S057155, Opinion — ZRZ Realty v. Beneficial Fire and Casualty Ins.

2 printed pages contain little extracted OCR body text; searchable legal-body completeness has not been established for those pages.

OCR transcription for search; preserved printed pages are authoritative

Argued and submitted January 6, decision of Court of Appeals affirmed in part and
reversed in part; case remanded to Court of Appeals October 14, 2010

ZRZ REALTY COMPANY,
an Oregon corporation,
for itself and as trustee of
the Zidell Remediation Funding Trust,
an Oregon trust;
Zidell Marine Corporation,
a Washington corporation;
Tube Forgings of America, Inc.,
an Oregon corporation;
and Pon Exploration, Inc.,
a Delaware corporation,
fka Zidell Explorations, Inc.,
an Oregon corporation,
Petitioners on Review,
v.

BENEFICIAL FIRE AND CASUALTY
INSURANCE COMPANY,
succeeded in interest by
J.C. Penney Life Insurance Company, et. al .;
Defendants,
and

CERTAIN UNDERWRITERS AT
LLOYD'S OF LONDON,
and Certain London Market Insurance Companies,
aka "Lloyds,"
including the following defendant companies:
Assicurazioni Generali S.P.A.,
Insurance Company of North America (UK), Ltd.,
Commercial Union Assurance Company, PLC,
Edinburgh Assurance Company, Ltd.,
Ocean Marine Insurance Company, Ltd.,
World Auxiliary Insurance Corporation, Ltd.,
Cornhill Insurance Company, Ltd.,
Dominion Insurance Company, Ltd.,
Eagle Star Insurance Company Ltd.,
The Threadneedle Insurance Company, Ltd.,
Excess Insurance Company, Ltd.,

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London & Edinburgh General Insurance Company, Ltd.,
New Zealand Insurance Company, Ltd.,
Road Transport & General Insurance Company, Ltd.,
South British Insurance Company, Ltd.,
Ulster Marine Insurance Company, Ltd.,
The United Scottish Insurance Company, Ltd.,
Yorkshire Insurance Company, Ltd.,
Hansa Re & Marine Insurance Company, (UK) Ltd.,
La Reunion Francaise (UK), Ltd.,
Economic Insurance Company, Ltd.,
Norwich Union Fire Insurance Society, Ltd.,

Firemen's Insurance Company of Newark, New Jersey,
Swiss Union General Insurance Company, Ltd.,
Leadenhall Insurance Company, Ltd.,
Bishopgate Insurance Company, Ltd.,
Home Insurance Company,
Nippon Fire & Marine Insurance Company (UK), Ltd.,
Switzerland General Insurance Company, Ltd.,
River Thames Insurance Company, Ltd.,
Royal Insurance Company, Ltd.,
British Fire Insurance Company, Ltd.,
British & Foreign Insurance Company, Ltd.,

National Provincial Insurance Company, Ltd.,
The Scottish Lion Insurance Company, Ltd.,
Skandia Marine Insurance Company (UK), Ltd.,

Drake Insurance Company, Ltd.,
Sphere Insurance Company, Ltd.,

Sphere Drake Insurance Company, PLC,
Alliance Assurance Company, Ltd.,
British Law Insurance Company, Ltd.,
and Continental Assurance Company of London, Ltd.,
Liverpool Marine & General Insurance Company, Ltd.,
Phoenix Assurance Company, Ltd.,

Fine Art & General Insurance Company, Ltd.,
Anglo-French Insurance Company, Ltd.,

Baloise Marine Insurance Company, Ltd.,
Baltica Insurance Company (UK), Ltd.,
Fuji Fire & Marine Insurance Company (UK), Ltd.,
R.W. Gibbon Group,
La Preservatrice Group,

Switzerland General Insurance Company (London), Ltd.,
Yasuda Fire & Marine Insurance Company, Ltd.,

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Iron Trades Mutual Insurance Company, Ltd.,
Minster Insurance Company, Ltd.,
Reliance Insurance Company,
Sirius (UK) Insurance, PLC,
Indemnity Marine Assurance Company, Ltd.,
London & Hull Maritime Insurance Company, Ltd.,
and associated companies,
C.A. Parr Agencies, Ltd.,
Sun Insurance Office,
Marine Insurance Company, Limited,
and Sumitomo Marine & Fire Insurance Company, Limited,
Respondents on Review.
(CC 9708-06226; CA A121145; SC S057155)
241 P3d 710

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CJS, Insurance § 54.

# En Banc

On review from the Court of Appeals .*

Bruce L. Campbell, Miller Nash LLP, Portland, argued
the cause and filed the brief for petitioners on review.

Thomas W. Sondag, Lane Powell PC, Portland, argued the
cause and filed the brief for respondents on review. With him
on the brief were John Folawn and Folawn Alterman &
Richardson LLP.

Gregg A. McDonald, Portland, filed the brief for amici
curiae Schnitzer Steel Industries, Inc., Prescision Castparts
Corp., and Oregon Metals Industries Council.

Gregory L. Baird, Gordon & Polscer, LLP, Portland, filed
the brief for amicus curiae Complex Insurance Claims
Litigation Association. With him on the brief were Laura A.
Foggan, Kathryn C. Walsh, and Wiley Rein LLP.

KISTLER, J.

\* Appeal from Multnomah County Circuit Court, William J. Keys, Judge.
(Pre-Trial and Trial Rulings); Ellen F. Rosenblum, Judge. (Judgment and Supple-
mental Judgment). 222 Or App 453, 194 P3d 167 (2008), modified on recons, 225 Or
App 257, 201 P3d 912 (2009).

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The decision of the Court of Appeals is affirmed in part
and reversed in part. The case is remanded to the Court of
Appeals.

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# KISTLER, J.

This case arises out of a dispute over insurance cov-
erage for plaintiffs' ship dismantling business. Before this
court, the parties have raised primarily two issues. The first
is whether plaintiffs or defendants had the burden to prove
that environmental damages resulting from the operation of
plaintiffs' business were neither expected nor intended. On
that issue, the Court of Appeals held that, when the insur-
ance policies that defendants issued expressly granted cov-
erage only for unexpected and unintended damages, plain-
tiffs had the burden of proving that their loss came within
that coverage. ZRZ Realty v. Beneficial Fire and Casualty
Ins., 222 Or App 453, 472-73, 194 P3d 167 (2008), modified on
recons, 225 Or App 257, 201 P3d 912 (2009). However, the
court also held that, when the insurance policies granted
broad coverage subject to an implied limitation for expected
or intended damages, the implied limitation functioned as an
exclusion that defendants had the burden to prove. 222 Or
App at 474-75.

The second issue that the parties have raised
involves protection and indemnity policies in which defen-
dants agreed to indemnify plaintiffs for liability they
incurred for "damages to any harbor, dock, * * * buoy, tele-
graph cable or other fixed or moveable thing whatsoever."
The Court of Appeals held that the promise to indemnify
plaintiffs for "damages to any * * * other fixed or moveable
thing whatsoever" did not include a promise to indemnify
plaintiffs for damages to the riverbed. Id. at 488-91. Rather,
according to the Court of Appeals, defendants agreed to
indemnify plaintiffs only for damage to artificial structures.
Id. We allowed plaintiffs' petition for review and now affirm
the Court of Appeals decision allocating the burden of proof
but reverse its decision regarding coverage for damage to the
riverbed.

## A. Facts

Plaintiffs (collectively Zidell) are a group of related
companies that began acquiring and dismantling decommis-
sioned navy and merchant marine ships after World War II.1

1 Some plaintiffs are either the successors in interest to or assignees of those
companies. That status is not material to the issues on review.

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Zidell towed the decommissioned ships to a site along the
Willamette River in Portland (the Moody Avenue site) where
it dismantled the ships for scrap, generally while the ships
were tied to a dock at the site. Dismantling the ships resulted
in the release of pollutants found in, among other places, the
ships' paint, batteries, motors, and fuel tanks. The pollutants
included polychlorinated biphenyls, petroleum products in
the form of fuel, lubricating, and hydraulic oils, and a variety
of metals, such as arsenic, cadmium, chromium, lead, mer-
cury, and zinc. Some of the pollutants were released directly
into the river; others contaminated the land on which Zidell
operated its business and, from there, leached into the
groundwater and the river.

Over the years, Zidell purchased different types of
insurance from a variety of insurers. Only two insurers,
Certain Underwriters at Lloyd's of London and Certain
London Market Insurance Companies, remain in this litiga-
tion; the others have settled. The interests of the two remain-
ing insurers are, for the purposes of this appeal, identical,
and we refer to them collectively as London. From 1956 to
1983, Zidell purchased three types of insurance policies from
London that are at issue in this litigation: comprehensive
general liability policies, a form of marine excess coverage
known as bumbershoot policies, and another form of marine
insurance known as protection and indemnity policies. In set-
ting out the facts, we discuss the comprehensive general lia-
bility policies and refer to the other policies where
appropriate.

The comprehensive general liability policies con-
sisted of primary and excess policies that provided coverage
for damage to property but contained an owned property
exclusion. See Schnitzer Investment Corp. v. Certain Under-
writers, 341 Or 128, 138-39, 137 P3d 1282 (2006) (discussing
effect of owned property exclusion on coverage for environ-
mental contamination). From 1956 to 1965, London issued a
series of comprehensive general liability policies that the par-
ties refer to as the "implied fortuity policies." By their terms,
those policies provided coverage without regard to whether
the property damage that resulted from Zidell's business
activities was either expected or intended. One policy, for
example, provided coverage for "any and all liability imposed

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by law against the Assured for loss of or damage to or
destruction of the property of others * * * arising from any
cause whatsoever out of the operation" of Zidell's business.

Despite that broad grant of coverage, the trial court
read a limitation into the implied fortuity policies. Specifi-
cally, the trial court ruled that "the general principle that
only 'fortuitous' losses will be covered will be deemed a con-
dition of each such policy, consistent with the holding in A-1
Sandblasting & Steamcleaning Co. v. Baiden, 293 Or 17, 643
P2d 1260 (1982)." As the trial court explained, that principle

"limits coverage to those losses that were not expected or
intended for policies between 1957 and January 1, 1968.
From January 1, 1968 until July 1, 1983, the implied for-
tuity doctrine limits coverage to those losses that were not
intended."2

Both parties accept the limitation that the trial court read
into the agreements that they entered into before January 1,
1968.3

Starting in 1966, London began issuing comprehen-
sive general liability policies to Zidell that the parties refer to
as the "express fortuity policies." Those policies provided cov-
erage only for damages that were both unexpected and unin-
tended. For example, in one of those policies, London agreed
to pay Zidell "all sums which the Assured shall be obligated
to pay by reason of the liability [i]mposed upon the Assured
by law * * * for damages * * * on account of * * * [p]roperty
damage * * * caused by or arising out of [an] occurrence." The
policy defined "occurrence" as an "accident or a happening or

2 The trial court found that, in addition to the pre-1966 comprehensive general
liability policies, London issued protection and indemnity policies from 1957
through 1983 and bumbershoot policies from 1970 through 1977, none of which
required that property damage be unexpected and unintended. The court read a
fortuity requirement into those policies, as well as into the pre-1966 comprehen-
sive general liability policies.

3 London argued in the Court of Appeals that the same limitation-expected or
intended damages-should apply to policies issued after January 1, 1968. The
Court of Appeals initially rejected that argument, upholding the trial court's con-
clusion that only intended damages were excluded. ZRZ Realty, 222 Or App at 481.
On reconsideration, it withdrew its ruling on that issue and left the issue for the
trial court on remand. ZRZ Realty, 225 Or App at 265. Zidell has not challenged
that ruling on review.

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event or a continuous or repeated exposure to conditions
which unexpectedly and unintentionally results in * * * prop-
erty damage * * * during the policy period."4

In 1994, the Oregon Department of Environmental
Quality (DEQ) issued a notice to Zidell stating that it was
potentially responsible for cleaning up the environmental
contamination resulting from its business at the Moody Ave-
nue site. Zidell chose to participate in a voluntary clean-up
program that DEQ offered and also requested that London,
pursuant to the various policies that it had issued over the
years, defend Zidell and indemnify it for the costs of remedi-
ating any environmental damage that had resulted from
Zidell's business. When London denied that it had any obli-
gation to defend or indemnify Zidell, Zidell brought this
action, alleging breach of contract and also seeking a decla-
ration of London's obligations under its policies.5

Before trial, the court ruled on summary judgment
that London had a duty to defend Zidell in response to DEQ's
notice that Zidell was potentially responsible for cleaning up
the environmental damage resulting from its business. The
court also ruled, on summary judgment, that London bore
the burden of proving that Zidell either expected or intended
the environmental damages that resulted from the operation
of its business.6 The court explained that its ruling applied to
both the express and the implied fortuity policies.

With those ground rules in place, the case proceeded
to trial on the question of indemnity. Among other things, the
parties and the trial court sought to identify the specific con-
taminants that, as a result of Zidell's business, had damaged
the environment over the period of time in which London had
insured Zidell. The trial court also sought to determine,

4 The wording in the express fortuity policies is not identical. However, the
parties have not argued that any difference in wording in those policies affects how
the burden of proof should be allocated.

5 Zidell's third amended complaint included other claims for relief. The trial
court, however, dismissed those claims with prejudice, and Zidell has not chal-
lenged that ruling. Accordingly, we discuss only Zidell's breach of contract and
declaratory judgment claims.

" As we understand the trial court's ruling, it used the phrase "burden of proof"
as a shorthand reference to the burden of production and the burden of persuasion.

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regarding each pollutant, whether Zidell had either expected
or intended the resulting damage.7 For example, the trial
court found that Zidell had never intended any damage to the
environment from removing anti-fouling paint (paint used to
discourage the growth of organisms on the ships' hulls) but
that "Zidell management expected damage to sediments from
[arsenic found in] anti-fouling paint beginning in 1972."
Because 90 percent of the arsenic found at the site came from
removing the anti-fouling paint, the trial court sought to allo-
cate London and Zidell's respective responsibility for the cost
of remediating the damage accordingly.8

At the conclusion of the trial, the court issued
lengthy findings of fact and conclusions of law, which it incor-
porated in the judgment. In essence, the court found that, for
a number of years, Zidell neither expected nor intended that
its business operations would result in environmental dam-
age; however, the court found that, beginning in the 1970s,
Zidell expected that some of the substances released as a
result of dismantling the ships would damage the soil and
also the sediment in the river.º As a result of those and other
findings, the trial court held that London's policies required
it to indemnify Zidell for part of the remediation costs. 10

As noted, the Court of Appeals affirmed the trial
court's ruling regarding the burden of proof on the implied

7 The trial court explained that, "[t]o establish that [Zidell] intended third
party-property damage [i.e., damage to the river or the groundwater], the trier of
fact will have to find that [Zidell] polluted for the purpose of causing damage to the
Willamette River or groundwater." (Emphasis in original.) It also explained that
"[a] person expects a result if they act with awareness that the result is substan-
tially certain to follow." (Emphasis in original.) Neither party has challenged those
definitions in this court, and we express no opinion on them.

8 For example, the trial court found that the vast majority of the arsenic in the
sediment came from anti-fouling paint used before 1950. It allocated responsibility
for remediating 90 percent of the arsenic based on the number of pre-1950 ships
dismantled before 1972 (allocated to London) and those dismantled after that date
(allocated to Zidell). The court also articulated a principle to allocate the cost of
remediating the environmental damages for the arsenic when the amount of dam-
age for which one party was responsible marginally increased the remediation
costs. The court employed a similar type of analysis for other contaminants.

9 The court found that Zidell did not expect that its activities would damage the
groundwater.

10 At the time of trial, Zidell had not incurred any recoverable indemnity costs.
The court's findings accordingly established formulas for allocating responsibility
between London and Zidell for those future costs.

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fortuity policies but reversed its ruling regarding the burden
of proof on the express fortuity policies. The Court of Appeals
reasoned that the express fortuity policies offered coverage
only for unexpected and unintended damages and that Zidell
had the burden to prove that the damages resulting from its
business came within the scope of that coverage. The Court of
Appeals also reversed the trial court's ruling that the protec-
tion and indemnity policies that London had issued covered
damages to the riverbed. We allowed Zidell's petition for
review to consider those rulings and begin with the question
of the burden of proof.

## B. Burden of Proof

On appeal, and again on review, the parties debate
whether the trial court correctly allocated the burden of
proof. Both parties start from the proposition that the
insured (Zidell) has the burden to prove coverage while the
insurer (London) has the burden to prove an exclusion from
coverage. Compare Stanford v. American Guaranty Life Ins.
Co., 280 Or 525, 527, 571 P2d 909 (1977) (insurer has the bur-
den to prove an exclusion), with Lewis v. Aetna Insurance Co.,
264 Or 314, 316, 505 P2d 914 (1973) (insured has the burden
to prove coverage). They disagree, however, whether the
requirement that any damage to the environment be neither
intended nor expected is part of a limited grant of coverage to
which the insured would have to prove entitlement or an
exclusion from a broad grant of coverage for which the
insurer would have to prove justification. In analyzing that
issue, we begin with the express fortuity policies and then
turn to the implied fortuity policies.

## 1. Express Fortuity Policies

The express fortuity policies provide coverage for
"[property damage * * * caused by or arising out of [an]
occurrence." They define an occurrence as an "accident or a
happening or event or a continuous or repeated exposure to
conditions which unexpectedly and unintentionally results in
\* \* \* property damage * * * during the policy period." Read-
ing those two provisions together, London reasons that the
express fortuity policies provide coverage only for unexpected
and unintended property damage. London argues that the

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parties to an insurance agreement may structure their agree-
ment in different ways. They may choose to grant limited cov-
erage (coverage only for unexpected and unintended losses),
or they may choose to grant broad coverage subject to specific
exclusions. London contends that, when, as in this case, the
parties choose the former course, the insured has the burden
to prove that the loss comes within the limited coverage that
the policy grants. Conversely, if the parties chose the latter
course, London does not dispute that the insurer would have
the burden to prove that the exclusion applies.

Zidell takes a different tack. It contends that
whether the parties choose to grant limited coverage or broad
coverage subject to an exclusion is not dispositive. It contends
that some provisions are, in essence, exclusions while others
are, in essence, grants of coverage. Zidell reasons that courts
should designate provisions according to their essence and
without regard to the way that the parties structure their
agreement. Zidell acknowledged at oral argument that some-
times limited coverage is just that-coverage for bodily
injury, for example-and that the insured would bear the
burden to prove that the loss came within the scope of that
limited coverage. Zidell contends, however, that this court's
cases support its position that limitations on unexpected and
unintended damages are, in essence, exclusions and should
be treated as such.

Zidell's position is difficult to square with estab-
lished principles of Oregon contract interpretation. In draft-
ing the express fortuity policies, the parties chose to provide
coverage only for unexpected and unintended damages. They
did not list expected or intended damages as an exclusion.
One of the express fortuity policies, for example, sets out a
list of specific exclusions under the heading, "THIS INSUR-
ANCE IS SUBJECT TO THE FOLLOWING EXCLU-
SIONS." (Capitalization in original.) Neither expected nor
intended damages is included on that list of exclusions. To
accept Zidell's argument, we would have to convert what the
parties chose to describe as a limitation on coverage into an
exclusion from coverage, even though the parties did not
include "expected or intended damages" as one of the listed
exclusions. In other words, we would have to rewrite the

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terms of the parties' agreement, something that courts ordi-
narily lack authority to do. See Usinger v. Campbell, 280 Or
751, 755, 572 P2d 1018 (1977) (courts may not rewrite con-
tracts); Wikstrom v. Davis, 211 Or 254, 268, 315 P2d 597
(1957) (same); cf. Frick v. Hoag, 277 Or 135, 138, 559 P2d 827
(1977) (noting that courts have equitable authority to reform
contracts in limited circumstances).

Zidell identifies no reason why the parties to an
insurance contract may not choose either to grant coverage
only for unexpected and unintended damages or to grant
broad coverage subject to an exclusion for expected or
intended damages. Cf. Robert E. Keeton, Insurance Law
§ 5.2(a) 275 (1971) (describing that decision as a "draft[er's]
choice"). Put differently, there is no reason, either logically or
semantically, why a limitation on unexpected and unin-
tended damages may not be stated either as a grant of lim-
ited coverage or separately as an exclusion from a broad
grant of coverage. Nor are we able to identify some neutral
principle that would allow us to discern which provisions are
essentially grants of limited coverage and which are essen-
tially exclusions from a broad grant of coverage. If the parties
structure their agreement to provide limited coverage, as
they did here, then our cases place the burden on the insured
to prove that the event that triggered the loss came within
the scope of that coverage.

Zidell contends, however, that three of this court's
cases demonstrate that the limitation on coverage in the
express fortuity policies constitutes an exclusion from cover-
age. Zidell relies initially on Smith v. Ind. Hosp. Assn., 194
Or 525, 242 P2d 592 (1952), for the proposition that insurers
have the burden to prove policy provisions that are "defensive
in character." We agree with Zidell that Smith stands for the
proposition that insurers have the burden to prove exclusions
from coverage. See Stanford, 280 Or at 527 (citing Smith for
the proposition that "[t]he insurer has the burden to prove
that the loss is excluded"). However, we do not read Smith
more broadly than that.

In Smith, the employer's health insurance policy
provided coverage to employees for acute sickness and
chronic conditions, subject to separate exemptions. The two

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provisions at issue in Smith were an exemption for preexist-
ing conditions and one for new employees whose chronic con-
dition "acutely manifest[ed]" itself within the first six months
of work.11 And the specific question in Smith was whether the
trial court erred in denying the insurer's motion for a directed
verdict on the ground that no reasonable juror could find that
the exemptions did not apply. In the course of resolving that
issue, the court noted that the burden was on the insurer to
prove that the exemptions applied.12 The policy in Smith did
not provide limited coverage, as the express fortuity policies
do in this case. Rather, the policy in Smith provided broad
coverage subject to specific exemptions or exclusions, and the
court's statement regarding the burden of proof cannot be
separated from the issue before the court in Smith.

Zidell also cites two cases in which the policies were
similar to the express fortuity policies in this case. See
Ledford v. Gutoski, 319 Or 397, 877 P2d 80 (1994); Nielsen v.
St. Paul Companies, 283 Or 277, 583 P2d 545 (1978). In both
Ledford and Nielsen, the insurance policies provided cover-
age for bodily and property damage that resulted from an
occurrence, which the policies defined as an "accident, includ-
ing continuous or repeated exposure to conditions, which
results in bodily injury or property damage neither expected

11 One paragraph, which was captioned "exemptions," provided that "[t]he
services provided for herein shall not apply to any * * * condition * * * which defi-
nitely existed at the time the afflicted employee came under the protection of this
contract * * *. " 194 Or 530 (emphasis and ellipses in original). It also provided a
limited exemption for "chronic conditions." It provided that employees "will not be
entitled to services for chronic conditions * * * until they have been under the cov-
erage of [this policy] for six consecutive months * * *. " Id. A complementary para-
graph, captioned "new employees," provided that new employees "shall not be enti-
tled to services for chronic conditions * * * which may acutely manifest themselves
during the first six months of employment * * *. " Id. (emphasis in original).

12 Technically, the reference in Smith to the burden of proof was dictum. As
noted, the issue in Smith arose on a motion for a directed verdict. Because there
was sufficient evidence from which the jury could have found either for the plaintiff
or the defendant, there was no issue regarding who bore the burden of production.
Moreover, because the only issue on review of a motion for directed verdict was
whether the evidence required the jury to find that the plaintiff's condition came
within the exemptions, the burden of persuasion was not implicated either. In that
regard, there was no claim that the only conclusion a reasonable juror could reach
was that the evidence was in equipoise. Cf. State v. James, 339 Or 476, 483, 123
P3d 251 (2005) (if, in resolving a motion subject to proof by a preponderance of the
evidence, a court finds the evidence in equipoise, the party bearing the burden of
persuasion loses).

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nor intended." Ledford, 319 Or at 399; Nielsen, 283 Or at 279.
Neither case, however, addressed who had the burden to
prove that the damage was expected or intended; that is, nei-
ther case sought to determine whether the requirement that
damages be neither expected nor intended was part of a lim-
ited grant of coverage or an exclusion from a broad grant of
coverage. Rather, in both cases, the question was whether
the insurer had a duty to defend the insured, which entailed
determining only whether the conduct alleged in the com-
plaint necessarily required an inference that the insured had
intended the harm.

It is true that, in Nielsen, the court referred to the
definition of occurrence as a "policy provision excluding
intentional harm." 283 Or at 281. However, we hesitate to
read too much into that passing reference, when the issue
before the court had nothing to do with the burden of proof
but focused instead on the substantive question whether the
allegations in the complaint filed against the insured estab-
lished a duty to defend. The same is true of Ledford. In that
case, the court referred to "various policy provisions exclud-
ing coverage for intentionally-caused injuries" in the course
of explaining that the provision applied only "when the
insured intended to cause the particular injury or harm, as
opposed to merely intending the act." 319 Or at 401. The
court made that comment in explaining that, given the alle-
gations in the complaint, the insurer did not have a duty to
defend. The court neither addressed nor expressed any opin-
ion on whether the limitation on coverage should be viewed
as an exclusion on which the insurer had the burden of proof
or a limitation of coverage on which the insured had the
burden of proof. In short, this court has neither considered
nor resolved the issue that this case presents, and we decline
to give off-hand references in our prior cases controlling
significance.13

13 We note that the jurisdictions that have considered this issue have split on
it. Compare Travelers Cas. v. Ribi Immunochem Research, 108 P3d 469, 474-75
(Mont 2005) (viewing requirement that damages be neither expected nor intended
as limitation on coverage that the insured had to prove); Consolidated Edison v.
Allstate, 774 NE2d 687, 690-92 (NY 2002) (same); Queen City Farms v. Central Nat.
Ins. Co., 882 P2d 703, 715-16 (Wash 1994) (same), with State v. CNA Ins.
Companies, 779 A2d 662, 671-72 (Vt 2001) (limitation was an exclusion that
insurer had to prove); Carter-Wallace v. Admiral Ins., 712 A2d 1116, 1125-26 (NJ

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Zidell presses a broader argument. It contends that
"the location of a provision should not control the assignment
of the burden of proof." It reasons that there is no practical
difference between a policy that grants coverage for unex-
pected and unintended damages and one that grants broad
coverage subject to an exclusion for expected or intended
damages. We agree with Zidell that both policies insure
against the same risk. However, our cases allocate the bur-
den of production and persuasion based on whether the pol-
icy grants limited coverage or broad coverage subject to an
exclusion. We must classify the limitation one way or
another, and we conclude that respecting the parties' choice
is the more appropriate method. Not only does it permit the
parties to structure their agreements in a way that allocates
the burden of proof, but it also avoids putting courts in the
difficult position of divining the "essence" of contractual pro-
visions that logically may serve either as a grant of limited
coverage or an exclusion from a broad grant of coverage.
Accordingly, we hold that, for the express fortuity policies,
Zidell had the burden to prove that the damages were neither
expected nor intended.

## 2. Implied Fortuity Policies

The implied fortuity policies present the same ques-
tion but in a different posture. As noted, the implied fortuity
policies contain a broad grant of coverage without any
requirement that the damages be unexpected and unin-
tended. For instance, one of the first comprehensive general
liability policies that London issued to Zidell provided
coverage:

"From and against all loss which the Assured may sustain
or incur by reason of or in consequence of:

"Any and all liability imposed by law against the Assured
for loss of or damage to or destruction of property of others
\* \* sustained or alleged to have been sustained during the
currency of this certificate and arising from any cause
whatsoever out of the operations, activities, work and/or
business of the Assured * * *. "

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By its terms, the policy covered "[a]ny and all liability
imposed by law" without exception. Despite that broad grant
of coverage, the trial court read into that policy, and others
like it, a limitation that the damages that gave rise to the
insured's liability be neither expected nor intended, at least
for those policies issued before 1968. (The court read a less
restrictive limitation into the implied fortuity policies issued
in 1968 and afterwards.)

According to the trial court, the limitation that it
read into the implied fortuity policies derived from what this
court described in A-1 Sandblasting and earlier in Isenhart v.
General Casualty Co., 233 Or 49, 377 P2d 26 (1962), as a
"public policy" limitation.14 As this court explained in
Isenhart, a "public policy" limitation excludes from coverage
an event that otherwise would come within the policy's
terms. See Isenhart, 233 Or at 51-52 ("An action for assault
and battery would fall within this coverage unless, as [the
insurer] asserts, coverage is precluded upon the ground that
it would be contrary to public policy."). For instance, in
Isenhart, after reasoning that "a clause in a contract of insur-
ance purporting to indemnify the insured for damages recov-
ered against him as a consequence of his intentional conduct
in inflicting injury upon another [wals unenforceable" as
against public policy, the court explained that "the insurance
policy in the present case must, in effect, be regarded as
excluding such coverage." Id. at 53.

It follows, we think, both from the terms of the poli-
cies themselves and from the reasoning in Isenhart, that the
limitation that the trial court read into the implied fortuity
policies functions as an exclusion. It excludes an event that,
under the literal terms of the policy, otherwise would be cov-
ered.15 See Cimarron Ins. Co. v. Travelers Ins. Co., 224 Or 57,

14 Consistent with its practice in other areas, the court in A-1 Sandblasting
sought to ground the public policy limitation either in legislative enactments or,
failing that, in case law. See 293 Or at 22-26 (exploring those sources and noting
the difficulty in courts independently determining public policy).

15 As we understand the trial court's ruling, the scope of the public policy excep-
tion derives, from 1956 to 1967, from a statute that the legislature repealed in 1967
and, from 1968 on, from the cases discussed in A-1 Sandblasting. That is why,
beginning in 1968, the trial court read a less restrictive limitation into the implied
fortuity policies.

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61, 355 P2d 742 (1960) (explaining, in the context of automo-
bile insurance, that "the effect of an exclusion clause is to
deny the protection of the policy to some one who, but for the
denial, would be an insured"). Literally and functionally, the
limitation that the trial court read into the implied fortuity
policies serves as an exclusion from a broad grant of coverage
rather than as a grant of limited coverage.

London, however, advances two reasons for saying
that Zidell bears the burden of proving that the damages
were unexpected and unintended. London argues initially
that a statute in effect until 1967 became part of all the pre-
1968 policies and constituted a limitation on coverage. Alter-
natively, London contends that, in bringing a declaratory
judgment claim, Zidell assumed the burden of proving that
its damages were unexpected and unintended. We consider
each argument in turn.

Until the legislature repealed former ORS 736.005(1)
(1965) in 1967, that statute defined "insurance" as a:

"contract whereby one undertakes to indemnify another
against loss, damage or liability arising from an unknown
or contingent event, whereby the insured or his beneficiary
suffers loss or injury."

See Or Laws 1967, ch 359, § 704 (repealing former ORS
736.005(1)). London argues that that statute became part of
each insurance contract it issued to Zidell before 1968 and
that the statute functioned as a limitation on coverage, not as
an exclusion. We read the former statute differently.

Former ORS 736.005(1) (1965), the statute on which
London relies, was enacted as part of a comprehensive act
that the legislature passed in 1917 to regulate the business of
insurance. See Or Laws 1917, ch 203, § 1 (defining insur-
ance); Lovejoy v. Portland, 95 Or 459, 460-61, 188 P 207
(1920) (describing the 1917 act that was later codified as ORS
chapter 736). The 1917 act "regulate[d] the conditions under
which [the] business [of insurance] may be commenced and
the manner in which it may be conducted." Lovejoy, 95 Or at
461. Among other things,

"[that act] regulate[d] the organization of the insurance
department, and it prescribe[d] the jurisdiction and

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define[d] the powers of the state insurance commissioner. It
deal[t] with the mode of organizing local companies, the
admission of foreign companies, the nature of the invest-
ments of local and foreign companies, and examinations
and reports of companies. It contain[ed] various provisions
to insure the solvency of insurance companies, and it
afford[ed the] means for excluding companies of impaired
or doubtful solvency."

Id. Only companies that were engaged in the business of
insurance were regulated and subject to the act's provisions.
Former ORS 736.010 (1965).

Former ORS 736.005(1) (1965) was central to that
regulatory scheme. It defined "insurance" and, by extension,
identified those companies that were in the business of insur-
ance and thus subject to both the act's requirements and the
Insurance Department's jurisdiction. See former ORS
736.005(3)(b) (1965) (defining "company," "corporation," and
"insurance company," as used in the act, as all individuals
and entities engaged "in the business of insurance"); cf. Hall
v. Metropolitan Co., 146 Or 32, 28 P2d 875 (1934) (holding
that an annuity did not constitute "insurance" within the
meaning of former ORS 736.005(1) (1965) and, for that rea-
son, did not require the Insurance Commissioner to pre-
approve the annuity).

Former ORS 736.005(1) (1965) provided a basis for
determining which agreements and companies were subject
to the 1917 insurance act. However, nothing in that defini-
tion of insurance, or the larger act of which it was a part, sug-
gested that the legislature intended either to require that the
definition be part of every insurance agreement or to limit
the scope of available coverage, as London argues. At most,
the definition provided a legislative source from which a sub-
stantive "public policy" limitation could be implied. See A-1
Sandblasting, 293 Or at 22 (noting that public policy may be
found in legislative enactments).16 We thus disagree with

16 That is how, as we understand the trial court's rulings, it regarded the for-
mer statute. In that respect, we note that neither party has challenged the scope of
the public policy limitation that the trial court drew from former ORS 736.005(1)
(1965), and we express no opinion on it.

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London's argument that former ORS 736.005(1) (1965) auto-
matically became part of the insurance policies that London
issued and that it served as a limitation on coverage.17

London advances a second argument. London rea-
sons that, even if it ordinarily would have the burden to prove
that the damages were expected or intended, Zidell assumed
that burden when it included a declaratory judgment claim
in its action against London. Relying on First National Bank
v. Malady, 242 Or 353, 408 P2d 724 (1966), and State Farm
Fire and Cas. v. Reuter, 299 Or 155, 700 P2d 236 (1985),
London contends that, when Zidell alleged in its declaratory
judgment claim that the damages caused by its business
operations were unexpected and unintended, Zidell assumed
the burden of proving those facts.

London reads Malady and State Farm too broadly.
More specifically, London's argument fails to distinguish two
related but separate categories of declaratory judgment
actions. In the first category of declaratory judgment actions,
the party that ordinarily would have the burden of proof on a
claim or defense brings a declaratory judgment action to
establish its claim or defense. In that situation, the authori-
ties are unanimous that the plaintiff in the declaratory judg-
ment action has the same burden of production and persua-
sion that it ordinarily would have. See James W. Moore,
12 Moore's Federal Practice § 57.62[2][c] at 57-134 (3d ed
2009) (stating proposition); Edwin Borchard, Declaratory
Judgments 404 (2d ed 1941) (same); Developments in the
Law-Declaratory Judgments, 62 Harv L Rev 787, 836
(1949) (same).

In the second category of declaratory judgment
actions, the party that ordinarily would not have the burden
of proof on a claim or affirmative defense brings a declaratory
judgment action either to prove nonliability on a claim or to

17 London also argues that the trial court ruled that the former statute was a
limitation on coverage and that, because Zidell has not challenged that ruling on
appeal, that ruling binds Zidell. The difficulty with London's argument is that it
focuses on one of the trial court's rulings without considering the court's other rul-
ings regarding the scope and nature of the implied fortuity principle that the trial
court read into the pre-1968 insurance policies.

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establish that an affirmative defense does not apply. In con-
sidering that category of declaratory judgment actions, the
authorities have divided over who bears the burden of pro-
duction and persuasion. See 12 Moore's Federal Practice
§ 57.62[2][c] at 57-134 (recognizing division of authority).
Some authorities have reasoned that the party that ordinar-
ily would have the burden of proof retains it, even though
that party is now the defendant in the declaratory judgment
action. See, e.g., Borchard, Declaratory Judgments at 404-09
(in a declaratory judgment action, the burden of proving
operative and affirmative facts rests upon the party that
relies upon them); Travelers Ins. Co. v. Greenough, 88 NH
391, 190 A 129 (1937) (same). Other authorities, including
this court, have reasoned that, when the parties are trans-
posed, the plaintiff in the declaratory judgment action has
the burden to prove its affirmative allegations, even though it
ordinarily would not have the burden of doing so. See Charles
Allen Wright, Arthur R. Miller, and Mary Kay Kane, 10B
Federal Practice & Procedure § 2770 at 677-80 (discussing
cases) (1998); Malady, 242 Or at 358 (generally adopting that
position but leaving room for some variation when the cir-
cumstances warrant it).

London's argument-that, in alleging a claim for
declaratory relief, Zidell assumed the burden to prove that it
neither expected nor intended to cause damage to the envi-
ronment-rests on the assumption that this case comes
within the second category of declaratory judgment actions to
which Malady applies. That assumption is not correct, how-
ever. In this case, Zidell alleged two claims for relief against
London. The first claim was for breach of contract; the second
sought a declaration that London had a contractual duty to
defend and indemnify Zidell. As Zidell's parallel claims for
relief make clear, this case falls in the first category of declar-
atory judgment cases, in which the parties are not transposed
and the burden of proof remains unchanged. For that reason,
Malady provides no help to London.18

18 Since this court's decision in Malady, other courts have considered addi-
tional factors in allocating the burden of production and persuasion. See 12 Moore's
Federal Practice § 57.62[2][c] (describing a more flexible approach); Fireman's
Fund Ins. Co. v. Videfreeze Corp., 540 F2d 1171, 1174-76 (3d Cir 1976) (illustrating
analysis). Given our resolution of this issue, we need not decide whether those fac-
tors would apply and, if they did, whether they would affect the analysis.

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Similarly, State Farm, on which London also relies,
does not advance its argument. In that case, the insurer
brought a declaratory judgment action to establish an affir-
mative defense (issue preclusion) on which it ordinarily
would have had the burden of production and persuasion.
299 Or at 158-60. This court recognized that the insurer had
the burden of proof on that defense, without regard to
whether it either brought an action seeking a declaration
that the defense precluded coverage or waited until the
insured sued on the policy and raised the defense as a bar to
the insured's claim. Id. at 166-67 n 9. Put differently, State
Farm fell into the first category of declaratory judgment
actions in which the use of a declaratory judgment action did
not affect the ordinary allocation of the burden of production
and persuasion.

It follows from the foregoing discussion that Zidell's
addition of a declaratory judgment claim did not alter the
ordinary allocation of the burden of proof and production.
Zidell retained its usual burden to prove coverage, and
London retained its burden to prove exclusions to that cov-
erage, which, for the implied fortuity policies, meant that
London had the burden to prove that the damages were
expected or intended. Having considered London's argu-
ments, we conclude that the trial court and the Court of
Appeals correctly held that, for the implied fortuity policies,
London had the burden of proving that Zidell either expected
or intended the environmental damages resulting from its
business operations.

### C. Protection and Indemnity Coverage

In 1959, London issued to Zidell the first of several
"open cover" marine insurance policies that provided protec-
tion and indemnity (P & I) coverage for ships that Zidell pur-
chased for scrap and resale.19 The policy included a standard
form for port risks, which provided that London agreed to
indemnify the Assured:

19 The 1959 policy provided coverage for each ship that Zidell purchased during
the period in which the policy was in force and for which Zidell provided notice to
London. In discussing the P & I policies, the parties discuss only the 1959 policy
and treat it as representative of the P & I policies that followed. We follow the par-
ties' lead, although we note that the later policies are not identical.

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"if by reason of interest in the Vessel the Assured shall
become liable to pay and shall pay any sum or sums in
respect of any liability, claim, demand, damages, and/or
expenses arising from or occasioned by any of the following
matters or things during the currency of this Policy, that is
to say:

"Loss of or damage to any harbour, dock (graving or other-
wise), slipway, way, gridiron, pontoon, pier, quay, jetty,
stage, buoy, telegraph cable or other fixed or moveable
thing whatsoever, or to any goods or property in or on the
same howsoever caused[.]"

The trial court found that Zidell's ship dismantling
and ship repair activities contaminated the sediment in the
river. It concluded that London's promise, in the standard
port risk form, to indemnify Zidell for liability arising from
"damage to any * * * other fixed or moveable thing whatso-
ever" included a promise to indemnify Zidell for liability for
damage to the sediment in the Willamette River that Zidell
"incurred by reason of its interest in [the insured ships]." The
court explained that

"[t]he condition that liability arise 'by reason of interest' in
a vessel to establish coverage under Zidell's ship disman-
tling coverage is satisfied where materials are released
from a covered vessel onto the river such that they end up in
the sediments. * * * Once materials are disassociated from
a vessel being dismantled, they come under the crane barge
coverage, and once they hit land, they come under general
liability coverage."

The Court of Appeals reversed the trial court's rul-
ing, holding that the phrase "damage to any * * * other fixed
or moveable thing whatsoever" did not include damage to soil
or sediment in the river. The court's reasoning consisted of
three steps. First, it noted that almost all the specific items
that precede the phrase "any * * * other fixed or moveable
thing whatsoever" are artificial structures or objects. ZRZ
Realty, 222 Or App at 490. Second, it observed that, although
"harbour" usually refers to a naturally occurring feature, it
also can refer to an artificial structure and concluded that, in
this context, the word "most likely refers to something that

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has been built or constructed." Id. Finally, having deter-
mined that all the specific items that precede the general
phrase referred to artificial structures, it concluded that the
general phrase "any * * * other fixed or moveable thing what-
soever" was similarly limited. Id. at 490-91. The court rea-
soned that, at a minimum, river sediment was so dissimilar
from the specific listed items that the general phrase "any
other fixed or moveable thing whatsoever" did not
include it. Id.

On review, Zidell argues that the Court of Appeals
read both the specific items and the general phrase too nar-
rowly. London, for its part, urges us to follow the Court of
Appeals' interpretation of the P & I policy. It also advances
an alternative argument. It contends that, even if Zidell's
interpretation is correct, it is still not liable to indemnify
Zidell unless Zidell incurred the liability in its capacity as the
owner of the vessel and in the course of operating the vessel.
In considering those issues, we begin with the question
whether "damage to any harbour, dock (graving or other-
wise), slipway, way, gridiron, pontoon, pier, quay, jetty,
stage, buoy, telegraph cable or other fixed or moveable thing
whatsoever" includes damage to the riverbed.

On that question, we start from the proposition that
the Court of Appeals' interpretation of the provision is plau-
sible. That is, the word "harbour" can refer to both natural
and artificial features, and it is plausible to read the term
"harbour," in context, to refer to artificial features and to read
a similar limitation into the general phrase "any * * * other
fixed or moveable thing whatsoever." The question, however,
that Zidell's argument raises is whether its reading of the
provision is also plausible and, if it is, whether the remainder
of the policy resolves the resulting ambiguity. See Hoffman
Construction Co. v. Fred S. James & Co., 313 Or 464, 470, 836
P2d 703 (1992) (describing methodology for interpreting
provisions in insurance policies). If, after considering the
remainder of the policy, two plausible interpretations
remain, then we construe the phrase against the drafter and
in favor of the insured. Id.

11, 12. Ordinarily, we assume that a nonspecific term in a
series, such as "any * * * other fixed or moveable thing what-
soever," shares the same qualities as the specific terms that

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precede it. See Baker v. City of Lakeside, 343 Or 70, 76, 164
P3d 259 (2007) (discussing ejusdem generis rule).20 In this
case, Zidell starts from the proposition that the list of specific
items includes natural features (harbors), artificial struc-
tures (docks, slipways, jetties), and specific types of property
found in ports (buoys and telegraph cables).21 One plausible
reading of the listed items is that London undertook to
indemnify Zidell for liability arising from damage to various
types of property found in ports. Viewed in that context, the
phrase "any * * * other fixed or moveable thing whatsoever"
includes damage to the river sediment. At a minimum, the
broad wording of the general phrase makes Zidell's reading of
the provision a plausible one.

We note that, one year before London issued the first
P & I policy involved in this case, the United States District
Court for the Southern District of Texas held that essentially
the same provision in a P & I policy required the insurer to
indemnify a barge owner for damage to "a number of shore-
side properties" caused by oil spilled from the barge. See Gulf
States Marine & Min. Co. v. Norwich Union Fire Ins. Soc.,
168 F Supp 863, 865 (SD Tex 1958) (discussed in Alex L.
Parks, 2 The Law and Practice of Marine Insurance and
Average 957-58 (1987), as an example of the coverage under
this clause). The Fifth Circuit reversed but not because it dis-
agreed with the district court's holding. U. S. Fire Ins. Co. v.
Gulf States Marine & Min. Co., 262 F2d 565 (5th Cir 1959).
Rather, the Fifth Circuit noted that, according to the terms of
the policy, the P & I coverage would apply only if there were
no other coverage for the loss. Id. at 568. In that case,
however, there was coverage for the damages under a

20 We say "ordinarily" because the relationship between the specific and gen-
eral terms can vary depending on the particular wording that the legislature uses.
See Schmidt v. Mt. Angel Abbey, 347 Or 389, 402-07, 223 P3d 399 (2009) (discussing
ejusdem generis rule); id. at 408-10 (Walters, J., concurring) (same).

21 The word "harbour" refers to both naturally occurring and artificially cre-
ated harbors. See Webster's Third New Int'l Dictionary 1031 (unabridged ed 2002)
(defining harbor as "a small bay or other sheltered part of a considerable body of
water usu. well protected either naturally or artificially (as by jetties) from high
waves * * * and deep enough to furnish anchorage for ships"); Robert H. Brown,
A Dictionary of Marine Insurance Terms 171 (4th ed 1975) (defining harbor as "[a]
place either natural or artificial where ships may anchor or lay and be protected
from the open sea"). It is permissible to read that word, as Zidell does, to refer to
natural features as well as artificial ones.

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policy that covered the tug towing the barge. Id. That opinion
provides further support for Zidell's reading of the policy.

In sum, we think each party's interpretation of the
insurance provision is plausible, and we look to the remain-
der of the P & I policy that London issued Zidell to attempt to
resolve that ambiguity. In the remainder of the policy,
London undertook to indemnify Zidell for liability that it
incurred for a series of different types of property loss and
harm to persons. The port risks form provides that the under-
writers agreed to indemnify Zidell, subject to certain excep-
tions, for liability that it incurred for: damage to other per-
sons' vessels and cargo, whether caused directly by a collision
or indirectly; damage to other vessels and cargo owned by
Zidell; the cost of raising or removing the insured vessel and
its cargo should it sink; and damages resulting from the loss
of life and personal injury. Nothing in those additional cov-
ered risks sheds any light on the nature of the specific risk
that the parties chose to cover in the provision at issue here.
Cf. St. Paul Fire & Marine Ins. v. Vest Transp., 666 F2d 932,
940-44 (5th Cir 1982) (explaining that the P & I policy in that
case covered a series of discrete risks). Because the remain-
der of the policy does not remove any ambiguity in the mean-
ing of the provision, we interpret the phrase "any * * * other
fixed or moveable thing whatsoever" in favor of the insured
Zidell to include damage to the sediment in the river.

London advances an alternative argument. It con-
tends that, even if the phrase "any * * * other fixed or move-
able thing whatsoever" includes damage to the riverbed, the
terms of the policy and general principles of marine insur-
ance make clear that London agreed to indemnify Zidell only
for liabilities that Zidell incurred (1) as the owner of the
insured vessel and (2) in the course of operating the vessel.
The argument that London advances raises two issues, and
we consider them separately.

London contends that, under the terms of the policy,
it agreed to indemnify Zidell only to the extent that Zidell
incurred liability as the owner of the insured vessel. London
argues, however, that "Zidell's liability in this case does not
arise by reason of its interest in any vessel; it arises by reason
of its interest in the Moody Avenue site." As we understand

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London's argument, London does not dispute that Zidell
owned or had an interest in the vessels it dismantled. Rather,
London's first argument rests on the proposition that the
trial court imposed liability on London under the P & I poli-
cies for damages that Zidell incurred in some capacity other
than its capacity as the owner of the vessels. We do not read
the trial court's ruling as broadly as London does.

The third paragraph of the port risk form provides
that London has a duty to indemnify Zidell "if by reason of
interest in the [insured] Vessel the Assured shall become lia-
ble to pay and shall pay any sum or sums in respect of any lia-
bility * * * arising from or occasioned by" a series of specified
"matters or things," one of which is "damage to any harbour,
dock, * * * or other fixed or moveable thing whatsoever." In
discussing London's obligation under that provision, the trial
court explained that "[t]he condition that liability arise 'by
reason of interest' in a vessel to establish coverage under
Zidell's ship dismantling coverage is satisfied where materi-
als are released from a covered vessel onto the river such that
they end up in the sediments." The trial court also explained
that, once the materials were "disassociated" from a vessel
being dismantled, different insurance policies covered the
damages.

London has not explained why the trial court erred
in drawing the distinction that it did or why Zidell's liability
for materials released onto the river from its vessels would
not constitute liability that arose by reason of its interest in
those vessels. Nothing that London has offered in its briefs or
at oral argument persuades us that the trial court imposed
greater liability on London under the P & I policies than the
terms of those policies warranted.22

22 The P & I policy includes a "special clause" that applies to vessels intended
for scrapping. It provides:

"In respect of vessel (S) insured hereunder, it is agreed that this policy also
covers the Assured and Affiliated Companies of the Assured be they Owners,
subsidiaries or inter-related Companies and/or as bareboat Charterers and/or
Charterers and/or Subcharterers and/or Operators and/or in whatever capac-
ity * * *. "

The trial court did not have occasion to consider how this clause affected, if at all,
London's obligation to indemnify the assured for liability occasioned "by reason of
interest in the Vessel."

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London raises a related but separate argument. It
contends that, "[w]ith respect to P & I insurance, a well-
established and uniform rule of maritime law disposes of
Zidell's claim-a rule that requires a causal nexus between a
vessel's operation and the liability for which coverage is
sought." London reasons that, because Zidell was not oper-
ating vessels but was instead scrapping them, Zidell did not
incur liability by reason of its operation of a vessel and there-
fore cannot come within the terms of the P & I coverage.

London's argument construes P & I coverage too nar-
rowly, both generally and in this case. P & I coverage is
essentially marine liability coverage. It arose initially to pro-
vide coverage for liability that an insured vessel incurred as a
result of a collision with another vessel. Parks, 2 Marine
Insurance and Average at 832-33. Since then, coverage has
been extended to liability incurred as a result of a variety of
different risks, including liability resulting from ship build-
ing and ship repair. Id. at 839. As Parks notes in his treatise
on marine insurance:

"There are, of course, many different types of protection and
indemnity policies other than the classic form originally
intended to cover collision liabilities which were not then
provided by the hull policies. There are freight, demurrage,
and defense associations, and associations covering ship-
builders' liabilities, ship repairers' liabilities, and the like."

Id. (footnote omitted). Contrary to London's argument, P & I
policies are not limited to liability arising from the operation
of a vessel; rather, they can provide coverage for such things
as liability arising from building and repairing ships.

In this case, the P & I policy that London issued
Zidell covers liability arising from scrapping ships. That pol-
icy provides: "Vessels for scrapping insured subject to-Hull
F.P.A. Cover conditions as attached." (Emphasis in original.)
The attached Hull F.P.A. cover conditions incorporate an
attached standard form for Port Risks, which includes the
provision at issue on review.23 As Zidell correctly argues, the
P & I policy that London issued in this case was not limited to

23 The attached Hull F.P.A Cover Conditions is subtitled "Applicable vessels
intended for scrapping."

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liability that Zidell incurred in operating vessels; it expressly
covered liability that Zidell incurred in scrapping ships.

Although London argues that two cases support its
position, they go to the first issue that London raises, not the
second. In the first case, a crane operator on a fixed offshore
platform negligently raised a piece of machinery from a ves-
sel, injuring one of the vessel's crew members. Lanasse v.
Travelers Insurance Company, 450 F2d 580, 582 (5th Cir
1971). The crane operator was negligent; the vessel was not.
Id. at 583. Although the same entity (Chevron) owned both
the platform and the vessel, it was liable for the crew mem-
ber's injuries as the owner of the platform, not as the owner of
the vessel. Id. at 584. The P & I insurance in that case, how-
ever, provided that the insurer would pay only those sums
that the assured, as owner of the vessel, was liable to pay. Id.
at 583 n 7 & 584. Because Chevron did not incur any liability
as the owner of the vessel, the insurer had no obligation to
indemnify Chevron under the P & I policy in that case.

The second case is a variation on the first. In that
case, a vessel towing a barge negligently caused the barge to
hit a bridge and sink. St. Paul Fire & Marine Ins., 666 F2d at
935. The federal government removed the sunken barge and
was entitled to recover the cost of doing so from the entity
that negligently caused the barge to sink. Id. at 940. Only the
towing vessel's owner was liable to the government for the
cost of removing the barge. Id. The barge's owner incurred no
liability to the government. Id. The court assumed that the
same entity (Vest Transportation) owned the towing vessel
and the barge. Id. at 941. When Vest sought to recover under
a P & I policy, the court held that the insurer had agreed to
indemnify only the owner of the barge for the liability it had
incurred for the cost of the barge's removal. Id. Vest, how-
ever, had incurred no liability as the owner of the barge and
accordingly could not recover under the P & I policy. Id. at
941, 945.

Neither of the cases on which London relies stands
for the proposition that an insurer is obligated to indemnify
the assured under P & I coverage only if the assured incurred
liability in the course of operating an insured vessel. Each

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case does stand for the proposition that the insurer's obliga-
tion in those cases was limited to indemnifying the assured
only to the extent that the assured incurred liability as the
owner of the insured vessel. In this case, the P & I policy
provides that London has a duty to indemnify Zidell to the
extent that Zidell is liable by reason of its interest in the
insured vessels. As explained above, the trial court's findings
do not impose any greater obligation on London than the
terms of the policy permit. We find no error in the trial court's
ruling.

### D. Proceedings on Remand

Having found that the trial court erred in allocating
the burden of proof to London on the express fortuity policies,
the Court of Appeals reversed the trial court's judgment,
vacated the supplemental judgment awarding Zidell attor-
ney fees, and remanded the case for a new trial. ZRZ Realty,
222 Or App at 457-58. On review, Zidell argues that, even if
we uphold the Court of Appeals' allocation of the burden of
proof, the Court of Appeals erred in remanding for a new trial
on both the express and implied fortuity polices.24 Zidell con-
tends that a new trial is necessary only on the express fortu-
ity policies. Zidell also argues that the Court of Appeals
should have affirmed the "attorney-fee portion of the judg-
ment as well as the supplemental judgment for attorney fees."
London responds that, under Maxwell v. Port. Terminal RR.
Co., 253 Or 573, 456 P2d 484 (1969), the Court of Appeals
was correct in "requiring a retrial as to all policies, and in
reversing the fee awards."

We do not read Maxwell as broadly as London does.
The court explained in Brown v. Bonesteele, 218 Or 312, 335,
344 P2d 928 (1959), that "[u]nder appropriate circumstances
this court may remand a case for a new trial on a part only of

24 The Court of Appeals decision does not explicitly require a retrial on both the
express and implied fortuity policies. However, that appears to have been its
intent. For example, the Court of Appeals declined to address London's third
assignment of error, which was directed at both the implied and express fortuity
policies, on the ground that it was reversing and remanding for a new trial on those
policies. ZRZ Realty, 222 Or App at 480. Moreover, Zidell petitioned for reconsid-
eration on the ground that the Court of Appeals should have remanded for a retrial
only on the express fortuity policies, and the Court of Appeals denied Zidell's peti-
tion. ZRZ Realty, 225 Or App at 262.

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the issues raised in the original proceeding." The court con-
sistently has followed that principle. See Estate of Michelle
Schwarz v. Philip Morris Inc., 348 Or 442, 460, 235 P3d 668
(2010) (remanding for a retrial only on punitive damages);
Western Feed Co. v. Heidloff, 230 Or 324, 349, 370 P2d
612 (1962) (remanding for a retrial only on the defendant's
counterclaim); Dunn v. Henderson, 122 Or 331, 336, 258
P 183 (1927) (upholding determination of liability and
remanding for a trial on damages only).

In Maxwell, this court recognized an exception to
that general rule. The court explained that, "[i]n the ordinary
two-party personal injury case, * * * evidence of fault can
influence the jury's measurement of damages; and the kind
and degree of injuries may influence some jurors in their
evaluation of the evidence on liability." Maxwell, 253 Or
at 577. Accordingly, the court held that a "new trial in a
personal-injury case ordinarily should be a new trial on all
contested factual issues." Id.

This case differs from Maxwell in two respects. Not
only was the court careful to limit its holding in Maxwell to
cases tried to a jury, id. at 575, but the court's reasoning in
Maxwell turned on the relationship between liability and
damages in personal injury cases, id. at 577. This case, by
contrast, was tried to the court, and nothing that London has
identified persuades us that the trial court cannot, on
remand, fairly limit any retrial to the express fortuity poli-
cies; that is, we see no reason why the trial court needs to
retry London's responsibility to indemnify Zidell under the
implied fortuity policies to determine whether London is also
required to indemnify Zidell under the express fortuity poli-
cies. The remand should have been limited, at least initially,
to the question whether, for the purposes of the express for-
tuity policies, Zidell either expected or intended that a series
of contaminants resulting from the operation of its business
would damage the environment.25

25 Zidell concedes that, if the trial court erred in placing the burden of proof on
London regarding the express fortuity policies, then the case must be remanded for
a limited retrial. Zidell's concession is well taken. For example, the trial court
found by a preponderance of the evidence that, in 1972, Zidell expected that the
arsenic in the anti-fouling paint would cause property damage. The trial court,
however, made no finding as to what Zidell expected or did not expect for the

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In retrying that issue, the trial court must determine
initially whether it is necessary to supplement the record;
that is, if neither party can establish a specific basis for say-
ing that the record would have been different if the trial court
had placed the burden of production and persuasion initially
on Zidell, then the trial court may find, based on the existing
record, what Zidell expected or intended for the purposes of
the relevant express fortuity policies.26 If, on either the exist-
ing or a supplemented record, the trial court makes the same
findings on remand that the trial court did initially, then it
presumably can reenter the judgment, with any appropriate
adjustment for attorney fees. Conversely, if the trial court
reaches a different conclusion on remand as to when Zidell
expected or intended property damage for the purposes of the
express fortuity policies, then the court also will presumably
have to adjust the findings allocating responsibility for reme-
diating the damage between London and Zidell.

Zidell also argues that the Court of Appeals erred in
reversing the fee award in the judgment and in vacating the
fee award in the supplemental judgment. As we understand
the trial court's rulings on attorney fees, it found that London
had a duty to defend Zidell in response to DEQ's 1994
notice.27 The trial court also found that, when Zidell trans-
mitted the 1994 DEQ letter to London, that letter served as a
proof of loss for the purposes of ORS 742.061. Finally, the

preceding years. For all that the record reveals, the trial court could have found
that, for 1971 and for each of the preceding years in which the trial court incor-
rectly allocated the burden of production and persuasion, London simply failed to
persuade the trial court that Zidell had expected property damage from the arsenic
without also finding that Zidell in fact had not expected property damage. Given
this record, we agree that the trial court's misallocation of the burden of production
and persuasion requires at least a limited retrial regarding the express fortuity
policies.

26 At trial, the parties discussed what would happen on remand if the appellate
courts reversed the trial court's allocation of the burden of production and persua-
sion. Initially, the trial court explained that, in its view, it could simply retry the
issue on the existing record. When London's counsel suggested that Zidell might
have tried its case differently if the trial court had placed the burden of production
and persuasion on Zidell, the trial court tentatively agreed. Zidell, however, did not
identify how it would have tried its case differently, and we think that it is incum-
bent on the party that wants to supplement the record to identify a specific, legiti-
mate reason for doing so.

27 London argues, and Zidell does not dispute, that only some of the policies
imposed a duty to defend on London and that only some of the London defendants,
the LPGL Underwriters, bore that duty. For ease of reference, we refer generally to
London's duty to defend.

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trial court found that, because London did not offer to pay
Zidell's defense costs within the period set out in ORS
742.061, that statute authorized Zidell to recover the attor-
ney fees that it incurred in bringing this action to establish
and enforce London's duty to defend, but not its duty to
indemnify.28

In the Court of Appeals, London assigned error to
four of the trial court's rulings regarding attorney fees. The
Court of Appeals considered and rejected London's first
assignment of error-that the 1994 letter was not a sufficient
proof of loss. ZRZ Realty, 222 Or App at 493-95. The Court of
Appeals, however, did not consider the other three assign-
ments of error that London raised regarding the attorney fees
or the two assignments of error concerning attorney fees that
Zidell raised on cross-appeal. Id. at 495, 497. The Court of
Appeals reasoned that it was not necessary to reach those
issues. It explained that, "[b]ecause we reverse and remand
for trial on the breach of contract and declaratory judgment
claims, we necessarily reverse the award of attorney fees in
favor of Zidell. ORS 20.220(3)." Id.29

On review, Zidell argues that the Court of Appeals
erred in reversing the attorney fee award in the judgment
and in vacating the attorney fee award in the supplemental
judgment. It contends that the Court of Appeals' ruling
reversing the trial court's allocation of the burden of proof on
the express fortuity policies had no effect on the trial court's
award of attorney fees. We agree with Zidell. According to the
trial court, it awarded Zidell only those fees and costs that
were attributable to London's breach of its duty to defend.30

28 On review, neither party challenges the trial court's findings regarding
attorney fees, and we express no opinion on them.

29 ORS 20.220(3) provides:

"When an appeal is taken from a judgment under ORS 19.205 to which an
award of attorney fees or costs and disbursements relates:

"(a) If the appellate court reverses the judgment, the award of attorney
fees or costs and disbursements shall be deemed reversed; or

"(b) If the appellate court modifies the judgment such that the party who
was awarded attorney fees or costs and disbursements is no longer entitled to
the award, the party against whom attorney fees or costs and disbursements
were awarded may move for relief under ORCP 71 B(1)(e)."

30 We express no opinion on the question whether the fee award may have
included fees that Zidell's "attorneys incurred on issues other than LPGL Under-
writers' duty to defend," as London argued before the Court of Appeals. As

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By contrast, the issue that the trial court must retry on
remand-whether Zidell expected or intended the damage
resulting from its business activity-is relevant only to the
question whether London has a duty to indemnify Zidell
under the various express fortuity policies that London
issued.

This court has long recognized that "[t]he duty to
indemnify is independent of the duty to defend." Ledford, 319
Or at 403. An insurer may have a duty to defend its insured,
as the trial court found here, but no duty to indemnify. It fol-
lows that, even if the trial court finds on remand that London
had no duty to indemnify Zidell under the express fortuity
policies, that ruling would have no effect on either the trial
court's ruling that London had a duty to defend Zidell in
DEQ's enforcement action or the trial court's conclusion that
ORS 742.061 authorized Zidell to recover attorney fees it
incurred in this action in establishing and enforcing London's
duty to defend. The Court of Appeals erred in reversing and
vacating the fee awards.31

That said, we note that London's eighth assignment
of error, which the Court of Appeals did not reach, contended
that trial court erroneously had "awarded Zidell fees its
attorneys incurred on issues other than LPGL Underwriters'
duty to defend."32 London also assigned error to the trial
court's rulings on the appropriate hourly rate and a discrete
category of activity for which the trial court allowed fees.
Zidell, for its part, raised two assignments of error on cross-
appeal regarding attorney fees. Because we conclude that the
Court of Appeals erred in reversing and vacating the fee
awards, it follows that we must remand this case initially to
the Court of Appeals to permit it to consider those assign-
ments of error. On remand before the Court of Appeals, the

explained below, the Court of Appeals did not reach that issue, and we leave that
issue to the Court of Appeals on remand.

31 Because the part of the trial court's judgment that the Court of Appeals
reversed does not relate to the awards of attorney fees, ORS 20.220(3) did not
require the Court of Appeals to reverse and vacate the fee awards.

32 What the trial court included in its fee award is not always clear, in part
because the parties appear to have negotiated and settled on a rolling basis some,
if not many, of the specific charges that give rise to this issue.

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parties are also free to ask the court to consider, if appropri-
ate, those assignments of error that the court did not reach
because it remanded the case for a new trial on both the
express and implied fortuity policies. Because at least some
of those issues must go back to the Court of Appeals for its
resolution before the case returns to the trial court, we
remand this case initially to the Court of Appeals.

The decision of the Court of Appeals is affirmed in
part and reversed in part. The case is remanded to the Court
of Appeals.