Brownstone Homes Condo. Ass'n v. Brownstone Forest Heights, LLC

• Decision Date: 19 November 2015
• Docket Number: CA A145740,SC S061273.,CC 0606–06804
• Citation: 363 P.3d 467,358 Or. 223
• Parties: BROWNSTONE HOMES CONDOMINIUM ASSOCIATION, an Oregon non-profit corporation, Petitioner on Review, v. BROWNSTONE FOREST HEIGHTS, LLC, an Oregon limited liability company, et al, Defendants, and Capitol Specialty Insurance, Co., Respondent on Review.
• Court: Oregon Supreme Court

358 Or. 223

363 P.3d 467

BROWNSTONE HOMES CONDOMINIUM ASSOCIATION, an Oregon non-profit corporation, Petitioner on Review,

v. BROWNSTONE FOREST HEIGHTS, LLC, an Oregon limited liability company, et al, Defendants,andCapitol Specialty Insurance, Co., Respondent on Review.

CC 0606–06804

CA A145740

SC S061273.

Supreme Court of Oregon, En Banc.

Argued and Submitted March 11, 2014.

Decided Nov. 19, 2015.

Wendy M. Margolis, Cosgrave, Vergeer, Kester, LLP, Portland, argued the cause and filed the briefs for petitioner on review. With her on the briefs was Thomas W. Brown.

Brian C. Hickman, Gordon & Polscer, LLC, Portland, argued the cause and filed the briefs for respondent on review. With him on the briefs was Gregory A. Baird.

Travis Eiva, The Corson & Johnson Law Firm, Eugene, filed the brief for amicus curiae Oregon Trial Lawyers Association.

LANDAU, J.

This is a construction defect case in which a condominium homeowners association sued a contractor for negligence. The contractor's insurer refused to defend the contractor against the action, and the contractor and the homeowners association thereafter entered into a settlement that included a stipulated judgment against the contractor, a covenant by the homeowners association not to execute that judgment, and an assignment to the homeowners association of the contractor's claims against its insurer. When the homeowners association then initiated a garnishment action against the insurer, however, the trial court dismissed the action on the ground that, under Stubblefield v. St. Paul Fire & Marine, 267 Or. 397, 517 P.2d 262 (1973), the covenant not to execute had released the contractor from any obligation to pay the homeowners association and, in the process, necessarily released the insurer as well. The homeowners association appealed, arguing that Stubblefield either is distinguishable on its facts or has been superseded by statute. In the alternative, it argued that Stubblefield was wrongly decided and should be overruled. The Court of Appeals affirmed. Brownstone Homes Condo. Assn. v. Brownstone Forest Hts., 255 Or.App. 390, 401, 298 P.3d 1228 (2013). For the reasons that follow, we conclude that, although Stubblefield is not distinguishable and has not been superseded by statute, it was wrongly decided. We therefore reverse and remand for further proceedings.

I. FACTS

The relevant facts are largely those set out in A&T Siding v. Capitol Specialty Insurance Corp., 358 Or. 32, 359 P.3d 1178 (2015), a related case recently decided by this court on a certified question from the United States Court of Appeals for the Ninth Circuit.¹ The Brownstone Homes Condominium Association discovered various defects in the construction of its condominium complex and initiated a negligence action against, among others, A&T Siding, one of the subcontractors on the project. A&T had purchased liability coverage from two different insurers, Capitol Specialty Insurance Co. and Zurich Insurance, and it tendered its defense in the matter to both companies. A&T's policy with Capitol provided coverage for, among other things, "those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage.’ " Although both Capitol and Zurich initially undertook the defense of the action, Capitol later concluded that the policy it had issued to A&T did not cover the damage for which Brownstone sought recovery, so it declined to defend or indemnify A&T.

Brownstone eventually settled with A&T and Zurich. The settlement agreement called for a $2 million stipulated judgment in favor of Brownstone and against A&T, $900,000 of which Zurich agreed to pay as A&T's insurer. The agreement also included (1) an assignment to Brownstone of any claims A&T had against Capitol relating to Brownstone's action against A&T (2) a covenant by Brownstone that, "in no event [would] it execute upon or permit execution of the stipulated judgment against A&T or its assets," but that it would seek recovery of the unexecuted portion of the judgment from Capitol; (3) a promise by A&T that it would cooperate with Brownstone in pursuing the assigned claims against Capitol; and (4) an agreement "to release each and every other settling party * * * from all past, present and future claims" except for claims by or between Brownstone and Capitol.

The stipulated judgment was entered in the Multnomah County Circuit Court. Brownstone then served a writ of garnishment on Capitol for $1.1 million, the unpaid portion of the judgment. Brownstone relied on ORS 18.352, which provides:

"Whenever a judgment debtor has a policy of insurance covering liability, or indemnity for any injury or damage to person or property, which injury or damage constituted the cause of action in which the judgment was rendered, the amount covered by the policy of insurance shall be subject to attachment upon the execution issued upon the judgment."

Capitol rejected the writ, and Brownstone applied to the trial court for an order requiring Capitol to appear. See ORS 18.778 (process for obtaining order to appear). Capitol continued to resist the garnishment and moved for summary judgment, arguing that Brownstone's covenant not to execute against A&T had released A&T from any legal obligation to pay Brownstone damages. Because the terms of its policy limited Capitol's liability to "those sums that the insured becomes legally obligated to pay," Capitol argued, the effect of the covenant not to execute was to eliminate its obligation of coverage. In support of its summary judgment motion, Capitol relied on this court's decision in Stubblefield.

In Stubblefield, the plaintiff sued his wife's doctor for alienation of affection and criminal conversation. The doctor was insured, but the insurer declined to defend. The plaintiff and the defendant eventually settled. Under the terms of the settlement agreement, the defendant agreed to pay the plaintiff $5,000. The parties also agreed to the entry of a money judgment against the defendant for $50,000, a covenant by the plaintiff not to execute that judgment for any amount in excess of the $5,000 that the defendant had agreed to pay, and the defendant's assignment of any claims he might have against his insurer in the matter over and above the $5,000 payment.

The plaintiff then initiated an action against the insurance company under the assignment, but the trial court found in favor of the insurance company. This court affirmed, explaining:

"[The defendant's] insurance policy provided that ‘the Company will indemnify the Insured for all sums which the Insured shall be legally obligated to pay as damages and expenses * * * on account of * * * personal injuries * * *.’ Assuming, without deciding, that [the] plaintiff suffered ‘personal injuries' which were within the coverage of the policy, the result of the separate ‘covenant not to execute’ was that the amount which the insured in this case was ‘legally obligated’ to pay to plaintiff as damages for such personal injuries was the sum of $5,000. The insured agreed, however, to pay that amount to plaintiff himself and that amount was expressly excluded from the assignment and was reserved to the insured. It follows that by the terms of the assignment in this case plaintiff acquired no rights which are enforceable by it against defendant."

Stubblefield, 267 Or. at 400–01, 517 P.2d 262 (emphasis and omissions in original).

In this case, Capitol argued that Stubblefield controlled, because the settlement agreement between Brownstone and A&T was, in all material respects, identical to the one at issue in Stubblefield, and the terms of coverage were as well. In response, Brownstone argued that Stubblefield does not apply to garnishment actions brought under ORS 18.352. According to Brownstone, the plain wording of that statute independently authorizes a judgment creditor to proceed directly against an insurer. In the alternative, Brownstone urged that the legislature abrogated Stubblefield in 1989, when it enacted what is now ORS 31.825, which expressly provides that "a defendant in a tort action against whom a judgment has been rendered" may assign a claim that the defendant may have against an insurer and that any release or covenant not to sue given for that assignment "shall not extinguish" the claim.

The trial court rejected Brownstone's contentions, concluded that Stubblefield controlled, and granted Capitol's motion for summary judgment. Brownstone appealed, reprising its arguments that Stubblefield does not apply to garnishment proceedings brought against a judgment debtor's insurer under ORS 18.352, and that, in any event, Stubblefield has been abrogated by the legislature's enactment of ORS 31.825. The Court of Appeals rejected both arguments and affirmed.

II. ANALYSIS

On review, Brownstone advances three arguments: (1) Stubblefield does not apply to garnishment proceedings brought against a judgment debtor's insurer under ORS 18.352 ; (2) the legislature abrogated Stubblefield when it enacted what is now ORS 31.825 ; and (3) in all events, Stubblefield was incorrectly decided and should be overruled. We consider each of the three arguments in turn.

A. Whether Stubblefield Applies to Garnishment Proceedings

Brownstone first argues that Stubblefield does not apply to this case. In Brownstone's view there is a key distinction between the facts of Stubblefield and this case: namely, the legal mechanism used to satisfy the judgment from the insurer. Brownstone observes that, in Stubblefield, the plaintiff proceeded directly against the judgment debtor's insurer under the assignment of claims in the parties' settlement agreement. Brownstone notes that, in this case, it did not assert a common-law claim under an assignment of rights, but instead proceeded under ORS 18.352, which statutorily authorizes parties who have obtained a judgment in an action for damages to proceed directly against the judgment creditor's insurance assets. Plaintiff contends...