Twenty Questions to Ask Coverage Counsel In Business Litigation

The American Bar Association's Business Torts committee has posted an excellent article (registration, ABA membership required) on the 20 questions that a business owner should ask coverage counsel about potential coverage issues arising from business litigation.  These are the most critical, and often ignored, issues that must be considered when making decisions about coverage strategy.  Included among these are whether the insurer has the right to "recoup" defense costs that it pays if it is later determined that there is no indemnity coverage, and whether the insurer is entitled to receive attorney-client communications and what impact that might have on waiver issues.  Because the law on almost all of these issues varies state to state, businesses that get involved in litigation in multiple states may need to revisit these issues in each piece of litigation.  (Even where all policies are purchased in the same state, choice-of-law principles may not permit the law of that state to govern all coverage issues).  A very nicely done article!

Oregon Supreme Court Will Review Landmark Case on Stipulated Judgments

The Oregon Supreme Court has accepted review in the landmark Brownstone Homes Condo Ass'n v. Brownstone Forest Heights LLC case, on the issue of stipulated judgments.  To simplify greatly, the case involves a developer (the LLC) that was sued along with one of its subcontractors, A&T Siding, by the condo association.  A&T was denied coverage by its carrier, and so entered into a stipulated covenant judgment with the association in which it assigned its coverage claim against its carrier, Capitol.  The condo association then attempted to enforce the judgment as a garnishee on Capitol.  The trial court denied recourse, holding that: 1) under the "Stubblefield" rule Capitol had no liability because the covenant did not leave any potential unsatisfied liability; and 2) ORS 31.825 (which permits assignments) did not control because that statute requires that the assignment take place after judgment was entered, and here the assignment and judgment happened at the same time.  The Court of Appeals affirmed, holding that a garnishment proceeding by an injured claimant is subject to Stubblefield because of the Reuter decision, which limited the rights of a garnishee to those held by the primary defendant.  The court also agreed that ORS 31.825 requires a specific sequence in a stipulated judgment with assignment and that unless the proper sequence is followed, the statute has no application.  Finally, the court held that a good-faith-cooperation requirement in the agreement did not make the agreement Stubblefield-compliant with regard to the insured's continued exposure to liability.

The Oregon Supreme Court identified the following issues for appeal (I'm paraphrasing): 1) does Reuter really mean that Stubblefield applies to garnishment proceedings?; 2) does ORS 31.825 require that judgment-covenant proceed in a specific order; and 3) most tantalizingly, if the Court of Appeals were right on #1 and #2, should Stubblefield be abrogated?  The alignment of the parties and interests of the counsel pursuing the appeal are somewhat odd, so amicus participation seems likely.  This will be one to watch in the fall as briefing comes in.

Duty to Cooperate Alive and Well in Oregon

Insurers are celebrating the new decision from Oregon's federal district court in the long-running Charter Oak et al. v. Interstate Mechanical et al. case finding that the policyholder lost all coverage by breaching the duty to cooperate.  In my view, this is a bad-facts-make-bad-law situation involving a fact pattern not likely to be repeated, that will unduly encourage out-of-state insurer lawyers to take an aggressive position in coverage disputes.  In this case the developer and the general contractor on a project in Montana were owned by the same person, and were therefore aligned as opponents in the defect litigation in that state.  The carrier agreed to defend the contractor (as an additional insured) in the underlying case.  The problem was that (according to the decision, at least) they failed to maintain even the appearance of an arms-length relationship in concocting the damages being sought from the contractor, including having the insurance defense lawyer for the contractor submit a declaration from the developer's damages expert using the defense lawyer's letterhead.  Those kind of bad facts make it difficult to survive the "smell test" that all judges employ, no matter what the legal standard is.

The notable points in the decision are these: a prediction that Oregon courts would find that a court can find an insurer to have been prejudiced by a lack of cooperation even before the underlying case is over; and a finding that an insured's giving notice of an intent to stipulate to a judgment needs to be roughly contemporary with the settlement itself - it is not enough to have warned the carrier earlier in the litigation that the insured was contemplating such a move.  While one can take issue with both propositions (and I do), it is somewhat easy to understand how those calls came down when you go back to the "smell test" problem.  And like it or not, these holdings demonstrate why competent policyholder counsel need to keep up to date on developments from every jurisdiction considering new points of Oregon coverage law.