IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF OREGON 

COLONY SPECIALTY 

INSURANCE COMPANY, 

Plaintiff, 

v. 

MUTUAL OF ENUMCLAW 

INSURANCE COMPANY, 

Defendant. 

MCSHANE, Judge: 

Civ. No. 6:15-cv-00783-MC 

OPINION AND ORDER 

The issue before this Court is whether Defendant Mutual of Enumclaw Insurance 

Company ("MOE") owed a duty to defend to its insured, Laurel Crossing, in a dispute in which 

Plaintiff Colony Mutual ("Colony"), a separate insurer of Laurel Crossing, tendered that duty 

under its own policy. Colony now seeks contribution from MOE because it contends, based on 

the allegations of the underlying complaint, that MOE owed the duty as well. Colony and MOE 

have accordingly filed cross-motions for summary judgment. ECF Nos. 21, 23. 

The parties' cross-motions turn on one question: Does a claim in the underlying 

complaint1 for "Fraud/Misrepresentation/Failure to Disclose Construction Defects" that alleges 

continuing damage arising from construction defects give rise to a duty to defend where the 

relevant policy covers only propetiy damage arising out of an accident? Because I find that the 

complaint's allegations of continuing property damage qualify as covered damages under the 

relevant policy language and that the misrepresentation claim at issue in this case can give rise to 

1 The complete list of claims from the underlying complaint follows: (1) Violations of the Oregon Condominiums 

Act, ORS 100 et seq.; (2) Misrepresentation/Fraud/Failure to Disclose; (3) Breach of Contract (Implied and Express 

Warranties); (4) Breach of Fiduciary Duties; (5) Negligence and Negligence per se. See LauersdorfDecl., Ex. 1, 10-

16, ECFNo. 22-1. 

1 - OPINION AND ORDER 

Case 6:15-cv-00783-MC Document 32 Filed 03/29/16 Page 1 of 11
a claim for negligent, rather than intentional, misrepresentation, MOE owed Colony a duty to 

defend. I therefore GRANT Plaintiff Colony's Motion for Summary Judgment, ECF No. 21, and 

DENY Defendant MOE's Cross-motion for Summary Judgment, ECF No. 23. 

BACKGROUND 

I. The Underlying Action 

Laurel Crossing is a developer that was insured at relevant times by both Colony and MOE.2 

Laurel Crossing purchased and developed Stillwater Condominiums in Florence, Oregon. Laurel 

Crossing hired independent contractor Thomas Hornback to perform construction and development 

of the condominiums. It then sold the condominiums to individual owners, and then operated the 

Stillwater Condominium Unit Owners' Association (the "Association"). LauersdorfDecl., Ex. 1 

("Underlying Complaint"),~~ 1, 6, ECF No. 22-1. Laurel Crossing later transferred control of the 

Association to the individual Stillwater Condominium owners. Id. ~ 7. 

After the transfer of control, the Association sued Laurel Crossing alleging, among other 

things, failure to properly supervise construction, which allegedly resulted in construction defects 

and related property damage. The Association separately alleged that Laurel Crossing fraudulently 

misrepresented the state of the propeiiy and failed to investigate and disclose the various defects, 

which led to delays in their discovery by the Association and additional property damage from 

continuing unwanted water infiltration and other similar problems. 

Pursuant to its policies with Colony and MOE, Laurel Crossing sought defense and 

indemnity coverage from both insurers. Colony proceeded to defend under its policy with Laurel 

Crossing. MOE refused to defend based on alleged lack of coverage pursuant to MOE's 

interpretation of its policy and the allegations in the Underlying Complaint. This action followed. 

2 The Colony Policy provides liability coverage for suits against Laurel Crossing, and has an effective period of 

September 15, 2006, through Janumy 31, 2008. LauersdorfDecl., Ex. 5 ("Colony Policy"), ECF No. 22-5. The 

MOE Policy includes liability coverage for suits against Laurel Crossing, and has an effective period of December 

27, 2007 to December 27, 2008. Comp!., Ex. A ("MOE Policy"), ECF No. 1-1. 

2 - OPINION AND ORDER 

Case 6:15-cv-00783-MC Document 32 Filed 03/29/16 Page 2 of 11
II. The MOE Policy 

The MOE Policy provides that MOE will "pay those smns of money that [Laurel Crossing] 

becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to 

which this insurance applies." MOE Pol., 77, ECF No. 1-2. "Prope1iy damage" is defined in the 

MOE Policy as "physical injury to tangible property, including all resulting loss of use of that 

property." Id. at 94. Under the MOE Policy, MOE must "defend [Laurel Crossing] against any 'suit' 

seeking those damages." Id. at 77. 

The MOE Policy expressly applies to property damage "only if' the damage is caused by an 

"occurrence," id., which is defined in the policy as "an accident." Id. at 90. The MOE Policy 

includes three relevant endorsements which limit the categories of property damage to which it 

applies. The first endorsement excludes "Designated Construction" ("DC endorsement") and reads 

as follows: 

This insurance does not apply to "bodily injury" or "prope1iy 

damage" arising out of the ongoing operations described in the 

Schedule of this endorsement, regardless of whether such 

operations are conducted by you or on your behalf or whether the 

operations are conduct for yourself or for others. 

MOE Pol., 96, ECF No. 1-2.3 The second endorsement excludes "Designated Work" ("DW 

endorsement") and reads as follows: 

This insurance does not apply to "bodily injury" or "prope1iy 

damage" included in the "products - completed operations hazard" 

and arising out of "your work" in the Schedule. 

MOE Pol., 93, ECF No. 1-2.4 The third endorsement excludes coverage occurring outside of the 

"Designated Premises or Project" ("DPP endorsement") and reads as follows: 

3 "You'' and "your," in these endorsements, refers to Laurel Crossing. MOE Pol., 91, ECF No. 1-2. 

4 '

1

Your ,vork,,, in this endorsement, refers to operations either performed by Laurel Crossing itself or other\vise 

perfonned on its behalf, thus including independent contractor Hornback. MOE Pol., 91, ECF No. 1-2. "Products -

completed operations hazard" refers to bodily injury or property damage arising out of"your work" save for work 

"that has not yet been completed." Id at 90. 

3 - OPINION AND ORDER 

Case 6:15-cv-00783-MC Document 32 Filed 03/29/16 Page 3 of 11
This insurance applies only to ... "prope1ty damage" ... arising 

out of ... [t]he ownership, maintenance or use of the premises 

shown in the Schedule and operations necessary or incidental to 

those premises; ... or [t]he project shown in the Schedule. 

MOE Pol., 94, ECF No. 1-2. 

STANDARD 

This Co mt must grant summary judgment if there is no genuine issue of material fact and the 

moving party is entitled to judgment as a matter oflaw. Fed. R. Civ. P. 56(a). An issue is "genuine" 

if a reasonable jury could return a verdict in favor of the non-moving party. Rivera v. Phillip Morris, 

Inc., 395 F.3d 1142, 1146 (9th Cir. 2005) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 

(1986)). A fact is "material" if it could affect the outcome of the case. Id The court reviews 

evidence and draws inferences in the light most favorable to the non-moving party. 1Vliller v. Glenn 

Miller Prods., Inc., 454 F.3d 975, 988 (9th Cir. 2006) (quoting Hunt v. Cromartie, 526 U.S. 541, 552 

(1999)). When the moving party has met its burden, the non-moving pmty must present "specific 

facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio 

Co1p., 475 U.S. 574, 586-87 (1986) (quoting Fed. R. Civ. P. 56(e)) (emphasis in original). 

Where patties file cross-motions for summary judgment, the court must "evaluate each 

motion separately, giving the nonmoving party in each instance the benefit of all reasonable 

inferences." ACLU of Nev. v. City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir. 2006) (quotation 

marks and citation omitted); see also Pintos v. Pac. Creditors Ass'n, 605 F.3d 665, 674 (9th Cir. 

2010) ("Cross-motions for summary judgment are evaluated separately under [the] same standard."). 

DISCUSSION 

Colony argues that it and MOE are legal "co-insurers" for the purposes of the underlying 

action, as the claims brought in that action invoked coverage under the MOE Policy, and each 

insurer thus owed Laurel Crossing a duty to defend. Colony's Mot., 9, ECF No. 21. Because MOE 

4 - OPINION AND ORDER 

Case 6:15-cv-00783-MC Document 32 Filed 03/29/16 Page 4 of 11
owed that duty, Colony asserts, the Court must detem1ine and award to Colony the proportionate 

share of expenses owed to it by MOE under the doctrine of equitable contribution. Id. 

MOE reto1ts that the claims against Laurel Crossing in the underlying action were not claims 

for "damages because of 'bodily injury' or 'property damage,"' per the MOE Policy. MOE further 

argues that ifthe claims indeed sought covered damages, they fell within three relevant exclusions: 

the DW endorsement, the DPP endorsement, and the common law exclusion of intentional acts. 

The seminal Oregon case regarding the duty to defend is Ledford v. Gutoski, 319 Or. 397, 

877 P .2d 80 (1994), in which the Oregon Supreme Court explained: 

Whether an insurer has a duty to defend an action against its 

insured depends on two documents: the complaint and the 

insurance policy. 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. 

In evaluating whether an insurer has a duty to defend, the comt 

looks only at the facts alleged in the complaint to determine 

whether they provide a basis for recovery that could be covered by 

the policy ... 

Ledforcl, 319 Or. at 399-400, 877 P .2d 80 (internal citations omitted). 

Further, any doubt arising from an inquiry into the allegations is resolved in favor of the 

insured. Schnitzer Inv. Corp. v. Certain Underwriters at Lloyd's of London, 197 Or. App. 147, 155, 

104 P.3d 1162, 1167-68 (2005). 

A. Property Damage Allegations 

The allegations in the Underlying Complaint include the following categories of what Colony 

argues to be "prope1ty damage" suffered by the Stillwater Condominiums: (1) "water intrusion and 

prope1ty damage"; (2) "damage to wood structural framing components"; (3) damaged "sheathing at 

roof surfaces and parapets"; ( 4) "failed welds at seams of PVC roof membranes"; and (5) certain 

5 - OPINION AND ORDER 

Case 6:15-cv-00783-MC Document 32 Filed 03/29/16 Page 5 of 11
damages that "threaten the strnctural integrity and livability of the Stillwater Condominiums." 

Underlying Comp!., ~~ 14, 17, 18, 44, ECF No. 22-1. 

Colony points to the DPP endorsement as the basis for coverage of damages contained within 

these allegations. While the patiies discuss the various claims in the Underlying Complaint at length, 

Colony refers patiicularly to the Second Claim for Misrepresentation/Fraud/Failure to Disclose, 

which alleges that the Laurel Crossing's misrepresentation caused a delay in discovery of defects, 

"thereby increasing the damages and costs of repairing or remedying them ..... " Underlying 

Comp!.,~ 44, ECF No. 22-1. Colony extends this 'exacerbation by way of omission' theme to its 

analysis of the Fourth Claim in the Underlying Complaint for Breach ofFiduciaty Duty, which 

alleges that Laurel Crossing's concealment of the various construction defects plaguing Stillwater 

Condominiums "would result in ... substantial loss to the Association, including prope1iy damage." 

Id.~ 70. 

With this in mind, I turn to the Underlying Complaint to determine ifthe allegations therein 

are sufficient to give rise to a duty to defend. As a preliminary matter, I note that Colony appears to 

concede that the Third Claim for Breach of Contract and the Fomih Claim for Breach of Fiduciary 

Duties do not alone give rise to MOE's duty to defend based on the DC endorsement and the DW 

endorsement. See Colony's Resp., 8-9, ECF No. 25. My analysis therefore focuses on the first and 

second claims in the Underlying Complaint. 

B. Misrepresentation Claims and the Duty to Defend 

With respect to the Underlying Complaint's First Claim for Violation of the Oregon 

Condominiums Act and Second Claim for Misrepresentation/Fraud/Failure to Disclose, MOE argues 

that all allegations of failure to disclose defects of the Stillwater Condominiums are not covered 

because: "Under Oregon law, standard liability policies-like [MOE]'s-<lo not cover claims for 

misrepresenting the condition of property to unsuspecting buyers." Def.' s Resp. to Pl.' s Mot., 5, 

6 - OPINION AND ORDER 

Case 6:15-cv-00783-MC Document 32 Filed 03/29/16 Page 6 of 11
ECF No. 24. This is because the MOE Policy, which covers damages because of prope1ty damage, 

"covers claims for damaging prope1ty, not merely for representing that damaged propelty is 

undamaged." Id. MOE cites several Oregon cases in an attempt to support this distinction, including 

Martin v. State Farm Fire and Cas. Co., 146 Or. App. 270, 932 P.2d 1207 (1997).5 

i. Continuing Damage 

Martin v. State Farm considered the concept of 'continuing damage' arising from 

misrepresentations as potentially giving rise to a duty to defend. 932 P.2d at 1212. The Oregon Comt 

of Appeals, in Martin, analyzed allegations in the underlying complaint which alleged that 

petroleum products from damaged underground storage tanks on a prope1ty "continued to release to 

and migrate in the soils at the Property." Id. The cou1i found that those releases did not invoke policy 

coverage, and therefore did not give rise to a duty to defend, because the soils were paii of propeity 

owned by the policy-holder, and therefore fell under a relevant policy exemption. Id. at 1212. The 

l\lfartin court, however, alluded to possible coverage for releases that resulted in damages caused by 

groundwater contamination, which would not have fallen under the same exemption. Id. 

Nonetheless, the court and policy-holder specified that such damages were not alleged in the 

underlying complaint and the duty to defend was therefore not invoked. 

In light of 1'1fartin, I agree with MOE's arguments only to the extent that they contend that 

purely misrepresenting the state of property, when sold, does not invoke the policy coverage for 

property damage. Beyond that, I disagree with MOE's arguments in light of the allegations in the 

Underlying Complaint that the delay of discovery of defects due to the misrepresentations resulted in 

additional prope1iy damage. Here, unlike l\lfartin, the Underlying Complaint alleges continuing 

5 The remaining cases cited by MOE analyzing the duty to defend underlying misrepresentation claims are 

inapposite in that they contain factually and legally dissimilar underlying allegations. See, e.g., General Ins. Co. of 

Am. v. Western Am. Dev. Co., 43 Or. App. 671 (1979) (undisclosed easements held by third-party burdening 

purchased property constituted legal rather than property damage); see also State Bd. of Higher Ed V. Northwestem 

Pac. lndem. Co., 69 Or. App. 456 (1984) (recove1y of the difference of agreed upon value from the sale of 

contaminated wheat seed did not invoke duty to defend accidental property damage coverage). 

7 - OPINION AND ORDER 

Case 6:15-cv-00783-MC Document 32 Filed 03/29/16 Page 7 of 11
covered property damage arising out of and in addition to damages arising solely from the 

misrepresentations. In both the First and Second Claim of the Underlying Complaint, as well as the 

general allegations re-alleged and incorporated tlu·oughout, allegations of continuing property 

damage are clearly enumerated. See Underlying Comp!., ~ 14, ECF No. 22-1 (defects were 

"continuing to cause ... extensive prope1iy damage to both the common elements and unit 

interiors."). The plaintiff in the underlying action even stated that the misrepresentations resulted in a 

delay of investigations of the actual stat~ of the property and caused delays in "making arrangements 

for needed maintenance, repairs, and preventive measures .... " Id ~3l(b) (emphasis added). The 

express need for preventive measures clearly alleges continuing prope1iy damage. 

At oral argument, MOE contended that any damages arising from the allegations of 

continuing damage in the Underlying Complaint simply constitute economic loss, rather than 

covered property damage. In determining whether the underlying allegations incur covered damages, 

I find persuasive FountainCourt Homeowners' Ass 'n v. FountainCourt Development, LLC et al., 264 

Or. App. 468 (2014). In that case, the Oregon Comi of Appeals considered a factually similar 

underlying action on an appeal of a post-judgment garnislunent proceeding. Id. at 4 71. In a strikingly 

similar legal dispute, an insurer attempted to argue that "physical damage" from water intrusion was 

not "prope1iy damage" under its policy. Id. at 481. The homeowners' association that was seeking 

coverage did not deny that damage arising solely from construction defects was excluded from 

policy coverage, but contended that the jury in the underlying action had been clearly instructed it 

may separately award for physical damage from water intrusion, as here, and that the jury did just 

that. Id. 481-82. The Oregon Comi of Appeals agreed. Id. at 482. After a thorough analysis oflegal 

burdens and the ambit of broad policy coverage in the sorts of insurance contracts at issue in this 

case, the comi agreed with the homeowners' association that the jury award included covered 

damages and did not constitute an award for purely economic loss. Id. at 484-85. 

8 - OPINION AND ORDER 

Case 6:15-cv-00783-MC Document 32 Filed 03/29/16 Page 8 of 11
Based on the above analysis and the Oregon Comi of Appeals' analysis and holding in 

FountainCourt that recognized allegations such as those in the Underlying Complaint may fall under 

"prope1iy damage," I disagree with MOE and find that the Underlying Complaint contains 

allegations that go beyond merely representing that damaged prope1iy is undamaged. The 

Underlying Complaint extended to covered property damage, therefore invoking policy coverage. 

ii. Intentional Acts Exception and Negligent Misrepresentation 

Moving beyond the dispute over covered damages, MOE next argues that the intentionality 

of a fraud claim necessarily nullifies coverage because the MOE Policy covers only "occurrences" 

which are defined as "accidents." MOE Pol., 90, ECF No. 1-2. MOE cites Cunningham & Walsh v. 

Atlantic Mut. Ins. Co, 88 Or. App. 251, 744 P.2d 1317 (1987), a case in which the Oregon Comi of 

Appeals found that "when fraud or deceit is committed, its natural and intended consequence is to do 

hmm and, whatever the harm might be, the conduct which brought it about is not an 'occurrence' 

under the policy." Id. at 255. Given that rule, an insurer is still "required to defend an action if any of 

the allegations of the complaint would entitle the insured to coverage, even if the complaint also 

includes allegations of conduct that would not be covered." Farmers In. Co. v. Limbocker, 109 Or. 

App. 130, 133, 818 P.2d 527 (1991). The Limbocker court, overturning an award of summary 

judgment, analyzed a fraud claim pied alongside a negligence claim and dete1mined that the latter 

was enough to invoke the duty to defend. Id. 

Colony presents no clear response to MOE's salient argument regarding the intentional acts 

exclusion-that a fraud claim in the underlying complaint, without more, does not entitle the insured 

to coverage based on the inherent intentionality of fraud. Colony instead states: 

The Underlying Complaint leaves open the possibility that Laurel 

Crossing was liable for negligently failing to disclose information, 

which resulted in worsening property damage. If, for example, 

Laurel Crossing knew about defects but mistakenly believed the 

defects would not cause property damage and thus failed to 

disclose them, it could be liable for negligence. If that negligence 

9 - OPINION AND ORDER 

Case 6:15-cv-00783-MC Document 32 Filed 03/29/16 Page 9 of 11
results in worsening property damage, there is coverage under the 

MOE Policy. 

Colony's Reply, 5, ECF No. 26. This position, on its face, appears to conflict with the clear rule of 

Oregon law that the duty to defend is activated "if the claim against the insured stated in the 

complaint could, without amendment, impose liability for conduct covered by the policy." Leijord, 

319 Or. at 400, 877 P.2d at 83. However, courts in this District have declined to find in similar 

disputes that "the pleading of a negligent misrepresentation claim (or the pleading of facts that could 

give rise to such a claim), falls within an intentional acts exclusion." Allstate Ins. Co. v. Hudler, No. 

CV-09-544-HU, 2011 WL 1498370 at *9 (D. Or. Feb. 25, 2011) (Hubel, M.J.), citing Wagner v. 

Home Depot USA, Inc., No. CV-10-901-KI, 2010 WL 4670533, at *2 (D. Or. Nov. 9, 2010) (King, 

J.). 

In Allstate v. Hudler, Judge Hubel accepted an argument similar to that of Colony's 

regarding allegations in the underlying complaint that were "capable of raising a claim based on 

negligent misrepresentation .... " 2011 WL 1498370 at *9. The court did so based on allegations 

that the misrepresentor "knew or should have known" that he was preparing documents containing 

false misrepresentations. Id at *8. Judge Hubel found that this was enough to potentially give rise to 

an ultimate finding of negligent misrepresentation, even if the allegations were included in a claim of 

intentional fraud. Id at * 10. 

The Underlying Complaint in this case contains similar language to that of Allstate. It alleges 

that Laurel Crossing "knew, or in the exercise of reasonable care, should have known ... [t]hat the 

construction defects ... existed," and that the Stillwater Condominiums were suffering or would 

foreseeably suffer the resulting continuing damages described elsewhere in the complaint. 

Underlying Comp!., il 44(a)-(d), ECF No. 22-1. The allegations similarly give rise to the possibility 

that Laurel Crossing was not necessarily aware of the construction defects or their likelihood to 

cause continuing property damage. This is supported by the fact that Laurel Crossing used an 

10- OPINION AND ORDER 

Case 6:15-cv-00783-MC Document 32 Filed 03/29/16 Page 10 of 11
independent contractor to carry out the construction itself. Short of a complete investigation, which 

the complaint alleges was not performed, Laurel Crossing could reasonably have been unaware of 

the continuing damage to the Stillwater Condominiums. If given the opportunity, a fact-finder could 

have reasonably detetmined that Laurel Crossing negligently failed to disclose the construction 

defects, leading to the resulting continuing property damage. 

I cannot conclude on summary judgment that the intentional acts exclusion applies to the 

Underlying Complaint and forecloses a duty to defend under the MOE Policy, as the allegations give 

rise to a potentially covered claim. 

CONCLUSION 

Based on the foregoing, Plaintiff Colony's Motion for Summary Judgment, ECF No. 21, 

is GRANTED and Defendant MOE's Cross-motion for Summary Judgment, ECF No. 23, is 

DENIED. MOE must tender one-half of the defense costs paid by Colony in the underlying 

lawsuit, to be determined by the parties upon conferral. 

IT IS SO ORDERED. 

Dated this day of March, 2016. 

11 - OPINION AND ORDER 

Michael McSl!anc 

United States District Judge 

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