First Mercury Ins. Co. v. Waterside Condo. Ass'n

• Decision Date: 05 December 2013
• Docket Number: Case No. 3:12-cv-02348-ST
• Parties: FIRST MERCURY INSURANCE COMPANY, an Illinois corporation Plaintiff, v. WATERSIDE CONDOMINIUM ASSOCIATION, an Oregon non-profit corporation; and MORRISON BUILDING CORP., an Oregon corporation, dba MORRISON CONSTRUCTION, INC. OF OREGON Defendants.
• Court: U.S. District Court — District of Oregon

FIRST MERCURY INSURANCE COMPANY, an Illinois corporation Plaintiff, v. WATERSIDE CONDOMINIUM ASSOCIATION, an Oregon non-profit corporation;and MORRISON BUILDING CORP.,an Oregon corporation, dba MORRISON CONSTRUCTION, INC. OF OREGON Defendants.

Case No. 3:12-cv-02348-ST

UNITED STATES DISTRICT COURT DISTRICT OF OREGON PORTLAND DIVISION

DATED: December 5, 2013

OPINION AND ORDER

STEWART, Magistrate Judge:

INTRODUCTION

Plaintiff, First Mercury Insurance Company ("First Mercury"), filed this action against defendants, Waterside Condominium Association ("Association") and Morrison Building Corporation, dba Morrison Construction, Inc. of Oregon ("Morrison"), seeking a declaratory judgment that it has no indemnity obligation under three insurance policies issued by First Mercury to Morrison.

This court has diversity jurisdiction pursuant to 28 USC § 1332. All parties have consented to allow a Magistrate Judge to enter final orders and judgment in this case in accordance with FRCP 73 and 28 USC § 636(c) (docket #21).

First Mercury has filed a Motion for Summary Judgment (docket #36). For the reasons set forth below, that motion is granted as to all three policies.

STANDARDS

FRCP 56(c) authorizes summary judgment if "no genuine issue" exists regarding any material fact and "the moving party is entitled to judgment as a matter of law." The moving party must show an absence of an issue of material fact. Celotex Corp. v. Catrett, 477 US 317, 323 (1986). Once the moving party does so, the nonmoving party must "go beyond the pleadings" and designate specific facts showing a "genuine issue for trial." Id at 324, citing FRCP 56(e). The court must "not weigh the evidence or determine the truth of the matter, but only determine[] whether there is a genuine issue for trial." Balint v. Carson City, Nev., 180 F3d 1047, 1054 (9^th Cir 1999). A "'scintilla of evidence,' or evidence that is 'merely colorable' or 'not significantly probative,'" does not present a genuine issue of material fact. United Steelworkers of Am. v. Phelps Dodge Corp., 865 F2d 1539, 1542 (9^th Cir 1989). The substantive law governing a claim or defense determines whether a fact is material. Addisu v. Fred Meyer, Inc., 198 F3d 1130, 1134 (9^th Cir 2000). The court must view the inferences drawn from the facts "in the light most favorable to the non-moving party." Bravo v. City of Santa Maria, 665 F3d 1076, 1083 (9^th Cir 2011).

UNDISPUTED FACTS

Around January 25, 2005, Morrison entered into an agreement with Hayden Island Condos, Inc. ("Hayden") to construct Waterside Condominiums, consisting of 84 units. GreenDecl., Ex. 4, p. 3. That contract was later amended to specify that Hayden had obtained Comprehensive General Liability insurance coverage ("CGL") for the period from March 4, 2005, to June 4, 2006. Id, pp. 3-5. The CGL policy was placed with underwriters at Lloyd's, London to cover ongoing operations, but did not cover completed operations ("Completed Ops Coverage"). Id, pp. 3-5. In lieu of purchasing Completed Ops Coverage, Hayden set aside $1,000,000 in an account ("Set Aside") "to pay potential Completed Ops Coverage claims, suits or actions against, and attorney fees and costs incurred by, [Hayden], Morrison and any subcontractor of Morrison approved by [Hayden] . . . arising out of or related to the Project." Id, p. 3. The Set Aside covers "any amount that [Hayden, Morrison, or an approved subcontractor] is legally obligated to pay to another person by way of settlement, judgment, or award, including, but not limited to, any legally recoverable costs and attorney fees related to any Set Aside Claims." Id, p. 4.

Hayden turned over control of the Association to the individual unit owners on October 13, 2010. Thorpe Decl., Ex. 2, ¶ 8. On March 16, 2012, the Association filed suit in Multnomah County Circuit Court, alleging that Morrison and others were liable for faulty workmanship in the construction of the Waterside Condominiums resulting in water intrusion and extensive property damage. Id, Ex. 2. The faulty workmanship included "improper or defective materials; improper design; or noncompliance with applicable building codes, industry standards, or manufacturer specifications and guidelines" in the following general categories: "Exterior Wall Assemblies," "Roof Assemblies," "Deck Assemblies," and "Miscellaneous." Id, ¶ 18, pp. 7-15.

First Mercury issued three one-year commercial general liability policies to Morrison beginning February 1, 2005, and ending February 1, 2008. Green Decl., Exs. 6-7; Green Suppl.Decl., Ex. 2. Each policy contains an exclusion from coverage for certain residential construction ("Specific Operations Exclusion"), but the language of that exclusion varies slightly in each policy. The 2006-07 and 2007-08 policies also exclude operations covered by a "consolidated (wrap-up) insurance program" ("Wrap-up Exclusion"). Based on these exclusions, First Mercury denied coverage to Morrison for the alleged property damage suffered by the Association.

On June 18, 2012, before trial, Morrison and the Association settled the state court case. Thorpe Decl., Ex. 3. According to that settlement, Morrison entered into a stipulated judgment for $5,200,000 in favor of the Association and assigned its claims against First Mercury to the Association. First Mercury seeks a declaratory judgment that it has no obligation under its three insurance policies to indemnify Morrison or otherwise satisfy the $5,200,000 judgment. In response, the Association and Morrison have filed a counterclaim for breach of contract based on First Mercury's refusal to defend Morrison in state court or pay the resulting judgment.

DISCUSSION

First Mercury asserts that the property damage at the Waterside Condominiums alleged in the state court case falls outside the time period covered by the 2005-06 policy and also falls within both the Wrap-Up Exclusion in the 2006-07 and 2007-08 policies and the Specific Operations Exclusion in all three policies.

I. Evidentiary Objections

As a preliminary matter, the Association objects to four exhibits submitted in support of First Mercury's motion based on lack of authentication and inadmissibility under ORS 742.016. Three of these exhibits contain excerpts from Morrison's applications for renewal of First Mercury's policies submitted in 2005, 2006, and 2007. Green Decl., ¶¶ 2-4, Exs. 1-3. Thefourth exhibit consists of the declarations page for the policy placed by Hayden with Lloyds, London and Exhibit B to Morrison's construction contract with Hayden. Id, ¶ 5, Ex. 4.

The Association's objection based on lack of authentication is unfounded. The three applications are authenticated as either signed by Morrison's president, Steven A. Barstaad, or by Swett & Crawford, or both. Swett & Crawford is Morrison's insurance broker. Green Decl., ¶ 2. "An insurance broker is the agent of the insured in negotiating for a policy, and owes a duty of his principal to exercise reasonable skill, care, and diligence in effecting insurance." Joseph Forest Prods., Inc. v. Pratt, 278 Or 477, 480, 564 P2d 1027, 1029 (1977), quoting 16 J. APPLEMAN, INSURANCE LAW AND PRACTICE 510-514 (1968). The fourth exhibit contains documents that Cover X Specialty, a surplus lines insurance producer, kept in its underwriting files in the course of its regularly conducted business activities. Green Suppl. Decl., ¶ 4. Thus, authentication is not a barrier to the admissibility of these four exhibits.

However, ORS 742.016(1) renders inadmissible the three exhibits containing excerpts from Morrison's applications for insurance. "ORS 742.016 functions as a parol evidence rule in actions based on or involving insurance policies." Progressive Ins. v. Nat'l Am. Ins. Co. of Cal., 201 Or App 301, 307, 118 P3d 836, 839 (2005), citing DeJonge v. Mut. of Enumclaw, 315 Or 237, 242, 843 P2d 914, 917 (1992). In particular, it restricts the admissibility of applications for insurance coverage:

When the contract is made pursuant to a written application therefor, if the insurer delivers a copy of such application with the policy to the insured, thereupon such application shall become a part of the insurance policy. Any application that is not so delivered to the insured shall not be a part of the insurance policy and the insurer shall be precluded from introducing such application as evidence in any action based upon or involving the policy.

ORS 742.016(1).

The record contains no evidence that First Mercury delivered to Morrison copies of the applications with the policies as required by this statute. Thus, these applications are not "part of the insurance polic[ies]" and cannot be introduced "as evidence in any action based upon or involving the polic[ies]." Id.

First Mercury argues that ORS 742.016 does not apply because it offers the applications only as evidence of the existence of Morrison's wrap-up insurance program, and not as evidence of any supplemental policy terms. Without citing supporting authority, First Mercury argues the statute's purpose is to prevent an insurer from adding policy terms that were not fairly disclosed to the insured. However, the language of the statute does not mention the intended use of the application. Instead, it broadly bars the use of the application "as evidence in any action based upon or involving the policy." This is such an "action based upon or involving the policy" for each application.

Oregon courts have recognized certain exceptions to this statute, but the intended use of the application by the insurer is not one of those exceptions. Progressive, 201 Or App at 307 n2, 118 P3d at 839, citing DeJonge, 315 Or at 242, 843 P2d at 917 (insurer may be estopped to deny the existence of coverage notwithstanding the policy's terms and conditions), Bennett v. Farmers Ins. Co., 332 Or 138, 158, 26 P3d 785, 797 (2001) (applying estoppel when insured has been led to rely on a perceived waiver of a policy provision), and Collver v. Salem Ins. Agency, Inc., 132...