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Oregon Court of Appeals holds that a Multi-Unit New Residential Construction Exclusion Does Not Apply

In Hunters Ridge Condo. Ass’n v. Sherwood Crossing, LLC, 285 Or App 416 (2017), the insured was a subcontractor on a condominium project.  The insured was sued in a construction defect lawsuit.  The insured failed to appear, and a default judgment was entered against it.  Based on the default judgment, the condominium association (“Association”) filed a garnishment proceeding against the subcontractor’s insurance company.  The Court of Appeals first held that the policy’s “Multi-Unit New Residential Construction” exclusion did not apply because the project was mixed use and included both residential and commercial units.  Next, the Court of Appeals found issues of fact on whether certain other exclusions could apply, such as the “your work” exclusion.  The court then addressed attorney fees that were included in the default judgment.  The court held that, to the extent the attorney fees were properly considered consequential damages, they could constitute “damages” within the meaning of the policy.  The Court also determined that the award of attorney fees could be “costs taxed against the insured” within the policy’s Supplementary Payments provision.  Finally, the court concluded that the insurer was entitled to a jury trial on disputed questions of fact pertaining to its liability under the policy and that the garnishment statute was unconstitutional to the extent it mandated a bench trial.

Disclaimer: The opinions expressed in in this blog are those of the authors and do not necessarily reflect those of Soha and Lang, P.S. or its clients.

Insured May Obtain Statutory Attorney Fees Where She Recovered Amount Not Memorialized In a Judgment

The Oregon Supreme Court held in Long v. Farmers Ins. Co. of Oregon, 360 Or 791, – P3d — (2017) that an insured may obtain statutory attorney fees without entry of a judgment.  A statute, ORS 742.061, permits an award of attorney fees if, in the insured’s lawsuit against the insurer, the insured obtains a “recovery” that exceeds the amount of any tender made by the insurer within six months from the date that the insured first filed proof of a loss.  The Court held that when an insured files an action against an insurer to recover sums owing on an insurance policy and the insurer subsequently pays the insured more than the amount of any tender made within six months from the insured’s proof of loss, the insured obtains a “recovery” that entitles the insured to an award of reasonable attorney fees.  The fact that the insured did not obtain a judgment memorializing the payment did not make the statute inapplicable.

 

Disclaimer: The opinions expressed in in this blog are those of the authors and do not necessarily reflect those of Soha and Lang, P.S. or its clients.

Oregon Supreme Court Overrules Precedent on Stipulated Judgments

On November 19, 2015, the Oregon Supreme Court overruled forty-year-old precedent holding that a plaintiff’s covenant not to execute a judgment obtained in a settlement with an insured-defendant extinguishes the insured-defendant’s liability to the plaintiff and, by extension, the liability of the defendant’s insurer, as well.

In Brownstone Homes Condo. Assn. v. Brownstone Forest Hts. et al, No. SC S061273255 (Or Nov 19, 2015), a homeowners association (“Association”) sued a siding subcontractor, A&T, for negligence and breach of contract.  A&T had two insurers:  Zurich and Capitol.  Capitol initially undertook a defense of the action, but later declined to defend or indemnify A&T.  The Association, A&T and Zurich settled the claim without Capitol’s participation.  Under the settlement, A&T agreed to a stipulated judgment of $2 million, of which Zurich paid $900,000.  The Association agreed not to execute on A&T’s assets, and A&T assigned its claims against Capitol to the Association.  The settlement agreement was entered on March 14, 2008 and judgment was entered on November 13, 2008.  Subsequent to entry of judgment, the Association filed a garnishment proceeding against Capitol seeking the $1.1 million balance.  The trial court dismissed the garnishment action based on Stubblefield v. St. Paul Fire & Marine, 267 Or 397, 517 P2d 262 (1973), which held that a stipulated settlement, coupled with a covenant not to execute, extinguished liability.  The Oregon Court of Appeals affirmed the trial court.  On further review, the Oregon Supreme Court reversed.  In doing so, the court expressly overruled Stubblefield:

 In short, we conclude that Stubblefield erred when it concluded that a covenant not to execute obtained in exchange for an assignment of rights, by itself, effects a complete release that extinguishes an insured’s liability and, by extension, the insurer’s liability as well.  It necessarily follows that the trial court in this case likewise erred in concluding that the existence of such a covenant not to execute as a component of the parties’ settlement agreement had the effect of extinguishing A&T’s liability to [the Association] and, as a result, had the effect of extinguishing Capitol’s liability as well.

 Accordingly, under Oregon law, a covenant not to execute on a judgment obtained in exchange for an assignment of rights against the judgment debtor’s insurance carrier, does not, by itself, extinguish an insured’s liability and, thus,  does not extinguish the insurance carrier’s obligation for the consent judgment.  The court specifically limited its ruling to this narrow issue, declining to address, for example, whether collusion or fraud in the settlement may supply grounds for rejecting a stipulated or consent settlement.

 

Soha and Lang attorneys are available to assist insurer clients in understanding and addressing the impact of this decision both during the claims handling process and after an allegation of bad faith claims handling has been made.

Disclaimer: The opinions expressed in in this blog are those of the author and do not necessarily reflect those of Soha and Lang, P.S. or its clients.