Hanover Insurance is pushing back on its duty to defend a property manager named in a sweeping tenant class action across Oregon.
On May 5, the carrier walked into federal court in Portland and asked a judge to declare that it owes nothing - no defense, no indemnity - to its insured, Marathon Management, Inc., under a professional liability policy. The filing lays out a familiar dilemma for insurers writing real estate errors-and-omissions coverage: what happens when the property manager you covered turns out to be financially intertwined with the very landlords being sued?
The trouble started with David Friend, a tenant at the Solace apartment complex in Portland, according to the filing. Friend filed a class action accusing Marathon - which, the filing says, also manages other Oregon complexes including Glendoveer Woods, Bridgeton, McKinney Lane, Bell Tower, Willamette Estates and Arris - of breaking the state's landlord-tenant statutes in a number of ways. The allegations include monthly utility charges billed without proper documentation, an unexplained "Meter Reading" fee tacked onto rents, lease provisions that allegedly cap tenants' legal remedies, and renter's insurance requirements that, according to Friend, did not follow Oregon's rules. Marathon and the property owner, VAA Investment, LLC, are accused of violating multiple sections of the Oregon Residential Landlord and Tenant Act.
Hanover, for its part, is currently footing the defense - but only under a full reservation of rights. The carrier argues that nothing in Friend's class action is actually covered.
Its first big move is the policy's Landlord Tenant Statute Exclusion, a clause built for exactly this kind of dispute. It strips coverage for "any statutory penalties, fines, assessments, attorney fees or any interest" tied to alleged violations of laws governing the rights and obligations of landlords and tenants. There is a narrow carve-back for liability the insured would have had even without the statute - but Hanover says that does not save the day here.
Then there is the Owned Property exclusion, which is where the case gets interesting for underwriters. Hanover points to language in the underlying lawsuit itself - the claim that Marathon and the property owners "act under a single enterprise" - and argues that the buildings Marathon manages effectively qualify as Owned Property under the policy. The definition reaches real estate held by any entity under the same financial control as the insured, or one with a financial interest in the insured.
For good measure, Hanover also invokes exclusions for intentional conduct, deceptive business practices, contractual liability and non-monetary relief. And it argues the case does not clear the policy's front door, because Friend is not alleging a "Wrongful Act" - which the policy defines as a negligent act, error, omission, misstatement or personal injury in the rendering or failure to render professional services.
For E&O underwriters and claims professionals, the filing is a useful reminder: when a property manager and the property owner share the same financial DNA, the line between professional services and ownership liability can quickly blur - and so can coverage.
The allegations in both the underlying tenant lawsuit and Hanover's coverage filing have not been tested in court. No ruling has been issued, and the defendants have not yet filed a response in the federal coverage action.
