Study Finds Insurance Fair Conduct Act May Have Increased Claims Costs by $190 Millon

The Insurance Research Counsel ("IRC"), a division of the American Institute for CPCU, which is an independent, nonprofit organization dedicated to providing educational programs, reports that the Washington Insurance Fair Conduct Act (“IFCA”) may have caused an increase in homeowners insurance claims cost in the state by as much as $190 million. The IRC report is available at http://www.ircweb.org/News/IRCWABadFaith_033011.pdf

Oregon Court of Appeals: No Duty to Defend When Complaint Alleged No Resulting Damage

On April 6, 2011, the Oregon Court of Appeals ruled that American Family Mutual Insurance Company (“American Family”) had no duty to defend its insured where the underlying complaint alleged only damage to the insured’s work and did not allege resulting property damage, such as water damage to other building components, that would have been covered by the policy. State Farm Fire and Cas. Co. v. Am. Family Mut. Ins. Co., 2011 WL 1262760, 4 (Or App, 2011). The opinion acknowledged that water damage to other components or contents could have been a natural result of the insured’s alleged negligent performance of the work identified in the complaint. However, the court considered only the policy and the allegations in the complaint in evaluating American Family's duty to defend:

[T]he allegations in the [underlying] complaint are unambiguous. None of the allegations … allege damage to property other than the EIFS system identified in the particular specification, and none of the identified allegations allege water damage to other components or contents of the residence. Although water damage to other components or contents could have been a natural result from [the insured’s] alleged negligent performance of the work identified in the [underlying] complaint, such damage was not a necessary result of [the insured’s] … alleged negligence. Because that water damage was not a necessary result of [the insured’s] alleged negligence and was collateral in nature, the [underlying plaintiffs] were required to specially plead allegations of such water damage before evidence of it could be properly admitted. It follows that defendant had no duty to defend against the [underlying] negligence claim because the allegations of their complaint did not allege injury to property covered by defendant's policy. Thus, the trial court erred in granting summary judgment for plaintiff and denying defendant's motion for summary judgment.

Oregon Court of Appeals addressed an alleged third-party beneficiary’s claim for coverage

In Smith v. Truck Ins. Exchange, Inc., No. A142954 (Or App Apr 20, 2011), the Oregon Court of Appeals addressed an alleged third-party beneficiary’s claim for underinsured motorist (“UIM”) coverage. Plaintiff was injured while driving a vehicle owned by MD&D Construction (“MD&D”). She made a claim for UIM coverage to the insurer, Truck Insurance Exchange, alleging that it had issued insurance on the vehicle. When the insurer denied the claim, plaintiff sued the insurer, asserting claims for breach of contract and declaratory relief alleging that she was a third-party beneficiary on the policy. In addition she sued the broker, alleging that the broker had negligently failed to obtain the insurance. The trial court dismissed the suit on the pleadings, holding that she was not the real party in interest and that she had failed to state facts sufficient to constitute claims for relief in the complaint.

The Court of Appeals reversed on the claims against the insurer and affirmed on the claim against the broker. It first held that the complaint alleged that plaintiff was a permissive user of the vehicle and therefore adequately alleged that she was a third-party beneficiary for the purpose of the breach of contract theory. Next, the court held that plaintiff had no claim against the broker because nothing indicated that she was an intended beneficiary of the broker’s promise to obtain insurance. Finally, the court held that plaintiff’s declaratory judgment claim was insufficient because she had failed to name the insured, MD&D, as a party in the suit. Nonetheless, the court declined to affirm the dismissal but instead gave plaintiff the opportunity on remand to add MD&D.