Oregon Supreme Court holds that the terms of an oral binder superseded the standard terms of a first-party property policy.

In Stuart v. Pittman, 2011 WL 2162919 (Or 2011), the insured was a homeowner who contracted with a builder to construct a house at his farm. The insurer’s agent orally agreed to bind first-party course of construction insurance for the insured in August 2003; the policy itself was not delivered until March 2004. In the meantime, the house was damaged: It was framed but not enclosed, and snow and ice built up inside of it, causing the interior sheathing to split, the accumulation of water in the crawl space, and a large amount of mold. The insured had relied on the agent’s oral assurance of coverage and as a result did not require the builder to carry a performance bond or liability insurance. The insured sued the builder for faulty workmanship and obtained a judgment; however, because the builder was insolvent, the insured was unable to collect on the judgment. The insured then sued his own insurer and the insurer’s agent. The insured claimed that the insurer’s agent had issued an oral binder for a course of construction policy that eliminated the usual provisions such as, for example, exclusions for damage caused by mold and by faulty workmanship. The Court of Appeals reversed a verdict in favor of the insured, finding that the insured had failed to prove that the usual policy terms of a course of construction policy were superseded by the “clear and express” terms of the binder as required under ORS 742.043. On further review, the Oregon Supreme Court reversed the Court of Appeals and reinstated the verdict. The Oregon Supreme Court reasoned that the terms of the binder could supersede the usual policy terms under the statute and that the insured had met the statute’s “clear and express” requirement. Separately, the Oregon Supreme Court also held that that the insured could obtain attorney fees under ORS 742.061 based on an oral binder.

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