Tomorrow, the Oregon Supreme Court will hear argument in a dispute that could change how underlying judgments are treated in construction defect coverage disputes. An insurer is seeking to avoid paying a judgment against its insured in a construction defect case, claiming there was no finding that the judgment only included covered damages. If the court holds for the insurer, it could mean that whenever an insured defends under a reservation of rights, the plaintiff would be required to put on evidence of the factual issues necessary to determine coverage, or else the facts would need to be retried. The underlying case would have thus served no purpose other than to cap the insurer’s damages.
The claim involves damage to a condominium complex caused by defective siding installation. The jury in the underlying suit returned a general verdict apportioning some liability to the siding contractor. But the judgment did not differentiate between damage to the contractor’s own work, and damage to other work. Following the trial, the condo owners won a garnishment action against the siding contractor’s insurer, requiring it to pay nearly the entire amount of the judgment against the siding contractor. On appeal, the insurer argues that it should not have to pay the entire amount, because there was no finding as to the portion that may be barred by the exclusion for damage to the insured’s own work. The plaintiff argues a new trial would be barred by collateral estoppel because the insurer’s interests were represented in the underlying suit – the insured had every opportunity and incentive to put on evidence that its work did not cause damages.
The case is FountainCourt Homeowners’ Association et al. v. FountainCourt Development LLC et al., case number S062691, in the Supreme Court of the State of Oregon.