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OREGON MOLD LITIGATION (cont'd)
D. Reported Oregon Decisions.
The following is a brief summary of reported Oregon decisions involving toxic mold cases.
Strader v. Grange Mutual Ins. Co., 179 Or. App. 329, 39 P3d 903 (2002).
Plaintiffs sued their insurer for breach of contract and for personal injury arising from their insurer’s handling of a first party insurance claim. The trial court granted defendant's motion for partial summary judgment on the personal injury claim. The breach of contract claim went to trial, where plaintiffs prevailed and were awarded damages plus prejudgment interest but not attorney fees. On appeal, the Oregon Court of Appeals decided, inter alia, whether plaintiffs could base a personal injury claim on conduct that was a breach of contract.
Plaintiffs bought a home in September 1995 and insured it under a homeowners' policy issued by defendant. Three months later, a windstorm caused extensive water damage to the house and its contents. The insurer arranged for temporary repairs, which did not prevent further water damage or allow existing moisture to evaporate. Permanent repairs to the roof were finished a year after the storm, in December 1996, but defendant and plaintiffs could not agree on the amount due under the policy. During the winter Kathy Strader began having health problems which her physician diagnosed as asthma aggravated by mold spores. He also advised her to reduce exposure to her home. Plaintiffs informed defendant of this diagnosis and showed their insurer the areas of the house containing mold. Despite this, the insurer continued to refuse to pay the amount requested to repair the water damage and get rid of the mold. The Straders sued.
Plaintiffs alleged breach of contract in that the insurer had not met its obligation under the policy to pay compensation sufficient to cover repair of the roof and water damage. They also asserted a negligence claim for their insurer’s unreasonable delays in repairing the roof and its failure to correct the moisture problem and remove the mold. The trial court granted summary judgment to defendant on the personal injury claim. The case went to trial on the breach of contract claim, and the jury awarded plaintiffs $195,500 in damages. Plaintiffs appealed.
On appeal, the Strader court began its decision by correctly stating that a party seeking to assert a tort claim based on conduct that is also breach of a contract must allege that the defendant's conduct violated some standard of care that is not part of the defendant's contractual obligations. But the court went beyond Securities which recognized tort liability based on breach of the implied covenant of workmanship and held that there could be no tort liability for breach of either an explicit or implied covenant. The Strader court then opined “that the independent standard of care stems from a particular special relationship between the parties.” As discussed above, this confused the elements of a negligence cause of action with a cause of action for negligent misrepresentation, which requires the additional elements of detrimental reliance and right to rely on the defendant’s representations. But Securities Intermountain and Georgetown Realty considered the implied duty of care to perform in a workmanlike fashion, which was implicit in the contractual relationship but which is present regardless of whether the parties have a fiduciary relationship, as an element of a tort claim. Securities, supra at 263.
Instead of finding, as Oregon courts had for years, that a tort duty of care can be based on the existence of duties outside of the contract, such as common law duties, statutory duties or duties implied by the relationship of the parties, the Strader Court moved an implied covenant (such as the implied covenant of workmanship recognized in Securities as supporting tort liability) into the area of tort immunity. The result was that Strader unwittingly departed from prior precedent and seemingly immunized contracting parties that were negligent and who for over a century would have been held accountable under the law of negligence.
The Strader court then focused on the relationship of the parties and found that the tort of negligence could only be asserted if there was a “special relationship” thus importing the element of a negligent misrepresentation claim (right to rely because of the relationship) that had been confused since Conway. The court then held that the relationship between an insurer and insured is special only in the context where an insurer defends a claim that is covered under a liability policy. However, it opined that in a first party claim setting the relationship was necessarily adversarial in nature, because the parties assumed adverse postures in court. The court wrote:
More to the point, the relationship between an insurer and its insured is special with respect to the insurer's performance of its duty to defend, so that negligent performance of that duty gives rise to a tort claim, but the same relationship is not special with respect to the insurer's refusal to settle within policy limits, which sounds only in contract; in the former context, the insurer is in something resembling a fiduciary role, whereas in the latter it and the insured are adversaries. Id. At 334.
The court seemed confused about the nature of the insurance relationship. It tried to opine that the insurer-insured relationship was special in some contexts but not others. It focused on the relationship as it existed -- not when it was formed and during its duration -- but on how it was after it had deteriorated. A relationship is defined not by how it ends but by how the parties defined it when it was formed. Certainly, the fact that half of all marriages ends in divorce does not make the marriage relationship adversarial (feel free to insert joke here). A relationship is special because of the expectations that each side creates in each other and the promises that each side makes to each other when the relationship is formed. Thus, when State Farm says it will be there for you in times of trouble “Like a Good Neighbor” or when Allstate tells you that you are “In Good Hands” with Allstate or when Farmers tells you that if you have a claim they will put you “Back Where you Belong” they create expectations that they will treat you as a trusted friend. They promise to protect you against loss. These promises define the special nature of an insurer-insured relationship because the insurer promises to treat you better than a merchant treats just another customer.
The court appeared to confuse the concept of bad faith in failing to settle within policy limits in a liability defense scenario with that of a special relationship when a homeowner suffers catastrophic loss and looks to the insurer to honor its policy. As noted above, where an insurer refuses to settle within policy limits and then exposes its insured to excess liability is one scenario in Oregon where an insurer can be sued for bad faith. The court focused on the insurer’s duty to defend and ability to control the defense as connoting a special relationship in a liability defense situation but then said that there was “no mandate to exercise independent judgment for the sole benefit of plaintiffs” in a situation where an insurer undertakes a duty to adjust a claim and pay for repairs. But an insurer has a duty to restore an insured’s house to pre-loss condition when a covered claim is submitted. So there is a mandate to pay under the contract if the loss is covered and an implied duty do so in a way that will avoid causing foreseeable injury to the insured similar to the implied covenant that supported tort liability in Georgetown and Securities. Unfortunately, plaintiffs counsel apparently did not make that argument or appeal the Strader case further. In any event, the Harris v Suniga decision may end up clarifying the law so that such injustices will not be repeated in the future.
O'Hara v. David Blain Construction, Inc., Lane County Case no. 160417923; Oregon Ct of Appeals Case No A130545 (2007)
The Mark O’Hara family of Eugene, Oregon had brought a toxic mold/construction defect case against the builder who remodeled their home. They asserted that, due to a defective remodeling of their previous home, they were exposed to toxic mold and micro-toxins. The case settled confidentially during trial. In 2002, they decided to build a new house, taking special care to protect against toxic mold growth. They hired a construction consultant and a builder to design and oversee the construction of the new house. Their contractor began constructing the house late in 2002. However, the house was not finished when Oregon's seasonal winter rains arrived. They began experiencing medical problems after they moved in and discovered mold in the house. They hired remediation specialists to remove the mold and remedy other defects.
Plaintiffs sued their builder and building consultants for personal injury and property damage in September 2004. They alleged defective construction that resulted in their damages and breach of the agreements for the construction and consulting services. They alleged that their consultant breached the duty to inspect and ensure that the residence was constructed as designed. The case went to trial in July and August 2005. The jury returned a verdict finding that the builder defendants were negligent, but that the consultant was not negligent. The jury also found that the builder had not breached the contract. Plaintiffs obtained judgment against the builder defendants in the amount of $31,620, and the trial court also awarded costs in the amount of $6,215. Plaintiffs appealed, arguing that the trial court erred when it denied their motion to file a second amended complaint approximately 30 days before the date of trial. The proposed amendment sought to add a claim for damages of $2.5 million for loss of income and the increased cost of obtaining similar housing. It also would have added nine new specifications of negligence against some of the defendants. The trial court denied the motion to amend, holding that the timing and scope of the amendment would "make it really impossible to try this case in the time frame that it will be tried in." On appeal, the Court of Appeals affirmed the trial court decision, stating that the trial court did not abuse its discretion in denying the late amendment.
Plaintiffs also argued that the trial court erred in excluding evidence that Blain did not carry insurance providing coverage for toxic mold damage. Plaintiffs' contract with the Berry defendants included the requirement that Berry obtain a certification that Blain carried such insurance. After leave to file a second amended complaint was denied, plaintiffs tried to claim that this allegation was alleged within a previous version of their complaint. The trial court and Court of Appeal disagreed, finding that the prior version of the complaint did not include such allegation.
Plaintiffs argued that the trial court erred in excluding testimony by any witness offering an opinion as to whether Katelyn O'Hara's endometriosis was a result of exposure to toxic mold. But defendants had asked plaintiffs to produce medical records in December 2004 and January 2005. Plaintiffs provided some documents but no information that indicated that endometriosis was a condition that resulted from defendants' alleged negligence. Under ORCP 44 D(2), a trial court has the discretion to exclude a physician's testimony for a party's failure to comply with ORCP 44 C. The trial judge excluded evidence of whether plaintiff Katelyn O'Hara's endometriosis was a result of exposure to toxic mold and the Court of Appeal held that it was within the trial court’s discretion to do so.
Plaintiffs also assigned error to the trial court’s refusal to reopen evidence after both sides had rested to allow their medical expert, who had returned to Arizona, to testify by telephone. Defendants had cast doubt on the validity of the testing procedures relied on by plaintiffs’ expert, Dr. Michael Gray in the defense’s case-in-chief. Plaintiffs sought leave to allow Gray to testify by telephone from Arizona in rebuttal and to present a letter from him explaining why the issues raised by defendants in their case-in-chief had no bearing on the specific subject matter of his testimony. The trial court denied plaintiffs' motions and, again, the Court upheld that decision as lying within the trial court’s discretion to regulate the conduct of a trial.
Plaintiffs argued on appeal that the trial court erred when it entered a verdict for $31,620 instead of that amount for each Mark and Mary Jane O’Hara. The Court of Appeals noted that the verdict form was patently ambiguous. It could be reasonably interpreted to inquire "what are each individual plaintiff's damages" or to inquire "what total damages should plaintiffs, as a group, receive." But the Court of Appeals found that plaintiffs' failure to object to the verdict before the jury was discharged deprived the trial court of the opportunity to address that question to the jury, so the issue was not preserved for appeal.
Practice tip: Figure out your case early and anticipate any defense expert strategy that the defense may use. Vet your own experts and the laboratories they use. These days business interests and insurers think nothing of trying to discredit a doctor who testifies for the plaintiffs. Do not rely on a last minute amendment or attempt to re-open your case to save you after you have been caught flat footed.
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