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

• Decision Date: 03 November 1987
• 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, Petitioner/Respondent on review, v. FIREMAN'S FUND INSURANCE COMPANIES, Respondent/Petitioner on review. CC A8305-03055/CA A34760/SC S33950; S34004.
• Court: Oregon Supreme Court

Page 998

744 P.2d 998

304 Or. 301

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, Petitioner/Respondent on review, v. FIREMAN'S FUND INSURANCE COMPANIES, Respondent/Petitioner on review.

CC A8305-03055/CA A34760/SC S33950; S34004.

Supreme Court of Oregon.

Argued and Submitted July 7, 1987.

Decided Nov. 3, 1987.

Susan P. Graber, Portland, argued the cause for petitioner/ respondent on review. With her on the petition were Barnes H. Ellis and Stoel, Rives, Boley, Fraser & Wyse, Portland.

I. Franklin Hunsaker, Portland, argued the cause for respondent/petitioner on review. With him on the petition were Douglas G. Houser, Dianne K. Ericsson and Bullivant, Houser, Bailey, Pendergrass & Hoffman, Portland.

Before PETERSON, C.J., and LINDE, CAMPBELL, CARSON and JONES, JJ.

JONES, Justice.

Defendant insurer, Fireman's Fund Insurance Companies, petitioned this court to review the decision of the Court of Appeals, which affirmed a declaratory judgment of the trial court holding that insurer was liable under an insurance policy for damages sustained to the property of the insured plaintiff, ABCD ... Vision, Inc. ABCD ...Vision, Inc. v. Fireman's Fund Ins. Companies, 84 Or.App. 645, 734 P.2d 1376 (1987). We allowed review to decide the issue whether the insurer was estopped from asserting two policy exclusions as defenses to the claimed damages of the insured because insurer had failed to assert those policy exclusions as the basis of its denial of the claim in its original denial letter to the insured.

The parties agree to the facts set out in the Court of Appeals opinion.

"Plaintiffs operated a television transmitter in Silverton. 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 expense 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 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 exclusion 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." 84 Or.App. at 647-48, 734 F.2d 1376 (footnotes omitted).

The trial court ruled, among other things, that the insurer was estopped to assert defenses based on exclusion clauses (a) and (g). Insurer first pleaded those defenses in its answer to the insured's fourth amended complaint. In a special verdict, the jury found that 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." The jury did not consider application of the exclusion clauses. The court then granted declaratory judgment for the insured and denied insurer's motion for judgment n.o.v.

The Court of Appeals held that the trial court did not err in ruling that the insurer was estopped from asserting defenses based on exclusions (a) and (g). The Court of Appeals also held that the trial court correctly interpreted Condition 14 to require the insured, in case a loss occurred, to safeguard only the damaged property and not all the insured property.

As mentioned, the insurer had denied coverage on other grounds after conducting an investigation of the losses. The insurer argued that it was not estopped because estoppel cannot expand coverage beyond the limits of the original policy. The Court of Appeals rejected the assertion, citing Ward v. Queen City Ins. Co., 69 Or. 347, 138 P. 1067 (1914). In that case, the insured claimed that the insurer was estopped from asserting a defense of false swearing in the proof of loss, because the insurer, with full knowledge of the facts surrounding the fire loss, notified the insured that it was denying liability because the insured had stored gasoline in the insured building. The insured, relying on the insurer's statement, employed attorneys and filed the action. The Ward court stated:

" * * * After the lapse of some months subsequent to the fire, defendant expressed its declination to meet the terms of the contract of insurance upon the sole ground that certain acts of the plaintiff had increased the hazard of its risk. Accepting this position of defendant's as the...