Bresee Homes, Inc. v. Farmers Insurance Exchange
293 P.3d 1036, 2012 Ore. LEXIS 843, 353 Or. 112 (2012)
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Rule of Law:
An insurer's duty to defend is determined by comparing the allegations within the four corners of the underlying complaint with the terms of the insurance policy. If any allegations in the complaint could, without amendment, potentially impose liability for conduct covered by the policy, the duty to defend arises, and any ambiguity regarding coverage is resolved in favor of the insured.
Facts:
- On April 2, 1999, Bresee Homes, Inc. (Bresee), a contractor, entered into a contract with a family named the Joneses to construct a custom home.
- Bresee's work on the home included the installation of an exterior synthetic stucco system known as an Exterior Insulated Finish System (EIFS).
- During the construction, Bresee held a commercial general liability (CGL) policy with Farmers Insurance Exchange (Farmers), which was in effect until June 17, 2003.
- The Joneses alleged that Bresee failed to properly install flashing and that the EIFS system subsequently failed, allowing water to leak into the interior of the home.
- The water intrusion caused property damage to the home, including the costs to repair the siding and consequential damages from the failure of the siding.
Procedural Posture:
- On July 15, 2005, the Joneses sued Bresee in an Oregon trial court for breach of contract and negligence.
- Bresee tendered the Joneses' claims to its insurer, Farmers, requesting a defense and indemnification under its CGL policy.
- Farmers denied the tender, citing the 'products - completed operations hazard' exclusion in the policy.
- Bresee then filed an action against Farmers in the trial court for breach of contract and declaratory judgment.
- Both parties filed cross-motions for summary judgment; the trial court granted Farmers's motion and denied Bresee's motion, finding that the exclusion defeated any claim for coverage.
- Bresee, as appellant, appealed to the Court of Appeals of Oregon, which affirmed the trial court's judgment in favor of the appellee, Farmers.
- The Supreme Court of Oregon granted Bresee's petition for review.
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Issue:
Does an insurer have a duty to defend its insured when the underlying complaint's allegations are ambiguous as to the timing of the property damage, thereby creating a possibility of coverage even if an exclusion for completed operations might otherwise apply?
Opinions:
Majority - Durham, J.
Yes. An insurer has a duty to defend its insured if the complaint provides any basis for which the insurer provides coverage, and any ambiguity is resolved in favor of the insured. The duty to defend is determined by examining only the complaint and the insurance policy, not by extrinsic facts that might later defeat coverage. Here, the Joneses' complaint was silent on whether the property damage occurred before or after Bresee completed its work. Because it is reasonably possible to interpret the allegations to mean the damage occurred during construction—a potentially covered event—the 'products-completed operations hazard' exclusion does not eliminate Farmers's duty to defend. The lower court erred by considering evidence outside the complaint regarding the completion date and by placing the burden on Bresee to prove that an exception to the exclusion applied.
Analysis:
This case strongly reaffirms Oregon's adherence to the 'four corners' rule for determining the duty to defend, emphasizing its distinction from the duty to indemnify. The decision clarifies that an insurer cannot escape its duty to defend by introducing extrinsic evidence to resolve ambiguities present in the underlying complaint. This holding protects insureds by ensuring they receive a defense whenever there is a mere potential for coverage based on the plaintiff's allegations, thus preserving the value of their liability insurance. Future cases will likely cite this decision to prevent insurers from litigating the merits of the underlying case as a way to avoid their initial defense obligation.
