees

Pursuant to ORS 742.061, an insured who successfully sues an insurer for breach of an insurance policy will likely be entitled to attorney fees as long as the judgment obtained exceeds any amount that the insurer offered to pay within six months of receiving the proof of loss. Oregon courts have interpreted the proof-of-loss requirement liberally such that virtually any notice of the claim to the insurer may be sufficient. See Dockins v. State Farm Ins. Co., 329 Or 20, 29, 985 P2d 796 (1999) ("[W]e conclude the meaning of the statutory term 'proof of loss' is clear: Any event or submission that would permit an insurer to estimate its obligations (taking into account the insurer's obligation to investigate and clarify uncertain claims) qualifies as a 'proof of loss' for purposes of the statute.").

It should also be noted that ORS 742.001 states generally that ORS chapter 742 (which includes the attorney fee statute) "appl[ies] to all insurance policies delivered or issued for delivery in this state except: (1) Reinsurance. (2) Wet marine and transportation insurance policies. (3) Surplus lines insurance policies." Despite this language, the Oregon Supreme Court has held that the attorney fee statute applies even when the policy was issued or delivered in a different state. Morgan v. Amex Assur. Co., 352 Or 363, 287 P3d 1038 (2012). The court appeared to base its holding on the fact that ORS 742.061, by its plain language, applies broadly to any action "brought in any court of this state upon any policy of insurance of any kind or nature," whereas ORS 742.001 does not state that ORS chapter 742 "only" applies to policies issued in Oregon. Morgan, 352 Or at 371-72.

The Morgan court also wrote: "Considering the text, context, and legislative history of the 1967 Act, we conclude that the legislature did not intend that ORS 742.001 would limit the scope of ORS 742.061." Morgan, 352 Or at 376. This language raises the question whether ORS 742.061 applies to those types of policies—reinsurance, wet marine, transportation, and surplus lines—which are specifically exempted from ORS chapter 742. To date, this question is unanswered in Oregon law.

PRACTICE TIP: Many CGL policies issued to construction contractors are "surplus lines" policies, meaning they were issued by carriers not admitted to the primary-insurance market. Surplus lines policies often contain less coverage than other policies and, as noted, may not be subject to the attorney fee provision of ORS 742.061. Thus, it is important to learn early on whether
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