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. 47) 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 Meritage 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 Meritage
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.
3
The 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
4
The 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

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