ZRZ Realty Company v. Beneficial Fire and Casualty Insurance

Pursuant to ORS 742.061 (Recovery of attorney fees in action on policy or contractors bond): Once an insured obtains recovery that exceeds the insurer's tender, the insured is entitled to recover all of its attorney fees incurred in litigating the policy, including coverage issues; the proper standard against which attorney fees are measured is "reasonableness;" the lodestar method of calculating attorney fees is a common practice and is reasonable; and, lastly, unlike the duty to defend, which is a shared obligation that arises independent of completed litigation, liability for attorney fees under ORS 742.061 is a statutory obligation that arises only after the insured prevails at trial.

Plaintiffs (collectively "ZRZ") first brought this action against a number of insurers (collectively "London"), asserting various claims for damages and seeking a declaration of coverage with regard to future environmental cleanup costs. The trial court ruled that London was obligated to pay ZRZ's costs of defense, both in previous and future coverage, and, accordingly, it entered judgment awarding attorney fees to ZRZ, totaling in excess of $1.3 million, and later entered a supplemental judgment that awarded ZRZ an additional $269,000. The current case came to the Court of Appeals on remand from the Oregon Supreme Court for consideration of the assignments of error that this Court previously did not reach. In total, London raised ten assignments of error on appeal and ZRZ raised five on cross-appeal. In its second assignment of error, London asserted that the trial court should have granted its motion to dismiss ZRZ's claims pertaining to the damage to river sediments because the nature of ZRZ's "knowing and intentional" acts caused harm that must have been expected or intended. The Court again denied London's motion to dismiss, stating that the acts must have been committed for the purpose of inflicting the injury or harm before a policy excluding "intentional harm" would apply. The Court flatly denied London's third and fourth assignments of error. The Court then addressed ZRZ's assignments of error on cross-appeal. In light of statutory changes and developments since its first ruling, the Court declined to address and remanded ZRZ's first assignment of error, concerning allocation, to the trial court. The Court then addressed ZRZ's second assignment of error, regarding its Ship Dismantling Policies, on the merits, and rejected ZRZ's argument that the language of Clause 3 of its policy with London was vague and ambiguous. Lastly, the Court addressed the assignments of error raised by both parties concerning attorney fees. The Court focused on ORS 742.061 in holding that, once an insured obtains recovery that exceeds the insurer's tender, the insured is entitled to recover all of its attorney fees incurred in litigating the policy, including coverage issues. The Court also explained that ZRZ may recover only those fees that were related to London's duty to defend, and that ZRZ was not entitled to appellate attorney fees for work related to the duty to indemnify. The Court then addressed London's claim that the attorney fees awarded to ZRZ constituted a windfall. The Court noted that, pursuant to ORS 740.061, the proper standard against which attorney fees are measured is "reasonableness." According to the Court, the lodestar method that the trial court used to calculate attorney fees is a common practice and, thus, was reasonable. Finally, London argued that, since the settled insurers owed a common obligation of defense to ZRZ under ORS 742.061, assigning the entirety of ZRZ's attorney fees to London would be inequitable. To this argument, the Court held that "[u]nlike the duty to defend, which is a shared obligation that arises independent of completed litigation, liability for attorney fees under ORS 742.061 is a statutory obligation that arises only after the insured prevails at trial." Again, the Court noted that the touchstone of the amount of the attorney fee award is reasonableness and it stated that, in its determination, the awarded amount was reasonable. However, the Court remanded the attorney fee award for further consideration. On appeal and cross-appeal, reversed in part and remanded for further proceedings.