Two new decisions from federal courts in Oregon demonstrate just how broad an insurance company's contractual duty to defend its insured truly is. These decisions should be helpful to policyholders in fighting back against denials of coverage. Wrongful denials of defense are unfortunately common in Oregon, due to the absence of a meaningful bad faith remedy for most breaches of the duty to defend. But cases like these demonstrate that if an insured goes to court, more often than not the insured will win. That may dissuade some insurers from making the wrong decision when it comes to defending.
In the first case, Portland General Electric v. Liberty Mutual Ins. Co., the issue was whether it was appropriate for the court to read an underlying complaint as implying a fact, even though the complaint did not allege the fact directly. The court said "yes."
Portland General hired a contractor to work on some of its equipment. The contractor was required to add Portland General as an "additional insured" on its liability policy. When one of the contractor's employees was injured on the job, he sued Portland General. (He could not sue his employer, the contractor, because of the workers-compensation exclusive-remedy bar). Portland General demanded that the contractor's insurer, Liberty Mutual, provide it with a defense. Liberty Mutual refused, citing Oregon's anti-indemnity statute. To put it in simple terms, because of the anti-indemnity statute Liberty Mutual could not insure Portland General for Portland General's own negligence. However, Liberty Mutual could provide coverage to the extent that Portland General were being held liable for the contractor's negligence. But the employee's lawsuit didn't say anything about the contractor being negligent, making it appear (at least to Liberty Mutual) that Portland General was being sued only for its own negligence.
However, there were allegations in the complaint that some of the equipment chosen for the job was improper, and that clothing worn by the employee also contributed to the accident. The complaint didn't say who provided the equipment or the clothing. The court found that even though only Portland General was sued, and the complaint never mentioned the contractor, it was reasonable to infer that the contractor could have provided those items, and therefore that the contractor was at least somewhat negligent. Because the complaint did not allege only negligence by Portland General, and alleged by implication some negligence by the contractor, the insurer had a duty to defend.
In the second case, Norgren v. Mutual of Enumclaw, District Court Judge Michael Simon took the unusual step of rejecting the recommendation of a Magistrate Judge (Judge Stacie Beckerman), who had ruled in favor of the insurer. Judge Beckerman held that the insurer had no duty to defend a homeowner against a suit alleging that the homeowner's son assaulted another child, finding that the "intentional acts" exclusion applied to all of the claims against the insured, even to a claim entitled "negligent infliction of emotional distress," because the specific facts alleged all included some element of intent to act. Judge Simon pointed out, however, that the complaint made other allegations that could be interpreted as alleging mere negligence - even though those allegations were conclusory, and more legal contention than statements of fact. Judge Simon therefore found a duty to defend.
These two decisions take the famous phrase from Ledford v. Gutoski that in Oregon "any ambiguity in the complaint... is resolved in favor of coverage" and put it into action. They exemplify the correct approach to Oregon duty to defend questions, which is to scour the complaint for potentially covered claims, rather than generalize about the allegations. In each case the court rigorously analyzed every contention in the complaints, and resolved every ambiguity in favor of a defense obligation. It can only be hoped that these two new rulings will help insurers understand that they take a considerable chance if they deny a defense, and that the better course, whenever there is any doubt, is to comply with their contractual defense obligations.
