Freitag v catlin f&r june 2013 adopt july 2013

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

KURT FREITAG dba BIG FISH PARTNERS,

Plaintiff,

v.

CATLIN INDEMNITY COMPANY, a foreign corporation; CATLIN INSURANCE COMPANY, INC., a foreign corporation; CENTURY SURETY COMPANY, a foreign corporation; and CATLIN SPECIALTY INSURANCE COMPANY, a foreign corporation,

Defendants.

AIKEN, Chief Judge:

Case No. 6:12-cv-01111-TC 0 R D E R

Magistrate Judge Coffin filed his Findings and Recommendation

on June 11, 2013, recommending that plaintiff Kurt Freitag's motion

for partial summary judgment be granted, and that defendants Catlin

Indemnity Company's, Catlin Insurance Company, Inc.'s, and Catlin

Specialty Insurance Company's motion for summary judgment and

motion for leave to amend their answer be denied. The matter is

Page 1 - ORDER

Case 6:12-cv-01111-TC Document 99 Filed 07/23/13 Page 1 of 3 Page ID#: 1039

now before me pursuant to 28 U.S.C. § 636(b) (1) (B) and Fed. R. Civ.

P. 72 (b).

When either party objects to any portion of a magistrate

judge's Findings and Recommendation, the district court must make

a de novo determination of that portion of the magistrate judge's

report. See 28 U.S.C. § 636(b) (1) (C); McDonnell Douglas Corp. v.

Commodore Bus. Machs., Inc., 656 F.2d 1309, 1313 (9th Cir. 1981),

cert. denied, 455 U.S. 920 (1982).

Defendants timely filed objections to: (1) the denial of their

motion to amend; and (2) the merits of Magistrate Coffin's findings

regarding the parties' cross-motions for summary judgment. I have,

therefore, given those portions of the report a de novo review. As

to the former, defendants argue that they should be granted leave

to amend their answer in order to allege additional affirmative

defenses and counter-claims because they did not become aware of

the facts necessary to support such allegations until January and

February 2013. See Defs.' Objections at 4-8, 11. A review of the

record reveals that this "new" evidence does not include any facts

that defendants did not reasonably have access to long before

moving to amend. Further, defendants moved to amend their answer

seven months after their initial response, five months after filing

their motion for summary judgment, and two months after they

allegedly became aware of additional facts through discovery.

Finally, contrary to defendants' assertion, the fact that they

filed their motion to amend before "the agreed deadline" does not

give them an immediate right to amend. Id. at 4; see also Fed. R.

Page 2 - ORDER


Civ. P. 15(a). In other words, the parties' discovery agreement

merely establishes deadlines for them to request leave from the

court to amend, a request that Magistrate Coffin denied in his

Findings and Recommendation. In any event, this Court agrees with

Magistrate Coffin's analysis and conclusion at to this issue.

Defendants' remaining objections merely restate their initial

arguments in favor of summary judgement. See generally Defs.'

Objections. I agree with Magistrate Coffin's analysis and

conclusions regarding these matters. As such, I ADOPT the

Magistrate's Findings and Recommendation (doc. 83) in its entirety;

defendants' motion for summary judgment (doc. 28) is DENIED,

plaintiff's motion for partial summary judgment (doc. 4 7) is

GRANTED, and defendants' motion for leave to amend (doc. 63) is

DENIED. Defendants' request for oral argument is DENIED as

unnecessary.

IT IS SO ORDERED.

Dated this ~ day of July, 2013.

)

Ann Aiken United States District Judge

Page 3 - ORDER


IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

KURT FREITAG dba BIG FISH PARTNERS I,

Plaintiffs,

v.

CATLIN INDEMNITY COMPANY, a foreign corporation; CATLIN INSURANCE COMPANY, INC., a foreign corporation; CENTURY SURETY COMPANY, a foreign corporation; and CATLIN SPECIALTY INSURANCE COMPANY a foreign corporation,

Defendants.

COFFIN, Magistrate Judge:

No. 6:12-cv-1111-TC

FINDINGS and RECOMMENDATION

Plaintiff is a property developer who developed the Meritage

Little Creek Project located in Newport, Oregon. The project was

built in three phases beginning in the Fall of 2005. Plaintiff

1 - FINDINGS and RECOMMENDATION


obtained insurance for the project from defendant Catlin Specialty

Insurance in August of 2007 for the period of September 10, 2007,

through September 10, 2008.

Plaintiff Kurt Freitag, dba Big Fish Partners I, filed a

petition for declaratory judgment in the Circuit Court of the State

of Oregon for the County of Lincoln on March 26, 2012. Through

that suit, plaintiff sought a declaration that defendants Catlin

Indemnity Company, Catlin Insurance Company and Century Surety

Company have a duty to defend plaintiff in an underlying complaint

in intervention filed against plaintiff in Lincoln County.

Plaintiff also brings a claim for breach of contract related to the

alleged failure to defend. Defendants removed the case to this

court on June 20, 2012. The court previously denied defendants'

motion to dismiss in which they asserted that plaintiff was not the

named insured under the policy, that they did not issue the policy,

and that the property address listed on the policy is not the

property at issue in the underlying litigation.

Plaintiff amended his complaint to add Catlin Speciality

Insurance Company as a defendant and added a claim for reformation

to correct an alleged mutual mistake regarding the property address

listed in the policy. Defendants Catlin Insurance, Catlin

Indemnity, and Catlin Speciality Insurance filed an answer

asserting that plaintiff failed to perform conditions precedent to

coverage, that his claims are barred because he has other



insurance, that he does not qualify as an insured under the policy

issued by the Catlin defendants, that he is estopped from

proceeding with his claims, that the claims are barred because they

do not arise out of designated premises, that the claims are barred

to the extent they arise out of damage to products completed, that

the claims are barred to the extent plaintiff knew or should have

known about the damage prior to the inception of the policy, that

the claims are barred to the extent that plaintiff failed to

cooperate with defendants, that the claims are barred to the extent

that arise out of damages upon which plaintiff assumed liability,

that the claims are barred to the extent they arise out of damage

to property owned by plaintiff, that the claims are barred to the

extent they arise out of damage to property plaintiff sold, that

the claims are barred to the extent they arise out of damage to

property on which plaintiff or his contractors were performing

operations or involves repair to plaintiff's work incorrectly

performed, that the claims are barred to the extent they arise out

of damage to impaired property that has not been physically

injured, and that the claims are barred to the extent damages arise

out of organic pathogens.

Defendants now move for summary judgment contending that

plaintiff does not qualify as an insured, coverage is barred by the

products-completed operations exclusion or, in the alternative,

owned property exclusion, and that coverage is barred by the



policy's knowledge limitation and the known loss doctrine. 1

Plaintiff moves for partial summary judgment on the duty to defend.

Although Catlin invites the court to engage in a complicated

analysis of the parties subjective intent and determination of a

myriad of coverage issues, the court's task with respect to the

summary judgment motions is a modest one: Do the four corners of

the underlying complaint against plaintiff trigger Catlin's duty to

defend under the four corners of the insuring agreement? With the

question so reduced, the answer is a simple "yes."

The origins of this coverage dispute arises from plaintiff's

action against several contractors, filed in March of 2010, for

negligent work and defective products related to the purchase and

installation of windows for homes built at the Meritage

development. Plaintiff alleges that the windows were installed

improperly, permitting water intrusion, and that the windows

themselves were designed and manufactured in such a manner so as to

permit water intrusion. Subsequently, a group of unit owners in

the Meri tage Development filed a complaint in intervention, in

March of 2011, asserting negligence against Freitag, Freitag dba as

Big Fish Partners, and the various contractors related to the

1 Defendants Catlin Indemnity Company and Catlin Insurance Company also argue they are not proper defendants and plaintiff concedes this issue. Accordingly, summary judgment should be granted in favor of defendants Catlin Indemnity and Catlin Insurance.



window leaks. Accordingly, plaintiff tendered the complaint to

defendant Catlin Speciality Insurance for a defense.

The interpretation of an insurance policy is a question of

law. Hoffman Construction Co. v. Fred S. James & Co., 313 Or. 464,

469. Construing the insurance policy requires the court to

ascertain the intention of the parties. Id. The intention of the

parties is based on the terms and conditions of the policy. Id.

Where a term is not defined, the court resorts first to its plain

meaning. If the term is capable of more than one plausible

definition, the court must determine if the interpretations are

reasonable in light of the context in which the term is used and in

the broader context of the policy as a whole. Id. at 470. When

two or more competing reasonable definitions are identified after

such consideration, then the court must resolve the ambiguity in

favor of the insured. Id. at 470-71. 2

For the vast majority of cases, whether an insurer has a duty

to defend an action against its insured depends on only the

complaint and the insurance policy. See, e.g., Oakridge Comm.

2 "For a term to be ambiguous in the sense that justifies resort to the foregoing rule, however, there needs to be more than a showing of two plausible interpretations[.] * * * [A] term is ambiguous in a sense that justifies application of the rule of construction against the insurer only if two or more plausible interpretations of that term withstand scrutiny, i.e., continues to be reasonable, after the interpretations are examined in the light of, among other things, the particular context in which the term is used in the policy and the broader context of the policy as a whole." Id at 470.



Ambulance v. U.S. Fidelity, 278 Or. 21, 24, 563 P.2d 164 (1977).

An insurer has a duty to defend an action against its insured if

the claim against the insured stated in the complaint could,

without amendment, impose liability for conduct covered by the

policy. The insurer has a duty to defend if the complaint

provides any basis for which the insurer provides coverage.

Nielsen v. St. Paul Companies, 283 Or. 277, 280 (1978). Even if

the complaint alleges some conduct outside the coverage of the

policy, the insurer still has a duty to defend if certain

allegations of the complaint could impose liability for conduct

covered by the policy. Ferguson v. Birmingham Fire Ins., 254 Or.

496, 506-07 (1969). Any ambiguity in the complaint with respect to

whether the allegations could be covered is resolved in favor of

the insured. Blohm et al v. Glens Falls Ins. Co., 231 Or. 410, 416

(1962).

The insurance applies to property damage caused by an

"occurrence" taking place in the "coverage territory" during the

policy period which was unknown to the insured prior to the policy

period. Commercial Insurance Policy issued to Kurt Freitag DBA:

Big Fish Partners (attached as Exhibit C to the Declaration of

Brian C. Hickman (#30) at p. 24). An occurrence means an accident,

including continuous or repeated exposure to the same general

harmful conditions. Id. at p. 37. The coverage territory includes



the United States.

September 10, 2007.

Id. at p. 36. The policy period began

The Meritage Development unit owners assert, in their

complaint filed in March of 2011, that Kurt "Freitag caused window

products to be framed into each town home within the Meri tage

Community during the years 2005 and 2006." Intervenors' Complaint

(attached as Exhibit B to the Declaration of Brian C. Hickman

(#30) at p. 5). The unit owners allege that the installation was

improper and that Freitag was negligent in several respects

regarding the window installation. Id. at pp. 5-6. Consequently,

the unit owners assert, they are suffering water intrusion into

their structures causing them damage.

As noted above, defendants assert that the duty to defend is

negated in this case because plaintiff does not qualify as an

insured, that coverage is barred by the products-completed

operations exclusion or, in the alternative, owned property

exclusion, and that coverage is barred by the policy's knowledge

limitation and the known loss doctrine.

A. Plaintiff is an Insured

There is an issue as to whether the named insured, Kurt

Freitag dba: Big Fish Partners, is the partnership named in the

lawsuit, Big Fish Partners I, because the policy indicates that

named insured is an "individual. " Commercial Insurance Policy



issued to Kurt Freitag DBA: Big Fish Partners (attached as Exhibit

C to the Declaration of Brian C. Hickman ( #30) at p. 2) . The

policy is ambiguous because it is replete with references to

partners, id. at e.g., pp. 1, 2, 3, 8, 14, 18, but states that if

the named insured is an "individual," .then insured is only "you and

your spouse ... but only with respect to the conduct of a business

of which you are the sole owner." Id. at p. 32. The policy does

have a check box for a partnership as well. Id. at p. 2. The

court finds that it is reasonable, from the prospective of the

ordinary purchaser of insurance reading the policy as a whole, to

interpret the policy as applying to the partnership consisting of

more than one individual given that the policy refers to "Big Fish

Partners" multiple times. And while it is also reasonable to

interpret the policy as applying to only a solely owned business,

the policy is construed in favor of plaintiff. Nonetheless, the

intervenors 1 complaint does not refer to the ownership of the

partnership and, more importantly, it names Kurt Freitag as an

individual and as a dba. Intervenors 1 Complaint (attached as

Exhibit B to the Declaration of Brian C. Hickman (#30) at pp. 5

(Freitag), p. 6 (Freitag doing business as Big Fish Partners), p.

7 (Freitag, Big Fish and defendants). Accordingly, the complaint



names an insured, regardless of interpretation, as a defendant

against whom liability is sought. 3

B. Neither the Products-Completed Operations Exclusion nor the

Owned Property Exclusion Negates the Duty to Defend

The policy excludes property damage included within the

"products-complete operations hazard." Commercial Insurance Policy

issued to Kurt Freitag DBA: Big Fish Partners (attached as Exhibit

C to the Declaration of Brian C. Hickman (#30) at p. 22).

Products-complete operations hazard includes:

property damage occurring away from the premises you own or rent and arising out of your product or your work except:

Work that has not yet been completed or abandoned.

Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed.

3The court need not look beyond the eight corners of the complaint and policy, as defendants suggest citing Fred Shearer & Sons, Inc. v. Gemini Ins. Co., 237 Or. 468 (Or. App. 2010), because the court can ascertain the identity of the insured from the complaint. See Clarendon America Ins. Co. v. State Farm Fire and Cas. Co., 2013 WL 54032 (D.Or. January 3, 2013) (Fred Shearer merely carved out an exception to the general rule that appies only in the particular circumstances that there occurred, i.e., the insurer specifically alleged it was impossible to determine Fred Shearer's status from the face of the complaint).



Id. at p. 38

In addition, the policy does not cover property damage to

property the insured owns, rents, or occupies. The policy does not

apply to property damage to premises the insured sells or property

in the care custody and control of the ins.ured either. Id. at p.

27.

Defendants interpret the policy as excluding all coverage

because the work was completed by 2006 (before the policy began)

and all homes were sold, or in the alternative, if damage occurred

prior to sale, then there is no coverage because plaintiff owned

the homes. However, accepting defendants interpretation results in

a policy in which Catlin agreed to insure nothing for a premium of

$4,008.50.

The policy went into effect after the date defendants contend

the policy excludes coverage. Defendants further argue that even

if there were a way to find coverage, it would still be excluded

because it did not cover property owned by plaintiff. The

insurance policy was obtained to cover the single project in which

plaintiff is now being sued, but defendant's interpretation of its

exclusions completely demolish that grant of coverage. This

results in, at a minimum, an ambiguity as to interpretation of the

entire policy's purpose, but defendants' interpretation is wholly

unreasonable and cannot be permitted to survive. See Hoffman

Const., 313 Or. at 471 (suggested interpretation that while



plausible in isolation is not reasonable in light of the policy as

whole and cannot be permitted to survive).

Nevertheless, the complaint does not limit the dates of the

property damage to 2006, but only alleges defective installation of

the windows in 2006. Moreover, the alleged last sale is 2007, but

the complaint does not allege when in 2007 the sale occurred. 4

Plaintiff is still in control of the homeowners' association

(HOA) at the development and still has responsibility for tasks

beyond repair and maintenance. The complaint does not allege

which, if any, obligations have been fully satisfied and the work

is not complete until the HOA has been turned over. Therefore, it

cannot be determined from the complaint whether operations are

complete. Accordingly, the products-complete operations hazard

does not negate a duty to defend even though it may later be

determined that the coverage is not available under such exclusion.

Further, the complaint, at a minimum, alleges damage to

property inside each unit which is not owned by plaintiff. The

complaint does not contravene the possibility that some of the

subject property was not owned by plaintiff. Because of the broad

4The complaint alleges sale of the last home "during 2007," and further alleges acquisition by the intervenors on "the following dates," but then omits any dates of acquisition. Intervenors' Complaint (attached as Exhibit B to the Declaration of Brian C. Hickman (#30) at pp. 3-4).



duty to defend, the owned property exclusion does not negate the

duty in this case.

C. The Knowledge Limitation and the Known Loss Doctrine Do not

Preclude the Duty to Defend

The policy does not apply to any property damage that the

insured knew had occurred, in whole or in part, prior to the policy

period. Commercial Insurance Policy issued to Kurt Freitag DBA:

Big Fish Partners (attached as Exhibit C to the Declaration of

Brian C. Hickman (#30) at p. 24).

The underlying complaint filed by plaintiff against the

manufacturer and installers of the windows, alleges leaks beginning

in the summer of 2006 with replacement work in that year as well.

Plaintiff's Second Amended Complaint (attached as Exhibit A to the

Declaration of Brian C. Hickman (#30) at p. ~~ 11-13, 18). This

does not establish knowledge of damage. The underlying complaints

do not establish, conclusively, knowledge of damage or type of

damage, prior to the inception of the policy. At best, defendants

establish knowledge of some defects. Accordingly, the knowledge

limitation in the policy does not negate the duty to defend.

Defendants also argue that the known loss doctrine negates the

duty to defend. The "known loss" doctrine "disallows coverage

where the loss to be insured is in progress or substantially likely

to occur when the insurance contract is issued." City of Corvallis

v. Hartford Ace. & Indem. Co., 1991 WL 523876, at *8 (D.Or. May 30,



1991). However, the Oregon State courts have not adopted the

doctrine, City of Medford v. Argonaut Ins. Group, 2011 WL 6019429

at *2 (D.Or December 1, 2011), and the court declines to apply it

when based on vague allegations in the underlying complaints in a

duty to defend case. Accordingly, the known loss doctrine does not

negate the duty to defend.

In response to plaintiff's motion for summary judgment,

defendants raise other issues it asserts preclude a finding of a

duty to defend including a different address is in the policy than

the subject property, other insurance precludes coverage, plaintiff

has unclean hands, and that the policy should be rescinded.

D. Designated Premises

Although the policy does incorrectly list the property address

for the premises insured, it is a simple clerical error given that

the application correctly lists the address and plaintiff never

owned property at the address listed in the policy.

E. Other Insurance

Although the policy excludes coverage if other insurance

exists, defendants present insufficient evidence that any such

insurance exists even if such an exclusion could be used under

Oregon law to preclude the duty to defend.



F. Unclean Hands and Rescission

Defendants did not assert these claims in their answer and

therefore it is addressed with respect to the motion to amend.

G. Amend

Defendants seek to amend their answer to add the affirmative

defenses of loss in progress and unclean hands, and a counterclaim

for rescission.

Although the time for adding claims has not yet passed in this

case and leave to amend shall be freely granted, the parties have

already briefed and argued the competing motions for summary

judgment.

The loss in progress doctrine has been addressed above to the

extent it related to the knowledge limitation. The doctrine does

not negate the duty to defend in this case.

The same is true of the affirmative defense of unclean hands.

Defendants attempt to use the equitable doctrine of unclean hands

to essentially argue again that the duty to defend is precluded

because plaintiff knew about the damage from the windows, but

failed to apprise Catlin of claims or occurrences which may give

rise to claims for the prior five years as required in the

application. As noted above, the underlying complaint gives rise

to at least the possibility of damage occurring within the policy

period that was unknown to plaintiff. The fact that plaintiff was



aware of some defective windows does not negate the duty to defend

and does not provide an adequate basis to void the insuring

agreement.

With respect to rescission, defendants seek to allege that

plaintiff applied as an 11 individual, 11 that plaintiff represented he

would be added as an additional insured to the insurance policy of

the general contractors, and that plaintiff misrepresented his

knowledge of claims, losses, or occurrences that may give rise to

claims under the policy.

The court agrees that much of the evidentiary basis upon which

defendants rely in seeking to prosecute the proposed rescission

claim, e.g., knowledge of window problems which were alleged in the

underlying complaints, was available and known long before

defendants sought to amend. 5 Thus, defendants unreasonably delayed

seeking to amend given that the case has progressed to the summary

judgment stage. In essence, defendants seek to prolong the

litigation to avoid the broad duty to defend by casting the policy

exclusions as purportedly new equitable claims.

5 In addition, as noted above, the policy is ambiguous as to whether it covers only an individually-owned business or a partnership. Moreover, defendants were aware of this issue very early in the litigation. Finally, it is unclear if plaintiff was an additional insured on someone else's policy. See General Change Endorsement (attached as exhibit D to Declaration of Seth Row (#72)) (adding plaintiff effective November 1, 2004).



Given the breadth of the duty to defend and the possibility

that the underlying complaint touches upon activity that may not be

precluded from coverage, it is easy to see why defendant, after

having exhausted its attempts to negate liability under the terms

of the contract, would now seek to void the insuring agreement

altogether. Because rescission is an equitable remedy, the court

cannot condone an insurer's attempts to invoke contract provisions

to avoid the duty to defend and then, failing that, allow the

insurer to seek to void the entire contract on virtually the same

basis.

As noted above, much of the proposed basis for rescission, as

well as the unclean hands defense, was contemplated by the insurer

in the limitations from coverage which the court has already

concluded do not preclude a duty to defend. Attempting to add a

counterclaim to void the entire agreement only after exhausting all

attempts to deny the duty to defend by asserting coverage

exclusions at summary judgment and, prior to that, having sought to

dismiss, is unfairly prejudicial. Defendant declined to accept its

duty to defend at the outset of the underlying litigation and has

vigorously sought to avoid its obligations through the 14 months

this litigation has been pending. The court is ready to rule on

the motions for summary judgment and that ruling is dispositive of

this case. Accordingly, defendants attempt to add new affirmative



defenses and a counterclaim at this stage of the proceedings is

unfairly prejudicial and should be denied.

H. Motion to Supplement

Defendants also move to supplement the record to add materials

related to its unclean hands and rescission defense to the extent

those issues were asserted with respect to the summary judgment

motions. Although plaintiff opposes the motion, the court has

considered all materials submitted with respect to its

consideration of the summary judgment motions and the motion to

amend. The motion is granted.

I. Motion to Strike

Plaintiff seeks to strike materials submitted that attempted

to direct the court to materials, submitted with defendants' reply

brief, beyond the eight corners of the underlying complaint and

policy. Although the court has generally been confined to the

underlying complaint and policy in determining the summary judgment

motions, the motion to strike is denied.

CONCLUSION

For the reasons stated above: defendants' motion for summary

judgment (#28) should be denied, except as noted with respect to

defendants Catlin Indemnity and Catlin Insurance; plaintiff's



motion for partial summary judgment ( #4 7) should be granted;

plaintiff's motion to strike (#55) is denied; defendants' motion to

supplement (#60) is granted; and defendants' motion for leave to

amend (#63) should be denied.

This recommendation is not an order that is immediately

appealable to the Ninth Circuit Court of appeals. Any notice of

appeal pursuant to Rule 4(a) (1), Federal Rules of Appellate

Procedure, should not be filed until entry of the district court's

judgment or appealable order. The parties shall have fourteen (14)

days from the date of service of a copy of this recommendation

within which to file specific written objections with the court.

Thereafter, the parties shall have fourteen (14) days within which

to file a response to the objections. Failure to timely file

objections to any factual determination of the Magistrate Judge

will be considered as a waiver of a party's right to de novo

consideration of the factual issues and will constitute a waiver of

a party's right to appellate review of the findings of fact in an

order or judgment entered pursuant to this recommendation.

DATED this day of June, 2013.

United Judge



Business

Freitag v catlin f&r june 2013 adopt july 2013