ABCD ... Vision, Inc. v. Fireman's Fund Ins. Companies

• Decision Date: 08 April 1987
• Citation: 84 Or.App. 645,734 P.2d 1376
• Parties: ABCD ... VISION, INC., as general partner of Willamette Subscription Television, Limited, an Oregon limited partnership, of Greater Willamette Vision, Limited, an Oregon limited partnership, and of Vision STV Leasing, a California limited partnership, Respondents, v. FIREMAN'S FUND INSURANCE COMPANIES, Appellant. A8305-03055; CA A34760.
• Court: Oregon Court of Appeals

Page 1376

734 P.2d 1376

84 Or.App. 645

ABCD ... VISION, INC., as general partner of Willamette Subscription Television, Limited, an Oregon limited partnership, of Greater Willamette Vision, Limited, an Oregon limited partnership, and of Vision STV Leasing, a California limited partnership, Respondents, v. FIREMAN'S FUND INSURANCE COMPANIES, Appellant.

A8305-03055; CA A34760.

Court of Appeals of Oregon.

Argued and Submitted June 23, 1986.

Decided April 8, 1987.

I. Franklin Hunsaker, Portland, argued the cause for appellant. With him on the briefs were Douglas Houser, Dianne K. Ericsson and Bullivant, Houser, Bailey, Hanna, Pendergrass, Hoffman, O'Connell & Goyak, Portland.

Susan P. Graber, Portland, argued the cause for respondents. With her on the brief were George F. Hammond and Stoel, Rives, Boley, Fraser & Wyse, Portland.

Before RICHARDSON, P.J., and NEWMAN and DEITS, JJ.

NEWMAN, Judge.

Defendant appeals a declaratory judgment that an insurance policy that it issued to plaintiff ABCD ... VISION, INC., covers damage to plaintiffs' television transmission system. It also appeals from an order awarding attorney fees to plaintiffs. We reverse the award of attorney fees, but otherwise affirm.

Plaintiffs operated a television transmitter in Silverton. ¹ It was insured by defendant. The policy provides:

"PERILS INSURED.

"This policy insures against all risks of direct physical loss of or damage to the property insured from any external cause except as otherwise provided herein.

"PERILS EXCLUDED.

"This policy does not insure against:

"a. Loss or damage which is due and confined to wear and tear, inherent vice, gradual deterioration, insects, vermin, freezing, dampness of atmosphere, extremes of temperature, mechanical or electrical breakdown or failure, unless such damage is the result of other loss covered by this policy.

" * * *

"g. Loss, damage, or expense directly due to or resulting from repairing, adjusting, servicing or maintenance operation, unless fire or explosion ensues, and then only for direct loss or damage caused by such ensuing fire or explosion.

" * * *

"CONDITION 14.

"In case of loss, it shall be lawful and necessary for the insured, his or their factors, servants and assigns, to sue, labor and travel for, in and about the defense, safeguard and recovery of the property insured hereunder, or any part thereof without prejudice to this insurance nor shall the acts of the Insured or the Company, in recovering, saving and preserving the property insured in case of loss be considered a waiver or an acceptance of abandonment. The expenses so incurred shall be borne by the Insured and the Company proportionately to the extent of their respective interests."

The transmission system consisted of several interrelated components ² made of materials subject to fire, arcing, smoke and soot. It included a Visual Standing Wave Ratio protection system (VSWR) to detect malfunctions and to turn the system off automatically. Shortly after plaintiffs began to transmit morning programs on May 22, 1982, arcing, fire, smoke and soot damaged components of the transmission system, and it stopped functioning. Plaintiffs discovered that, because of a defective thermal relay, the VSWR had not turned off the system soon enough to avoid damage. Plaintiffs made repairs that were feasible and replaced some of the damaged equipment with spare parts. They removed a defective relay in the VSWR, but neither a new relay nor a replacement VSWR was immediately available and they resumed broadcasting without a functioning VSWR. They received a replacement relay some days later but did not install it. On June 3, 1982, the transmission system arced and overheated for two minutes. Plaintiffs shut it down manually. Components of the transmission system that had not been damaged on May 22 were damaged on June 3.

Plaintiffs made a claim for all the damages from both incidents. After investigation, defendant denied the claim on the ground that its policy only covers damage resulting from "external causes" and that plaintiffs had not shown that the arcing, smoke and soot came from any "external cause." Relying on Condition 14, it denied the claim for the June 3 damage on the additional ground that plaintiffs had failed to safeguard all of the insured property after the May 22 damage. Defendant did not mention or rely on either of the exclusions in clauses (a) and (g). Plaintiffs and defendant then agreed to delay an appraisal of the damages until after litigation about coverage, and plaintiffs brought this action.

The trial court ruled that (1) the term "external cause" is ambiguous and the parties could offer extrinsic evidence of their intent; (2) defendant could not introduce evidence of another policy that might have covered the damage if plaintiffs had purchased it; and (3) defendant was estopped to assert defenses based on exclusion clauses (a) and (g). ³ At trial, the court refused defendant's request to instruct the jury that an "external cause" is one "which operates from the outside" and that any damage resulting from plaintiffs' negligence or deliberate risk-taking is not an "external cause" and is not covered by the insurance policy. Defendant excepted to the court's instruction that damage caused by negligence is a fortuitous event and is covered by the policy unless expressly excluded and that the risk of negligence "by the insured * * * is an insured peril." Defendant also excepted the court's instruction that Condition 14 means that:

"the insured must take steps to preserve the damaged property if it continues to have a recoverable value. And if the insureds [sic] fails to do so, it will be a breach to the insurance contract to the degree of damage, if any, on the second incident of June 3, 1982."

Defendant further excepted to the court's refusal to give a requested instruction of defendant, with respect to Condition 14, that omitted the language just quoted and stated that:

"[t]he insured's [sic ] breach] of * * * [Condition 14] may keep the insureds [sic ] from recovering under the policy if the insured's [sic ] failure to satisfy the condition increased the loss."

The court also denied defendant's motion for a directed verdict.

In a special verdict, the jury found: (1) arcing, fire, smoke or soot caused the damage to the insured property on both May 22 and June 3 and was "a cause external to the property insured;" (2) following the occurrence of May 22 the plaintiffs did not take reasonable steps to recover, save and preserve the insured property, but did take reasonable steps to recover, save and preserve the damaged property. The court then granted declaratory judgment for plaintiffs and denied defendant's motion for judgment n.o.v.

Five of defendant's assignments of error concern the same issue: whether the term "external cause" is ambiguous. As the court stated in Timberline Equipment v. St. Paul Fire and Mar. Ins., 281 Or. 639, 643, 576 P.2d 1244 (1978):

"As a general rule the construction of a contract, including an insurance contract, is a question of law. The exception to this rule is that if the language of the contract is ambiguous, or if technical words, local phrases or terms of art are used and evidence is properly admitted showing meaning, the question becomes one of fact." (Citation omitted.)

Defendant argues that the words "external cause" are not ambiguous and that the court should not have admitted extrinsic evidence of the parties' intent or allowed the jury to determine the meaning of that term. It urges that "external cause" means a cause "arising or acting from outside," that is, "having an outside origin." It asserts that plaintiffs' losses resulted from an internal cause and also from plaintiffs' own negligence or deliberate risk-taking. Plaintiffs respond that an "external cause" can also mean one which is accidental or fortuitous.

The test of ambiguity is whether a contract provision "has no definite significance or if it is capable of more than one sensible and reasonable interpretation; it is unambiguous if its meaning is so clear as to preclude doubt by a reasonable person." Deerfield Commodities v. Nerco, Inc., 72 Or.App. 305, 317, 696 P.2d 1096, rev. den. 299 Or. 314, 702 P.2d 1111 (1985). If a contract is ambiguous, the court may admit extrinsic evidence of the parties' intent, and that question becomes one of fact. Deerfield Commodities v. Nerco, Inc., supra, 72 Or.App. at 317, 696 P.2d 1096. In Goodman v. Fireman's Fund Ins. Co., 600 F.2d 1040 (4th Cir.1979), the court construed a clause, similar to that in defendant's policy, in a policy which covered a yacht which sank due to its owner's negligence. The court stated:

"The addition of the phrase 'external cause' to the 'all risks' clause constitutes no real limitation on the scope of the latter. If the loss did not result from inherent defect, ordinary wear and tear, or intentional misconduct, its cause was necessarily external." 600 F.2d at 1042.

Other courts have held that an accidental or fortuitous event, regardless of its place of origin, constitutes an "external cause." See Morrison Grain Co., Inc. v. Utica Mut. Ins. Co., 632 F.2d 424, 430 (5th Cir.1980); Atlantic Lines Ltd. v. American Motorists Ins. Co., 547 F.2d 11, 12 (2d Cir.1976); see also Kraemer Bros., Inc. v. U.S. Fire Ins. Co., 89 Wis.2d 555, 278 N.W.2d 857 (1979). We conclude that the phrase "external cause" does not unambiguously mean only a cause "arising outside the physical boundaries of the insured property." It may also mean a "fortuitous event."

Other language of the policy supports the view that "external cause" may encompass fortuitous events originating within the insured property. Subsection "a" under Perils Excluded excludes coverage for damage caused by "mechanical or electrical breakdown or failure." If the policy covered only losses from causes originating outside the insured property, then it would not also be necessary...