Willmar Development LLC v. Illinois National Insurance Co

FILED
NOT FOR PUBLICATION DEC 27 2011
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
WILLMAR DEVELOPMENT, LLC, an No. 10-35979
Oregon limited liability company,
D.C. No. 6:09-cv-06213-AA
Plaintiff - Appellee,
v. MEMORANDUM *
ILLINOIS NATIONAL INSURANCE
COMPANY; LEXINGTON INSURANCE
COMPANY,
Defendants - Appellants.
Appeal from the United States District Court
for the District of Oregon
Ann L. Aiken, Chief District Judge, Presiding
Argued and Submitted December 8, 2011
Seattle, Washington
Before: GUY,** McKEOWN, and TALLMAN, Circuit Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The Honorable Ralph B. Guy, Jr., Senior United States Circuit Judge, Sixth
Circuit, sitting by designation.
Appellants Illinois National Insurance Company and Lexington Insurance
Company (“appellants”) appeal an adverse grant of summary judgment in favor of
appellee Willmar Development, LLC (“Willmar”). The district court granted
summary judgment on Willmar’s claim that appellants breached their duty to
defend a lawsuit alleging negligence against Willmar in the site-selection and
construction of a new home. We have jurisdiction under 28 U.S.C. § 1291, and we
affirm.
To trigger an insurer’s duty to defend under Oregon law, the insured must
demonstrate that the conduct alleged in the underlying complaint falls within the
insured’s policy coverage. See Nielsen v. St. Paul. Cos., 583 P.2d 545, 547 (Or.
1978). In this case, the underlying complaint must have alleged “property
damage” from an “occurrence” to trigger the duty to defend. There was an
“occurrence” in this case because the damages were unintended, accidental results
of Willmar’s alleged negligence. See Finley v. Prudential Life & Cas. Ins. Co.,
388 P.2d 21, 26 (Or. 1963); see also Mut. of Enumclaw Ins. Co. v. Gutman, 21
P.3d 101, 105 (Or. Ct. App. 2001) (“The question is whether the insured
specifically intended the harm suffered . . . .”).
The complaint also alleged “property damage” as defined by the policy.
Appellants contend that “property damage” excludes damage to the insured’s own
2
product, but they can point to no authority under Oregon law to support that claim.
Cf. Anthem Elec., Inc. v. Pac. Emp’rs Ins. Co., 302 F.3d 1049, 1057 (9th Cir. 2002)
(applying California law). The plain language of the policy covers property
damage “arising out of” Willmar’s work, including “operations performed by”
Willmar. Because the complaint alleges that Willmar negligently performed the
site-preparation and home-construction, resulting in damage from settling of the
foundation, the damage arises out of Willmar’s negligent performance. This
constitutes “property damage” under the policy.
Because Willmar has demonstrated that the conduct alleged in the
underlying complaint is covered by the policy, appellants bear the burden of
proving that a specific policy exclusion bars coverage for the alleged conduct.
Emp’rs Ins. of Wausau v. Tektronix, Inc., 156 P.3d 105, 119 (Or. Ct. App. 2007).
Appellants point to a number of specific policy exclusions, none of which bar
coverage in this case.
First, appellants point to the policy’s “Land Subsidence Exclusion.”
Although no Oregon court has interpreted such a provision, the majority of courts
that have interpreted such provisions have found them ambiguous as to their
application to land subsidence resulting from man-made causes, and have
ultimately resolved such ambiguity in favor of the insured. See 3 Allan D. Windt,
3
Insurance Claims and Disputes § 11:23A (5th ed. 2011) (citing, inter alia, Murray
v. State Farm Fire & Cas. Co., 509 S.E.2d 1 (W. Va. 1998) (collecting cases); Cox
v. State Farm Fire & Cas. Co., 459 S.E.2d 446, 447 (Ga. Ct. App. 1995)); see also
Nautilus Ins. Co. v. Vuk Builders, Inc., 406 F. Supp. 2d 899, 904–05 (N.D. Ill.
2005). The rationale in these cases is persuasive. The district court correctly
followed that rationale in this case, and held that the land-subsidence exclusion
does not bar coverage for land subsidence from man-made causes.
Second, appellants point to “Exclusion J” and “Exclusion K” in the policy.
These exclusions do not apply in this case because specific exceptions to the
exclusions allow coverage for the alleged conduct.
Finally, appellants argue that “Exclusion L”—the “your work”
exclusion—bars coverage in this case. This exclusion does not apply if the
damaged work was performed by a subcontractor. The underlying complaint
alleges negligence on the part of “Defendant Willmar, and/or Defendant’s agents.”
This allegation raises the possibility that the work was performed by a
subcontractor, thus triggering the insurers’ duty to defend. See Schnitzer Inv.
Corp. v. Certain Underwriters at Lloyd’s of London, 104 P.3d 1162, 1169 (Or. Ct.
App. 2005) (holding that underlying letter raised possibility of allegations of
contaminated groundwater, even though letter did not expressly mention
4
groundwater). The district court correctly held that the subcontractor exception
applies, negating the exclusion.
AFFIRMED.
5