On May 10, 2017, the Oregon Court of Appeals made several significant holdings in the appeal of an insurance policy garnishment proceeding. The court of appeals held that a liability insurer’s exclusion for multi-unit new residential construction was ambiguous and, when construed against the insurer, did not apply to defeat coverage for construction-defect claims in a mixed-use development. The result was especially gratifying because the insurer had refused to defend its subcontractor insured, against which a default judgment had been entered. The court of appeals also held that attorney fees awarded to an indemnitee for defending a construction-defect claim were covered by a liability insurance policy, either as damages or as costs taxed against the insured. Finally, the court of appeals held that a party is entitled to a jury trial on factual issues in an insurance policy garnishment proceeding and that an Oregon statute allowing a bench trial is unconstitutional.
A. The Coverage Holding
In Hunters Ridge Condo. Assn. v. Sherwood Crossing, 285 Or App 416 (May 10, 2017), American Family Mutual Insurance Company (“AFM”) insured WGC, a subcontractor, on a mixed-use condominium project with commercial, office, and retail space on the ground floors, and residential units on the upper floors. The condo association brought a construction-defect claim against the developer, Sherwood, and the general contractor, White. Sherwood brought third-party claims against WGC and other subcontractors. WGC had installed siding and weatherproofing on two of three buildings in the project. In its contract, WGC agreed to indemnify Sherwood and White and hold them harmless from claims, damages, etc., including attorney fees, arising out of or resulting from WGC’s work.
WGC tendered its defense of the third-party claim to AFM. Based on its exclusion for multi-unit new residential construction, AFM refused to defend...
