The Oregon Supreme Court will hear arguments Sept. 10 on whether a policyholder can establish insurance coverage for an entire judgment based on a general verdict issued in a construction defect suit potentially involving both covered and excluded causes of loss. Here, Law360 delves into the issues in the case in advance of the hearing.

American Family Mutual Insurance Co. is challenging lower courts' decisions that put it on the hook for the entirety of a judgment entered against siding company Sideco Inc. in underlying litigation over construction defects at a condominium and townhome complex. According to the insurer, the plaintiffs in the litigation should have been required to show what portion of the judgment is for damages that fall within the policy's coverage.

The Oregon Supreme Court has been asked to decide several questions implicating common issues found in construction defect suits.

The high court will consider whether the insured can establish coverage for the awarded damages based on a general verdict that is entered against a policyholder in a mixed-coverage case, which involves some damage that is payable by the insurer and some that is not.

In addition, the court will weigh in on whether a policyholder can make a prima facie case for coverage based on evidence showing only a possibility that a judgment is for covered damages.

David E. Wood of Anderson Kill PC, who represents policyholders, said he thinks the Oregon Supreme Court will reject American Family's arguments and find that the insurer's interests were fully protected in the underlying trial.

"Sideco had every incentive to prove that its work didn't cause property damage."

"Under collateral estoppel, a party can't relitigate a factual issue like this unless its interests are not represented at trial." "I don't think that the court will find that an insurance company gets two bites at the apple to try to defeat coverage where a jury clearly held that coverage exists." Wood continued.

With regard to the lower courts' rulings wherein the Fountain Court sought a total of $3.8 million for the "reasonable costs of repairing the damaged property" and asked the jury to allocate about 40 percent of the fault to Sideco.

Wood said that American Family's contention that the insured had the burden of proving the allocation of damage to its own work and resultant property damage is "just wrong."

"It's always the insurer's burden to prove the application of an exclusion."

NewsID_842_Oregon-Justices-Take-On-Construction-Defect-Coverage-Query.pdf