Insurer Has Duty to Defend Despite Indemnity Agreement Per Oregon Court

The Oregon federal district court recently addressed the enforceability of an indemnification agreement under ORS 31.140 and its impact on an insurer’s duty to defend and duty to indemnify an insured.  In Portland Gen. Electric Co. v. Liberty Mut. Ins. Co., No. 3:15-cv-00217-HZ, 2015 WL 3892593, — F.Supp.3d — (D. Or. 2015), the district court concluded that the indemnification agreement was partially enforceable under a recent Oregon Supreme Court opinion.  The court further concluded that the allegations in the underlying complaint triggered the insurer’s duty to defend.

In the case, PGE had been sued by Joel Belgarde, who alleged that he was injured at one of PGE’s plants.  At the time of the accident, Belgarde was working as a boilermaker for NAES Corp.  He alleged that at all relevant times, PGE controlled, directed, and monitored his work at the plant.  Several years prior to Belgarde’s accident, PGE and NAES entered into a contract that required NAES to procure commercial liability insurance covering all of its operations at PGE’s plant against bodily injury and property damage and name PGE as an additional insured by endorsement or otherwise.  A certificate of insurance was issued on May 16, 2012, listing NAES as the insured under a commercial general liability policy.

The subject policy obligated the insurer to “pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies” and “to defend the insured against ‘suit’ seeking those damages.”  The insurer did not dispute that Belgarde suffered a bodily injury or that the litigation he filed qualified as a suit.  The issue was whether PGE qualified as an insured under the policy and, specifically, whether ORS 31.140 operated to bar the agreement between PGE and NAES.

The insurer argued that ORS 31.140 voided the agreement by NAES to insure PGE against liability for any injury arising out of NAES’s work for PGE.  ORS 31.140 precludes agreements in which a party’s insurer would be required to indemnify another party for damages arising from the latter party’s negligence.  In the case, the insurer argued that the NAES/PGE agreement was void because it required NAES to procure insurance for PGE’s own negligence.  The insurer acknowledged that the contract encompassed the fault of NAES in addition to that of PGE.  Despite that, the insurer contended that the contract was void because it was not limited specifically to the negligence of NAES.

The district court rejected the insurer’s argument, citing the Oregon Supreme Court’s recent decision in Montara Owners Ass’n v. La Noue Dev., LLC, No. SC S062120, 2015 WL 3791636 (Or. June 18, 2015).  There, the Court held that ORS 31.140 operated to void only that portion of the indemnification agreement that violated the statute, but that the remaining agreement was enforceable.  Accordingly, the district court rejected the insurer’s position, and concluded that the NAES/PGE agreement was “partially enforceable.”

The insurer nevertheless argued that it did not have a duty to defend PGE in the Belgarde action because the indemnification agreement was enforceable only to the extent it asserts liability by NAES.  According to the insurer, the underlying complaint did not assert that NAES acted negligently and, instead, that it solely asserted liability against PGE which would not be covered under the policy.  The district court again rejected the insurer’s position.  Belgarde did not mention NAES in his complaint, but affirmatively asserted that PGE controlled, directed, and monitored his work at the PGE plant.  The district court concluded that these allegations were attributable to the exclusivity of Oregon’s workers compensation law which prohibited Belgarde from asserting a direct claim against his employer.  Despite that, the court found that the allegations implied fault against NAES and thus triggered coverage.

The district court did, however, reject PGE’s argument that it was entitled to summary judgment on the insurer’s duty to indemnify.  It concluded that the duty to indemnify could not be decided because it was premature.

Maloney Lauersdorf Reiner represents clients in duty to defend and duty to indemnify litigation.  Please contact us with any questions about this case or any other matter you see on the Insurance Coverage Blog.

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