The good folks at the large national firm Farella Braun posted this excellent summary of the Oregon Supreme Court’s late-2012 decision in Bresee v. Farmers Insurance Exchange. In Bresee the court made it clear that an insurer’s decision to provide a defense under a liability policy must be based on only the words of the underlying complaint or other charging document itself, and that any ambiguity — any ambiguity, including one created by the lack of specific allegations — is construed in favor of providing the defense. In that specific case the insurance company denied a defense based on a “completed operations” exclusion based on the insurance company’s interpretation of the underlying complaint, which is said indicated that the property damage had occurred after “operations” were “complete.” As Farella’s blog post points out, the court’s admonition to insurance carriers that they cannot use such “reading between the lines” to deny a defense is a straightforward proposition – so straightforward, in fact, that most states permit a policyholder who is denied a defense to seek punitive or exemplary damages, via a bad faith claim, to deter insurance companies from the practice. Unfortunately, unless HB 3160 or something like it passes, insurance companies will continue to ignore Bresee and its forebears (which they do, every day) because even though it is a clear-cut breach of their obligations to policyholders, in Oregon insurers get a “free breach,” as I explained in my recent letter to Senator Betsy Johnson in support of HB 3160/the SB 414-A amendment.
