Fountaincourt Homeowners' Ass'n v. Fountaincourt Dev., LLC

• Decision Date: 22 September 2016
• Docket Number: CC C075333CV, CA A147420,SC S062691
• Citation: 380 P.3d 916,360 Or. 341
• Parties: Fountaincourt Homeowners' Association and FountainCourt Condominium Owners' Association, Plaintiffs, v. Fountaincourt Development, LLC; et al., Defendants. Fountaincourt Development, LLC; et al., Third–Party Plaintiffs, v. Advanced Surface Innovations, Inc., an Oregon corporation; et al., Third–Party Defendants. Voss Framing, Inc., assignee for FountainCourt Homeowners' Association, assignee for FountainCourt Condominium Owners' Association, on behalf of FountainCourt Development, LLC, on behalf of Matrix Development Corporation, and on behalf of Legend Homes Corporation, Fourth–Party Plaintiff, v. Dana Christopher and Red Hills Construction, Inc., Fourth–Party Defendants. Fountaincourt Homeowners' Association and FountainCourt Condominium Owners' Association, Respondents on Review, v. American Family Mutual Insurance Company, Petitioner on Review.
• Court: Oregon Supreme Court

360 Or. 341

380 P.3d 916

Fountaincourt Homeowners' Association and FountainCourt Condominium Owners' Association, Plaintiffs,

v.Fountaincourt Development, LLC; et al., Defendants.

Fountaincourt Development, LLC; et al., Third–Party Plaintiffs,

v.Advanced Surface Innovations, Inc., an Oregon corporation; et al., Third–Party Defendants.

Voss Framing, Inc., assignee for FountainCourt Homeowners' Association, assignee for FountainCourt Condominium Owners' Association, on behalf of FountainCourt Development, LLC, on behalf of Matrix Development Corporation, and on behalf of Legend Homes Corporation, Fourth–Party Plaintiff,

v.Dana Christopher and Red Hills Construction, Inc., Fourth–Party Defendants.

Fountaincourt Homeowners' Association and FountainCourt Condominium Owners' Association, Respondents on Review,

v.American Family Mutual Insurance Company, Petitioner on Review.

CC C075333CV, CA A147420

SC S062691

Supreme Court of Oregon.

Argued and submitted September 10, 2015.

September 22, 2016

L. Kathleen Chaney, Lambdin & Chaney LLP, Denver, Colorado, argued the cause and filed the briefs for petitioner on review.

Anthony L. Rafel, Rafel Law Group PLLC, Portland, argued the cause and filed the brief for respondents on review. With him on the brief was Katie Jo Johnson, McEwan Gisvold LLP, Portland.

Michael E. Farnell, Parsons Farnell & Grien LLP, Portland, argued the cause and filed the brief for amici curiae Associated General Contractors—Oregon Columbia Chapter, Central Oregon Builders Association, Home Builders Association of Marion and Polk County, Home Builders Association of Metropolitan Portland, Independent Electrical Contractors of Oregon Inc, National Association of Home Builders, Northwest Utility Contractors Association, Oregon Home Builders Association, Pacific Northwest Chapter of the Associated Builders and Contractors Inc, and Professional Remodelers Organization of the HBA of Metropolitan Portland. With him on the brief was Steven R. Powers.

Bronson James, Bronson James LLC, Portland, filed the brief for amicus curiae Oregon Trial Lawyers Association.

Thomas M. Christ, Cosgrave Vergeer Kester LLP, Portland, filed the brief for amicus curiae Oregon Association of Defense Counsel.

Before Balmer, Chief Justice, and Kistler, Walters, Landau, Baldwin, and Nakamoto, Justices.^**

BALDWIN, J.

American Family Mutual Insurance Company (AFM) seeks review of a decision of the Court of Appeals that upheld a trial court judgment in a garnishment proceeding requiring AFM to pay a judgment that plaintiffs FountainCourt Homeowners' Association and FountainCourt Condominium Owners' Association (FountainCourt) had obtained against AFM's insured, Sideco, Inc. (Sideco). FountainCourt Homeowners v. FountainCourt Develop. , 264 Or.App. 468, 334 P.3d 973 (2014). FountainCourt responds that the Court of Appeals correctly upheld that supplemental judgment, but argues that that court erroneously reversed a subsequent supplemental judgment that awarded attorney fees. We reject without discussion FountainCourt's arguments concerning the subsequent supplemental judgment. With respect to AFM's arguments, we conclude that the Court of Appeals correctly rejected them, and we affirm the trial court's judgment.

The underlying dispute concerns a housing development that was constructed between 2002 and 2004 in Beaverton. FountainCourt brought an action against the developers and contractors seeking damages for defects in the construction of the buildings in the development. Sideco, a subcontractor, was brought in as a third-party defendant, and a jury eventually determined that Sideco's negligence caused property damage to FountainCourt's buildings. Based on that jury verdict, the trial court entered judgment against Sideco in the amount of $485,877.84. FountainCourt then served a writ of garnishment on AFM in the amount owed by Sideco, and, in response, AFM denied that the loss was covered by its policies. FountainCourt moved for an order to show cause in the trial court why judgment should not be entered against AFM on the writ of garnishment. The trial court ultimately agreed with FountainCourt and entered judgment against AFM, after deducting the amounts that had been paid by other garnishees. AFM appealed the judgment, and the Court of Appeals affirmed.

On review, AFM raises numerous issues, some of which, as we explain below, were not properly raised in the lower courts, and others of which we reframe for purposes of organizing our discussion. We have reframed the issues before us as follows: (1) Did the trial court properly resolve the issues raised in the garnishment proceeding in a manner that comported with this court's case law concerning an insurer's duty to defend and right to litigate coverage issues, and did not implicate AFM's right to a jury trial; and (2) did the trial court correctly interpret the insurance policies to conclude that coverage had been triggered under the policies and that AFM was liable to FountainCourt in light of FountainCourt's verdict against Sideco in the underlying negligence case? We conclude that the trial court correctly resolved those legal issues, and we affirm the trial court and the Court of Appeals.

I. FACTS AND PROCEDURAL POSTURE

A. The Negligence Trial

Between 2002 and 2004, FountainCourt, a planned community, was developed by defendant FountainCourt Development and built by defendant Legend Homes Corporation,¹ and much of the work on the project was carried out by subcontractors. The planned community consisted of 34 condominiums and 63 townhouses. The owners of the condominiums and townhouses (represented in this litigation by the plaintiff homeowners associations) experienced damage to their properties caused by water intrusion into the buildings. In 2007, FountainCourt initiated the underlying action against the developers and contractor, who, in turn, brought in subcontractors as third-party defendants. In an amended pleading, FountainCourt alleged direct claims of negligence against some of the subcontractors, including Sideco. In particular, FountainCourt alleged that Sideco had installed siding and windows, among other things, in such a manner as to cause water intrusion into the buildings, which resulted in physical damage to those structures.

Sideco tendered defense of the action to its insurers, including AFM. Sideco had general-liability insurance policies issued by AFM covering the period of May 1, 2004 to May 1, 2006, and a general-liability insurance policy issued by Clarendon National Insurance Company covering the period of April 15, 2003 to May 15, 2004. Clarendon and AFM accepted the tender of defense with a full reservation of rights.

At trial, FountainCourt presented evidence in support of its claims. Ultimately, the only theory of the case that went to the jury with respect to all defendants concerned property damage, and the jury was instructed as follows:

“If you find that the plaintiffs are entitled to prevail, then you must decide whether the plaintiffs have been damaged and, if so, the amount of their damages.

“Plaintiffs must allege and prove physical damage to their property . * * * The amount of damages may not exceed the sum of $3,831,635. The plaintiffs must prove damages by a preponderance of the evidence.

“If you find the plaintiffs are entitled to damages, you should—or shall determine the amount of physical damage to plaintiffs' real property, if any, that was caused by the defendants' fault or negligence. The measure of damages for partial destruction of real property is the reasonable cost of repairing the damaged property .”

(Emphasis added.)

The jury returned a verdict in FountainCourt's favor and allocated percentages of fault to various defendants. While the main fault (66 percent) was found to be with the developer/primary contractor group, various subcontractors also were determined to have been negligent. The jury's verdict indicated that plaintiffs' total damages were $2,145,156, and that 22.65 percent of the damages were caused by Sideco's negligence. The trial court accordingly entered a judgment against Sideco in the amount of $485,877.84.

B. The Garnishment Proceeding

FountainCourt then mailed a writ of garnishment to Sideco's insurers for the amount of its judgment against Sideco.² AFM filed an answer asserting that FountainCourt had failed to state a claim. It argued that it was not obligated to pay the Sideco judgment either because some or all of the damages did not arise from “property damage” or an “occurrence,” or because some or all of the property damage resulted before or after the policy periods, or because one or more exclusions applied to some or all of the losses. AFM also asserted a counterclaim for declaratory judgment concerning its liability under the policies. FountainCourt then moved for a show-cause order as to why judgment should not be entered against the insurers on the writ of garnishment, seeking a hearing pursuant to ORS 18.775.³ AFM and Clarendon objected to resolving the issues by way of a hearing pursuant to ORS 18.775, arguing that they needed additional time to prepare, that factual issues concerning coverage that could not be resolved through such a hearing, and that they were entitled to a jury trial on those factual issues. The insurers identified as potential factual issues pertinent to coverage “the timing and cause of the alleged property damage, and the nature of the money damages awarded in the underlying action, among other things.” The insurers also argued that they had raised “various coverage defenses, based upon policy endorsements and exclusions, which also will be fact-sensitive and entitle the parties to a jury trial.”

The trial court held a hearing at which the parties argued their respective positions concerning how the coverage disputes should be resolved. The court indicated that it would not conduct a jury trial, as the meaning of the insurance policies presented a question of law. AMF's counsel suggested that...