The federal magistrate predicted that the Oregon appellate courts would not adopt the owner-claimant rule, restricting recovery under the policy to the time period during which the insured owned the property. Am. States Ins. Co. v. PIH Beaverton LLC, 2016 U.S. Dist. LEXIS 83188 (D. Or. May 3, 2016).
PIH purchased a hotel in 2006. It later discovered the hotel had a number of construction defects, including problems stemming from the subcontract work performed by Portland Plastering. During the time Portland Plastering performed the work, it was insured by American States. The policy periods ran from 1994 to 2000.
PIH sued Portland Plastering, alleging it had negligently installed a stucco cladding system, resulting in water intrusion and property damage to the hotel. American States defended Portland Plastering subject to a reservation of rights. The jury found in favor of PIH on its negligence claim. Based upon the jury's apportionment of fault, judgment was entered against Portland Plastering in the amount of $617,856.60.
American States filed suit against PIH, seeking a declaration that it was not obligated to pay the judgment rendered against Portland Plastering. The parties filed cross-motions for summary judgment.
Addressing American State's motion, the court noted that no evidence suggested that the judgment against Portland Plastering was limited only to damage incurred after PIH purchased the property in 2006. Rather, PIH attempted to collect on a judgment for continuous and progressive damages resulting from negligence.
American States argued that the "owner-claimant rule" should apply. The rule provided that the damaged property must be owned by the claimant at the time of the property damage in order for the liability to be covered. The court noted that a majority of courts rejected the rule because there was nothing in the policy which supported such a limitation on coverage. The federal district court predicted that the Oregon appellate courts would reject the rule as well. The policy provided that coverage turned on whether the property was damaged 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. Therefore, the magistrate recommended that American State's motion for summary judgment be denied.
Regarding PIH's cross-motion for summary judgment, the court considered: (1) whether the judgment awarding damages against Portland Plastering reflected property damage that occurred during the policy period; and (2) if so, the amount of damages that were covered under American States' policy.
PIH met its prima facie burden on property damage during the policy period. The progressive water intrusion could reflect a jury award of damages for property damage that occurred entirely during the policy period. Further, PIH could not have prevailed without proving that Portland Plastering negligently caused damage to PIH's property. As a result of the jury's verdict, Portland Plastering became legally obligated to pay damages resulting from property damage. Again, PIH met its prima facie duty to prove that the judgment reflected damages for property damage that occurred (at least in part) during the policy period.
Therefore, the burden shifted to American States to prove that an exclusion applied. American States relied upon the "your work" exclusion, barring coverage for "property damage to your work arising out of it or any part of it and included in the products-completed operations hazard." Whether the jury awarded damages for the cost of repairing or replacing Portland Plastering's own defective work was a disputed material fact. PIH sought damages stemming from Portland Plasteirng's negligent installation of EIFS, which resulted in cracking of the waterproof layer of the EIFS cladding. Accordingly, there was also a genuine issue of material fact as to whether the "your work" excluded coverage for some portion of the judgment.
Consequently, the magistrate recommended that both parties' motions for summary judgment be denied.