From the desk of Jeff Eberhard: When looking at the duty to defend or indemnify, timing is key. Always look to the underlying action that is possibly giving rise to those two duties because Oregon courts and judges care very much about what is going on and will make their decisions based on the facts of the underlying case.
Claims Pointer: When a claim is tendered to an insurance carrier, there rises the two-pronged issues of the duty to defend, and the duty to indemnify. The duty to defend is often addressed before the duty to indemnify because it can be determined by examining the complaint alone. This is because the insurer has a duty to defend if the complaint demonstrates any basis at all for which the insurer provides coverage. The duty to indemnify only arises if the facts at trial establish the liability of the insured, whereupon the insurer’s duty to indemnify arises as long as the insured’s conduct is covered by the policy. Regardless, if these duties are implicated based on an underlying lawsuit currently being prosecuted, Oregon courts will hold that the underlying lawsuit must be pursued sufficiently via completed discovery or trial initiation prior to either duty becoming prevalent and implicated in a coverage action.
Scottsdale Insurance Company v. Ortiz & Associates, Inc., 2014 WL 1883653, May 9, 2014 (Unpublished.)
Several years ago, a highway project was initiated in and around Kennewick, Washington. During the course of that construction project, a fatal tragedy occurred and Brian Lacy was allegedly struck and killed by a dump truck. In August of 2012, Lacy’s significant other brought a wrongful death action against Inland Asphalt Company (“Inland”). Inland was the general contractor for the construction project with the State of Washington. Ortiz & Associates, Inc., (“Ortiz”) was a subcontractor for Inland on the project, and had listed Inland as an additional insured on its own policy. Scottsdale was the excess insurance carrier for Ortiz, authorizing coverage for anything above and beyond what the additional insured policy would cover.
Though subcontractor Ortiz originally complied with the duty to defend provision in their policy with Inland, their insurance later recanted and refused to continue in that role (for unknown reasons not addressed by the Court). As such, at some point Inland advised Scottsdale that depending on the outcome of the underlying wrongful death case, the Scottsdale policy could be triggered. Inland never formally tendered to Scottsdale, they merely put them on notice as it were. Scottsdale then instituted a declaratory action against Inland, claiming that there was an exclusion in the excess policy that precluded any duty to defend or indemnify Inland in the underlying action. Inland moved to stay Scottsdale’s action pending the results of the underlying wrongful death action, thereby leading to the opinion we discuss now.
Scottsdale contended that when Inland told them that the underlying wrongful death action might implicate the excess coverage policy, that Inland had in fact tendered defense of that underlying action to them. With this in mind, we must first preliminarily address the duties to defend and indemnify. All other things being equal, it is well known in Oregon courts that the duty to defend is often addressed before the duty to indemnify, because it can be determined by examining the complaint alone. The insurer has a duty to defend if the complaint provides any basis for which the insurer provides coverage. The duty to indemnify on the other hand arises when facts proven at trial establish the liability of the insured, and the conduct of the insured is covered by the pertinent policy. Thus, in order to determine the existence of a duty to indemnify, in a case like this where the duty is implicated by an underlying lawsuit, a court must examine the facts of that underlying lawsuit.
The crux of the conflict between Scottsdale and Inland is an interesting one. Inland first argues that it did not actually tender defense of the underlying action to Scottsdale, it merely put them on notice. Inland contended that there was certainly no duty to indemnify because the underlying action was still ongoing. More interesting, Inland argued that proceeding with the declaratory action would ironically force Inland to admit liability in the underlying action in order to defend itself in the declaratory action. Scottsdale countered by arguing that the court could decide the duty to indemnify because if there was a judgment in the underlying action, it would almost certainly exceed the base coverage and reach into the Scottsdale excess coverage. Further, Scottsdale contended that the excess policy clearly had an exclusion for the type of accident that led to the underlying lawsuit, and that failing to decide upon the current declaratory action would force Scottsdale to fund a settlement of an uncovered claim, and/or force it to defend itself against future claims for failing to fund a settlement.
The court considered the two sides carefully, and used two primary Oregon law doctrines to make their decision. First, to the benefit of Inland, “Oregon courts recognize that when the underlying tort action is still underway, it is appropriate to stay a simultaneous coverage action determining the duty to indemnify if the coverage action places the insured in the conflictive position of being required to abandon its denial of liability in the underlying case in order to demonstrate coverage.” Thus, it is appropriate to wait until the underlying action is resolved and liability established before determining the duty to indemnify. Second, federal courts have discretion as to whether declaratory relief may be exercised (this related to a side issue of subject matter jurisdiction that was not discussed in length by the court).
Holding primarily to the first doctrine, the court simply went with the “keeping it simple” concept. Discovery was not yet complete in the underlying case. Trial was not even to take place until January of 2015. Regardless of whether Scottsdale felt their excess coverage had an exclusion for the type of accident that led to the underlying lawsuit, the court simply felt it was too early to sign off on the declaratory action when all the facts of the underlying case had yet to even be compiled. As such, the court determined the following: “[U]ntil the issue of liability is resolved in the underlying lawsuit, this Court will not entertain the declaratory judgment determination that Scottsdale seeks. Doing so would place Inland in a conflictive position that could undermine its position in the underlying lawsuit and would require fact finding identical to that which will occur in the underlying lawsuit in Washington State court.”
So, once again, as with all things in life, … “Temperi Omnia Est.”
NOTE: This opinion has not been published as of yet, given its very new status. It is provided to demonstrate how the court approaches the issues involved in the case.
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