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Liberty Mutual wins in refusing to pay arbitration award

Posted On: Nov. 14, 2019 2:18 PM CST


Liberty Mutual Insurance Group units are not obligated to indemnify a timberland and natural resource investment management firm for a $3.5 million arbitration award because the underlying charges against them were not based on negligence, said a federal appeals court Wednesday in affirming a lower court ruling.

The policyholder attorney in the case said the ruling will negatively affect thousands of contractors in the state.

Alabama landowners filed an arbitration action for breach of contract and negligence, among other claims, upon the conclusion of an  underlying 45-year forestation operations lease held by Portland, Oregon-based Campbell Global LLC and its Bascom Southern LLC unit, according to the ruling by the 9th U.S. Circuit Court of Appeals in San Francisco in Campbell Global LLC, a Delaware limited liability company v. American States Insurance Co., et al.

The arbitrators awarded the landowners more than $3.5 million in damages, but Campbell and Bascom’s Liberty Mutual Group insurers refused to indemnify them for the award.

The companies filed suit in U.S. District Court in Portland, which ruled against the companies. The decision was affirmed by a unanimous three-judge appeals court panel.

The insurance policies defined “occurrence” as an “accident, including continuous or repeated exposure to substantially the same general harmful conditions,” said the ruling. The Oregon Supreme Court has held that damage solely caused by failure to perform a contract “is not recoverable in tort,” it said.

“The arbitration award contained the finding that Campbell and Bascom acted deliberately and in bad faith,” said the ruling. “For example, they planted substandard seedlings on the leased land while planting improved seedlings on their own, and they failed to fix deficiencies in the land despite receiving notice of those deficiencies several years prior to the expiration of the lease,” it said.

“The actions to which the arbitration award attributed damages cannot fairly be described as negligent and therefore were not a covered ‘occurrence’ under the policies,” said the ruling, which also upheld the lower court in holding the insurers were not obligated to pay the attorneys fees awarded by the arbitrators.

Campbell attorney David P. Rossmiller, a shareholder with Betts, Patterson & Mines PS in Portland, said the ruling is “going to adversely affect thousands of contractors in Oregon” because it “ignores established Oregon law” that negligence is covered by an insurance policy.

“This case is already being talked about and cited to say that people aren’t covered for acts and claims against them that for decades have been assumed and stated to be covered by Oregon courts,” Mr. Rossmiller said.

He said this is an issue in particular in the construction defect context, “which is very big part of litigation” in Oregon as well as other states. 

Insurer attorney R. Daniel Lindahl, a partner with Bullivant Houser Bailey P.C. in Portland, who leads the firm’s appellate practice, said, “Obviously, we’re delighted with the outcome and in our view the decision reaffirms the principal that liability policies don’t provide coverage for the inevitable results of an insured’s deliberate choices.  That was the key to the court decision here, and we’re gratified (the appeals court) saw that principle and reaffirmed it.”