Oregon Case Law Update: Subsequent Purchaser of Real Property can Sue for Preexisting Property DamageFrom the Desk of Smith Freed Eberhard: While Oregon courts have not specifically addressed the so-called “owner-claimant” rule, which would require that a claimant own the damaged property at the time the property damage occurred in order for the liability to be covered under a general liability policy, other jurisdictions have roundly rejected the rule where the damage is continuous and progressive (such as, for example, a long-term water leak). In this case, an Oregon federal district court analyzed case law from other jurisdictions and concluded that the Oregon Supreme Court would likely also reject the rule, thus allowing a subsequent purchaser of real property to sue for preexisting property damage.
Claims Pointer: In this case arising out of long-term water damage to real property, the court rejected the “owner-claimant rule” and determined that a subsequent purchaser of real property could sue for preexisting property damage where the applicable insurance policy covered damaged that occurred during the period of coverage. Moreover, the court noted that under FountainCourt, a prior Oregon Court of Appeals case, more than one insurer could be liable for the same continuous and progressive damage.
American States Ins. Co. v. PIH Beaverton LLC, 2016 WL 3473349 (D Or May 3, 2016)
PIH Beaverton, LLC, (PIH) purchased the Phoenix Inn Suites hotel in Beaverton, Oregon, in 2006. Shortly after completing the purchase, PIH discovered that the hotel had a number of significant construction defects, including defects stemming from subcontract work performed in 1997 by Portland Plastering while they were covered under a commercial general liability (CGL) policy issued by American States Insurance Company (American States). PIH sued several contractors, including Portland Plastering, for negligent construction, alleging that Portland Plastering negligently installed a stucco cladding system known as Exterior Insulation Finish System (EIFS), which resulted in water intrusion and consequential water damage to the hotel’s siding, sheathing, framing, trim, and sheetrock. American States defended Portland Plastering, subject to a full reservation of rights. The jury found in favor of PIH, awarding a judgment of $617,856.60.
American States then filed a diversity action in federal court against PIH, seeking a declaration it was not obligated to pay the state court judgment rendered against Portland Plastering. American States argued the CGL policy applied only to property damage that occurred during the period of coverage, and only the owner of the hotel during a coverage period has the right to recover damages incurred during this period. American States’ last policy period for Portland Plaster ended in 2000, and PIH did not purchase the hotel until 2006, therefore, PIH did not incur property damage until six years after coverage expired.
In support of its position that only the owner of the hotel during the coverage period had a right to recover damages incurred during the coverage period, American States relied on prior Oregon case law to invoke the “owner-claimant rule,” which provides that the claimant must own the damaged property at the time the damage occurs in order for the liability to be covered. The court, however, noted that while the Oregon Supreme Court had not weighed in on the owner-claimant rule, prior cases from other jurisdictions had mostly rejected the rule in part because the insurance policies at issue in those cases did not expressly require that the eventual claimant own the property at the time the property was damaged to trigger coverage. In the policy at issue here, American States unambiguously provided Portland Plastering with coverage for “property damage” that was caused by an “occurrence” during the “policy period.” It did not indicate American States intended to exclude coverage if the claimant did not own the property during the coverage period. Rather, coverage was based on whether the property damage occurred during the period of coverage, not on when the insured’s liability was assessed or who owned the property in question during the period of coverage. Thus, the court determined the Oregon Supreme Court would likely also refuse to apply the owner-claimant rule.
The court also analyzed a prior Oregon case, FountainCourt Homeowners’ Association v. FountainCourt Development, LLC, in which the Oregon Court of Appeals held that where progressive and continuing damage occurred and nothing in the record required a conclusion that any portion of the damages occurred outside of a particular insurer’s policy period, the plaintiff satisfied his prima facie burden of demonstrating facts on which relief could be granted. Moreover, the Court of Appeals stated that more than one insurer could potentially be held liable for the same damage award against the subcontractor because in the case of “continuing and progressive water damage,” a damages award is not tied to discrete instances of property damage along a time continuum. Rather, the liability for property damage could be the same in every triggered policy period because the scope of repair—replacing the damaged structural components and eliminating the water intrusion—did not necessarily change depending on when the damage occurred. Thus, both a prior insurer and the present insurer could be liable for the same damage.
As in FountainCourt, PIH successfully proved that Portland Plastering negligently caused damage to PIH’s property, and the jury found that Portland Plastering’s portion of responsibility for the damage was $617,856.60, thus establishing coverage and shifting the burden to American States to prove that an exclusion in the insurance policy applied. American States argued that a “your work” exclusion applied because Portland Plastering’s work (the stucco siding) sustained water damage as a result of its own faulty workmanship. A “your work” exclusion specifically excludes from coverage damage to an insured’s work product caused by the insured’s work itself, thus preventing a CGL policy from morphing into a performance bond covering the insured’s own work. The court noted that in the underlying action, PIH sought damages stemming from Portland Plastering’s negligent installation of EIFS. Moreover, the jury was instructed to consider the reasonable and necessary expenses incurred by PIH for repairs to the building to determine the amount of damages. These facts indicated the property damage at issue could very well fall under a “your work” exception; thus, there was a genuine issue of fact as to whether the exclusion precluded coverage for some portion of the judgment. Both Portland Plastering and PIH’s motions for summary judgment were denied, and the case was remanded to the trial court.
Case updates are intended to inform our clients and others about legal matters of current interest. They are not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.