W. Hills Dev. Co. v. Chartis Claims, Inc.

• Decision Date: 01 March 2017
• Docket Number: A154695
• Citation: 391 P.3d 851,284 Or.App. 133
• Parties: WEST HILLS DEVELOPMENT COMPANY, an Oregon corporation, Plaintiff-Respondent, v. CHARTIS CLAIMS, INC., et al., Defendants, and Oregon Automobile Insurance Company, an Oregon company, Defendant-Appellant. Oregon Automobile Insurance Company, Third-Party Plaintiff, v. Quanta Specialty Lines Insurance Company, Third-Party Defendant.
• Court: Oregon Court of Appeals

284 Or.App. 133

391 P.3d 851

WEST HILLS DEVELOPMENT COMPANY, an Oregon corporation, Plaintiff-Respondent,

v.CHARTIS CLAIMS, INC., et al., Defendants,andOregon Automobile Insurance Company, an Oregon company, Defendant-Appellant.

Oregon Automobile Insurance Company, Third-Party Plaintiff,

v.Quanta Specialty Lines Insurance Company, Third-Party Defendant.

A154695

Court of Appeals of Oregon.

Argued and submitted March 31, 2015.

March 1, 2017

Thomas M. Christ, Portland, argued the cause for appellant. With him on the briefs was Cosgrave Vergeer Kester LLP.

Michael E. Farnell, Portland, argued the cause for respondent. With him on the brief were Emily S. Miller and Parsons Farnell & Grein, LLP.

Before Armstrong, Presiding Judge, and Egan, Judge, and DeVore, Judge.^*

DEVORE, J.

Oregon Automobile Insurance Company (Oregon Auto) appeals a supplemental judgment awarding West Hills Development Company (West Hills) recovery of attorney fees in the sum of $ 74,867.75. This dispute over attorney fees arose after settlement of a construction defect case and a prior decision in this case that Oregon Auto had breached its duty to defend West Hills in the underlying case. See West Hills Development Co. v. Chartis Claims , 360 Or. 650, 667, 385 P.3d 1053 (2016) (prior proceedings in this case involving insurance coverage). Oregon Auto contends that it should not owe attorney fees for an insured's claim on the policy—a claim that allows attorney fees under ORS 742.061(1). Rather, argues Oregon Auto, this action should be recharacterized as a suit for equitable contribution as among coinsurers, such that ORS 742.061 would not apply, either in whole or in part. For the reasons that follow, we reject those arguments and affirm.

The essential facts are undisputed. West Hills is a general contractor who employed L&T Enterprises, Inc., in a portion of the construction of a townhouse project. L&T was the named insured under an Oregon Auto general liability policy. An endorsement made West Hills an additional insured under the same policy. The townhouse owners brought a construction defect action against West Hills. West Hills tendered the defense of the action to eight putative insurers including Oregon Auto. Oregon Auto refused to defend West Hills.

Two insurers assumed defense of West Hills. They were Quanta Specialty Lines Insurance Company (Quanta) and the Asset Protection Program Risk Retention Group, Inc. (RRG). Under a provision in the Quanta policy, West Hills was uninsured for the initial attorney fees or defense costs. That provision, dubbed a "self-insured retention" (SIR), concerned the initial $ 25,000 in defense costs. In point of fact, West Hills paid $ 25,418 out of pocket. By the time the homeowners' action finally settled, West Hills, Quanta, and RRG together spent $ 231,075.32 in defense of West Hills.¹

West Hills initiated this action to recover its defense costs from Oregon Auto and other insurers who had refused to defend. The other insurers settled, except one, and all others, including the nonsettling one, were dismissed out of the case. Oregon Auto remained the lone defendant.

In the final iteration of its complaint, West Hills brought three claims against Oregon Auto. The first claim alleged a breach of the contract based on the policy's promise to defend West Hills. That claim sought $ 28,884.42. That sum represented a one-eighth share of the total defense cost—a sum calculated when the total defense cost was divided among eight insurers. In its second claim, West Hills sought "equitable contribution," alleging that Quanta and RRG had "paid in excess of their equitable shares." The third claim sought "equitable subrogation," alleging that Quanta and RRG had a right of subrogation to assert West Hills' rights against Oregon Auto so as to recover defense costs that "should be fairly attributed" to Oregon Auto. The second and third claims sought somewhat lesser damages of $ 25,719.17.²

West Hills was the only plaintiff, although the second and third claims made allegations relating to Quanta and RRG. To facilitate the latter claims, RRG assigned all rights or claims of any kind to West Hills. To avoid concern about the real party in interest, Quanta filed a ratification, consistent with ORCP 26, in which it authorized West Hills to pursue its "defense costs claim" and agreed to be bound by the outcome of the case.

In its answer to the latest complaint, Oregon Auto simply denied coverage, alleging that it had no duty to defend West Hills. At that stage in the proceedings, Oregon Auto no longer sought equitable contribution among the insurers.

Further, Oregon Auto did not allege any affirmative defense or counterclaim against West Hills so as to put at issue the relative amount of defense costs that Oregon Auto should pay West Hills, as related to other insurers (e.g. , a defense relating to the difference in damages as between Oregon Auto's unpaid share of defense costs ($ 28,488.42) and West Hills' out-of-pocket costs ($ 25,418)).

On the merits, the trial court gave general judgment for West Hills "on its claims," specifically declaring that West Hills was an insured under the Oregon Auto policy, that Oregon Auto had owed a duty to defend, and that West Hills had been damaged in the amount of $ 28,884.42, the sum alleged in the contract claim. Oregon Auto appealed.

In the meantime, West Hills sought attorney fees in the sum of $ 83,617.75 for prosecuting this coverage case. Oregon Auto objected that West Hills had no entitlement to attorney fees, contending that the action had not truly been a claim on the policy but had instead been an equitable contribution claim among co-insurers. To make that argument complete, Oregon Auto argued that West Hills was a "self-insurer" who should be regarded like any other insurance company. In the alternative, Oregon Auto argued that, if the court recognized West Hills as an insured who had paid defense costs, then only lesser fees should be allowed. Oregon Auto argued that, assuming Quanta and RRG could not recover fees, West Hills should recover no more than 11 percent of reasonable attorney fees because West Hills had only paid 11 percent of the total defense costs when compared with Quanta and RRG.

In its letter opinion, the trial court announced:

"In an effort to cut to the chase, the court finds this was not an equitable contribution case between two insurers, thus, West Hills can statutorily request reasonable attorney fees per ORS 742.061. * * *

" * * * * *

"In this case, West Hills' first claim for relief was breach of contract. See Plaintiff's Fourth Amended Complaint. As part of that claim for relief, West Hills requested attorney fees under ORS 742.061. * * * Because West Hills was an insured and they recovered more than the zero tender from Oregon Auto they are entitled to reasonable attorney fees."

The court "reduced the attorney fees to the extent possible if the request was clearly related to West Hills equitable contribution claim." Accordingly, the trial court awarded a reduced sum of $ 74,867.75.

On appeal, Oregon Auto reiterates its primary argument that West Hills was a "self-insurer," that "[i]n substance, if not form, this is an action for equitable contribution and, therefore, it is not an action to which ORS 742.061(1) applies." Oregon Auto also reprises its alternate argument that the trial court erred in awarding more than 11 percent of requested fees because West Hills had paid, out-of-pocket, 11 percent of the underlying defense costs. To bolster that argument, Oregon Auto adds that the trial court failed to "apportion" the requested fees according to the separate "parties" who can and who cannot recover attorney fees. That is, Oregon Auto argues that the trial court failed to consider that there was one party, West Hills, who may have an entitlement to attorney fees for its contract claim, while there were two interested insurers, Quanta and RRG, who would not have an entitlement to attorney fees for the equitable contribution claim.

At issue in this case is the application of ORS 742.061(1) to an insurer who denied its duty to defend its insured. In relevant part, ORS 742.061(1) provides:

"[I]f settlement is not made within six months from the date proof of loss is filed with an insurer and an action is brought in any court of this state upon any policy of insurance of any kind or nature, and the plaintiff's recovery exceeds the amount of any tender made by the defendant in such action, a reasonable amount to be fixed by the court as attorney fees shall be taxed as part of the costs of the action and any appeal thereon. * * * "

With one exception, the parties do not dispute the application of any of the conditions of the statute to this case. Nor do they dispute the application of the statute to a case seeking to recover damages suffered as attorney fees in defense of the insured in an underlying case. See Sch. Dist. No. 1 v. Mission Ins. Co ., 58 Or.App. 692, 718-20, 650 P.2d 929 (1982), rev. den. , 294 Or. 682, 662 P.2d 725 (1983) (allowing insured's recovery of indemnity and defense costs). However, Oregon Auto does dispute that this is an action brought upon a policy of insurance, contending that this action "was brought, for the most part , to recover the costs that two insurers, Quanta and RRG, incurred in defending an earlier action." (Emphasis added.)

We disagree with Oregon Auto's primary argument and its propositions that West Hills is a self-insurer, not an insured, and that some claims should be recharacterized such that the entire action should be seen as an action for equitable contribution. To explain, we take each proposition in turn.

The parties stipulated that West Hills paid $ 25,418 out-of-pocket in its own defense. In its policy, Oregon Auto promised, in relevant part:

"We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the

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