Bailey v. Universal Underwriters Ins. Co.

• Decision Date: 23 September 1970
• Citation: 474 P.2d 746,258 Or. 201
• Parties: Iva May BAILEY, Respondent, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a corporation, Appellant.
• Court: Oregon Supreme Court

Page 746

474 P.2d 746

258 Or. 201

Iva May BAILEY, Respondent, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a corporation, Appellant.

Supreme Court of Oregon.

Argued and Submitted May 6, 1970.

Decided Sept. 23, 1970.

L. M. Schouboe, Portland, argued the cause for appellant. With him on the briefs were Thomas Cavanaugh and Schouboe & Cavanaugh, Portland.

Ferris F. Boothe, Portland, argued the cause for respondent. With him on the brief were Black, Kendall, Tremaine, Boothe & Higgins, Portland.

Before McALLISTER, P.J., and SLOAN, O'CONNELL, DENECKE, HOLMAN, TONGUE, and HOWELL, JJ.

TONGUE, Justice.

This is an action on an insurance policy by a person injured in an automobile accident, who filed this action after obtaining an unpaid judgment against the driver of the vehicle alleged to be covered by that policy.

Defendant denied coverage on three grounds: (1) that the policy, issued to an automobile dealer, did not cover the car involved in the accident; (2) that defendant was given no notice of the true facts of the accident, and (3) that the driver of the car failed to cooperate in the defense of the original action. The case was tried before the court, sitting without a jury.

Prior to the accident defendant issued an insurance policy to Kellum Motors, Inc., an automobile dealer at Gladstone, Oregon. Kellum also operated a used car lot several miles away. Wilbert Steele, the driver in question, did repair work at the used car lot in the evenings. He was not an employee, however.

On July 23, 1967, Steele started home after work in his own car, which broke down. He then was permitted by the used car lot manager, Mr. Smith, to borrow one of the used cars to drive home. On the way home he collided with a vehicle driven by plaintiff. The accident was investigated by an officer who prepared a report stating, among other things, that the car was owned by Kellum Motors. That statement was based upon information given by Steele at the scene of the accident to the officer, as he later testified.

The next evening Steele took the car back to the used car lot and told Smith that he had an accident with it. He also told Smith that 'I guess I've got to buy it now that I wrecked it.' No price was agreed upon, however, and no papers were signed at that time. In the course of the discussion the idea was suggested, however, apparently by Steele, that he would 'represent' that he owned the car at the time of the accident.

Some time later a 'retail installment contract' was prepared and signed, predated as of July 22nd, as well as a 'car order,' also originally predated as of '7/22,' but with that date crossed out and redated '8/1' 1967. A 'commission voucher' for a commission on the sale to Smith was also dated '8--1--67.' The amount of that commission was not included in the check to Smith, dated July 31, 1967, for other sales made by him in July. The 'used vehicle sales journal' sheet for the 'month of August 1967,' however, shows the sale to Steele as the first item at the top of that sheet, with the date '7/22,' instead of including it as the last item on the preceding sheet for used car sales for the month of July.

About fifteen days after the accident an investigator for plaintiff's insurance company visited Kellum Motors and in examining its records noticed some of these discrepancies. On that same day he learned that defendant was Kellum's insurance carrier. He then called and told one of its agents that 'there was an accident involving a vehicle that possibly was owned by Kellum Motors, and it might be advisable for him, at that time, to look into the matter.'

Defendant's investigator then visited Kellum Motors, where he examined and was given a copy of the car order and the retail installment contract. He noted the alteration on the car order and was told that 'the books had been closed when these came through from the car lot' and that the alteration on the car order was made 'for financing reasons only.' The investigator then took a statement from both Smith and Steele, who told him that Steele signed the contract to purchase the car on July 22nd and had the accident the next day. He then reported and recommended that 'since Mrs. Bailey was seriously injured,' defendant 'take the position that this car had been sold and was not insured under your policy.'

Plaintiff then filed an action for personal injuries against both Kellum Motors and Steele, alleging that the car was owned by Kellum and that it was being operated by Steele. Defendant provided counsel to defend Kellum but not Steele. Depositions were then taken of Steele, who appeared without counsel and again stated that he was not an employee of Kellum and had bought the car the day before the accident.

On May 7, 1968, that case came on for trial. Plaintiff then took an order of voluntary nonsuit against Kellum Motors and took an order of default against Steele, who had made no appearance. Plaintiff also offered evidence in support of her complaint and on May 13th judgment was entered by default against Steele for $19,080.72.

Meanwhile, on May 10, 1968, plaintiff's attorney again visited Steele, who then and for the first time admitted that he had lied in previous statements that he had bought the car the day before the accident and admitted that it was not purchased by him until after the accident.

Six weeks later plaintiff filed this action. The deposition of Smith, the used car lot manager, was then taken and he then testified that after the accident Steele suggested the idea that he would 'swear that it was my car' because 'I had bought it' prior to the accident and told Smith 'not to worry' and that the papers were signed later and predated. He also swore that he never informed Mr. Kellum or Mr. Rikke, his manager, of these facts and there was no testimony that they were previously aware of these facts.

No attempt was made by defendant, however, to set aside the default judgment against Steele, even after taking a further deposition of Steele, in which he also admitted that he had not purchased the car until after the accident and that he had previously lied in testifying to the contrary. Instead, defendant's attorney wrote a letter to Steele denying insurance coverage for the accident upon the ground that Steele was not an 'insured within the definition of the policy' and upon the further ground that:

'* * * you failed to cooperate in that you materially misrepresented the facts relating to the ownership of the vehicle you were operating at the time of the accident, all to the extreme prejudice of the Universal Underwriters Insurance Company.'

1. Steele was a 'person insured' by the insurance policy.

The trial judge held that Mr. Steele was a 'person insured' under the terms of the policy. We agree.

The insurance policy was a 'comprehensive liability policy (general-automobile),' No. 756241, issued to Kellum Motors, Inc. As one of the 'insuring agreements' the policy included an 'omnibus clause,' under which coverage for bodily injury was extended to 'any person while using an owned automobile or a hired automobile, * * *, provided the actual use of the automobile is by the named insured or with his permission * * *' followed by certain exceptions not claimed to apply to this case.

Attached to this policy are a number of endorsements, most of which provide for additional coverage, with additional premiums. ¹ Other endorsements clearly excluded certain hazards. ² Included with these other endorsements was an endorsement designated as UU--3139, and entitled 'Garage (premises-operations-automobiles),' with the subheading 'Limited additional interests' and covering the 'hazards' described as 'garage operations hazard.' This 'garage endorsement,' by definition of the term 'insured,' limits coverage for 'automobile hazard' to persons such as paid employees or members of the household of the named insured and to 'any other person' only while the automobile is physically operated by persons such as the named insured or his paid employees.

It is contended by defendant that the 'garage endorsement' is the 'meat of the policy' and provides that 'Insuring Agreement III of the policy (the 'omnibus clause') does not apply.' Thus, defendant contends that this endorsement limits coverage under the basic policy for the purpose of all of the Kellum's 'garage operations,' including the used car lot.

The schedule attached to the basic policy as its first endorsement, however, sets forth a 'breakdown' of the premium charged for personal injury and property damage coverage under the basic policy and goes on to state that for 'non-owned automobiles' and 'hired automobiles' there is 'no coverage for this hazard--except as provided by Garage Endorsement UU--3139.' With reference to the coverage for 'owned automobiles,' (as also referred to under the 'omnibus clause' of the basic 'comprehensive liability policy') there is no provision to the effect that there is 'no coverage for this hazard, except as provided by garage endorsement.' On the contrary, it is expressly provided by this same schedule that coverage for 'owned automobiles' is 'subject to all the terms and conditions of this policy (referring to policy No. 756241, the 'Comprehensive Liability Policy') AND Form No. UU--3139 (the so-called 'Garage Endorsement').'

We have attempted to follow through the maze of policy provisions, endorsements, exceptions, and seemingly contradictory provisions. These include a broad definition of 'insured' for the purpose of the basic 'comprehensive liability policy' and as stated in its 'omnibus clause,' as compared with a more limited definition of that term in the 'garage endorsement.' They also include an express limitation of coverage for 'non-owned automobiles' and 'hired automobiles' to coverage as provided by the 'garage endorsement,' while omitting any such limitation with respect to coverage for 'owned automobiles,' and providing, on the...