Collins v. Farmers Ins. Co. of Oregon

• Citation: 822 P.2d 1146,312 Or. 337
• Parties: Stephen N. COLLINS, Respondent on Review, v. FARMERS INSURANCE COMPANY OF OREGON, an Oregon corporation, Petitioner on Review. CC A8712-07559; CA A51200; SC S37212.
• Decision Date: 12 December 1991
• Court: Supreme Court of Oregon

Page 1146

822 P.2d 1146

312 Or. 337

Stephen N. COLLINS, Respondent on Review, v. FARMERS INSURANCE COMPANY OF OREGON, an Oregon corporation,

Petitioner on Review.

CC A8712-07559; CA A51200; SC S37212.

Supreme Court of Oregon,

In Banc.

Argued and Submitted Oct. 9, 1990.

Reassigned Aug. 15, 1991.

Decided Dec. 12, 1991.

William G. Earle, of Hallmark, Keating & Abbott, P.C., Portland, argued the cause and filed the petition for petitioner on review.

Robert K. Udziela, of Pozzi, Wilson, Atchison, O'Leary & Conboy, Portland, argued the cause for respondent on review. With him on the response to the petition was Robert J. Neuberger, Portland.

PETERSON, Justice.

This declaratory judgment proceeding concerns the amount of liability insurance available under the defendant's motor vehicle liability insurance policy. The plaintiff asserts that because an exclusion in the defendant's policy is "illegal," the exclusion must be disregarded, as a result of which $100,000 of insurance coverage is available. The defendant asserts that the exclusion is unenforceable only to the extent of the $25,000 mandated by the Financial Responsibility Law. We agree with the defendant.

Ernest and Irene Gali had a motor vehicle liability policy with the defendant, with liability limits of $100,000 per person and $300,000 per occurrence. Their nephew, the plaintiff, lived with them.

The defendant's policy contained these provisions, among others:

"Throughout this policy, 'you' and 'your' mean the 'named insured' shown in the Declarations and spouse if a resident of the same household. 'We,' 'us' and 'our' mean the Company named in the Declarations which provides this insurance."

"Family member means a person related to you by blood, marriage or adoption who is a resident of your household."

"Insured person means * * * you or any family member."

"We will pay damages for which any insured person is legally liable because of bodily injury to any person and property damage arising out of the ownership, maintenance or use of a private passenger car, a utility car, or a utility trailer." (Bold in original.)

The policy also contained exclusion 11(a):

"This coverage does not apply to * * * [l]iability for bodily injury to an insured person."

The plaintiff agrees that he was a "family member" who therefore comes within the definition of "insured person."

The policy also contained this sentence:

"Policy terms which conflict with laws of Oregon are hereby amended to conform to such laws."

In 1987, the plaintiff was injured while riding as a passenger in the Galis' car. At the time of the accident, the car was being operated by the plaintiff's cousin, Stacey Gali, the daughter of Ernest and Irene Gali. The plaintiff made a claim for damages for bodily injuries. The defendant responded with this offer:

"This letter is to communicate our offer of settlement of $25,000.00.

"Our insured's policy limits are $100,000.00, but that limit does not apply because of exclusion # 11(a) of the policy, which reads 'This coverage does not apply to Liability for bodily injury to an insured person.'

"The policy defines 'Insured Person' as 'you or any family member.' 'Family Member' is defined as 'a person related to you by blood, marriage or adoption who is a resident of your household.'

"We understand that this exclusion does not apply to the 25/50 limits required by the financial responsibility statutes, and that is what our offer is based upon."

The plaintiff disagreed with the defendant that only $25,000 of coverage was available and filed a complaint for declaratory judgment, asserting that the exclusion quoted above is unenforceable and that, therefore, the full liability limit ($100,000) was available.

Both sides moved for summary judgment. The trial court granted the plaintiff's motion, denied the defendant's, and entered a judgment declaring that the insurance policy provides $100,000 liability coverage on the plaintiff's bodily injury claims. The Court of Appeals affirmed. Collins v. Farmers Ins. Co., 101 Or.App. 463, 791 P.2d 498 (1990).

Under Oregon law, every motor vehicle liability insurance policy issued for delivery in Oregon must, at the least, provide coverage in the amounts required by statute. ORS 742.450. ¹ See Viking Ins. Co. v. Petersen, 308 Or. 616, 621, 784 P.2d 437 (1989) (because statute listing mandatory contents of motor vehicle liability policy refers to statute stating minimum coverage requirements, every such policy must contain that coverage as a minimum). The minimum coverage for bodily injury to or death of one person in any one accident is $25,000. ORS 806.070(2)(a).

The only question before us concerns the effect of exclusion 11(a). Is the exclusion to be disregarded only as to the amount of the minimum liability coverage required by ORS 742.450 (and ORS 806.080)? Or is the exclusion to be disregarded totally? ORS 742.464 answers the question. It contains two sentences and three clauses:

"Any policy which grants the coverage required for a motor vehicle liability insurance policy under ORS 742.450, 806.080 and 806.270 may also grant any lawful coverage in excess of or in addition to the required coverage, and such excess or additional coverage shall not be subject to the provisions of ORS 742.031, 742.400 and 742.450 to 742.464. With respect to a policy which grants such excess or additional coverage only that part of the coverage which is required by ORS 806.080 and 806.270 is subject to the requirements of those sections."

Each sentence and clause of ORS 742.464 has an unambiguous meaning. The first clause--"Any policy which grants the coverage required for a motor vehicle liability insurance policy under ORS 742.450, 806.080 and 806.270 may also grant any lawful coverage in excess of or in addition to the required coverage"--means that liability insurers can write motor vehicle liability insurance policies with higher limits and coverage than that required by ORS 742.450, 806.080, and 806.270.

The second clause of the first sentence of ORS 742.464--"and such excess or additional coverage shall not be subject to the provisions of ORS 742.031, 742.400 and 742.450 to 742.464"--means that the mandatory requirements of three statutes referred to in ORS 742.450 (ORS 806.070, 806.080, and 806.270) are inapplicable to the additional coverage. To make it absolutely clear, the legislature said it again, in a slightly different way, in the last sentence of ORS 742.464--"With respect to a policy which grants such excess or additional coverage only that part of the coverage which is required by ORS 806.080 and 806.270 is subject to the requirements of those sections."

The manifest purpose of ORS 742.464 is to permit an insurer to write any other lawful coverage that the insurer wishes to write, in addition to the required coverage. Such coverage may include higher limits than those required by ORS 742.450 and 806.080. But as to such higher limits, the mandatory requirements of ORS 742.450 and 806.080 do not apply. The insurer may limit such additional coverage by any exclusion not otherwise prohibited by law.

To summarize, the law implies a provision in every motor vehicle liability insurance policy along these lines:

THIS POLICY PROVIDES ALL THE COVERAGE REQUIRED BY OREGON LAW, INCLUDING ORS 742.450, 806.080, AND 806.270.

Coverage other than that required by law may be limited by any lawful exclusion.

The next question is whether the defendant's policy limited the liability coverage to $25,000 as to the plaintiff's claim. Exclusion 11(a) of the plaintiff's policy (set forth above) is unambiguous; claims for bodily injury to family members are excluded from the liability coverage. The provision in the "Conditions" section that "[p]olicy terms which conflict with laws of Oregon are hereby amended to conform to such laws" is merely a statement of a rule of law that would be implied into the policy even if the statement were not contained therein. ²

Because the import of ORS 742.464 is that coverage other than that required by law may be limited by any lawful exclusion, exclusion 11(a), although ineffective as to the first $25,000 of coverage, is effective as to any coverage in addition to $25,000. ³ Previous decisions of this court support this result.

In Oregon Automobile Ins. Co. v. Thorbeck, 283 Or. 271, 583 P.2d 543 (1978), a liability insurer issued a motor vehicle liability policy to the insured with limits of $100,000. A financial responsibility filing was made with the Motor Vehicles Division. The insured subsequently failed to make the premium payments, and the policy was canceled by notice to the insured. However, the company failed to file a notice of cancellation with the Motor Vehicles Division as required by former ORS 486.506(2). At that time, the minimum financial responsibility policy limit was $10,000. The opinion stated the issue this way:

"The issue in this case is whether, given the failure to file the notice of cancellation, the limit of the company's responsibility is $10,000, the amount required by the [Financial Responsibility] Law, or $100,000, the original amount of the policy. The company appeals from a judgment of the trial court that the limit of the company's liability is $100,000." 283 Or. at 273, 583 P.2d 543.

As here, the case turned on former ORS 486.541 (current ORS 742.450) and former ORS 486.566 (current ORS 742.464):

"The company contends that ORS 486.566 [current ORS 742.464] exempts it from responsibility under the policy except for the amount of $10,000 required by the Law. Defendants, on the other hand, contend that ORS 486.566 [current ORS 742.464] has nothing to do with the issue of policy 'limits' but by its terms has only to do with the separate issue of policy 'coverage.' They argue that 'coverage' refers only to the risks insured against while 'limits of liability' refers to the monetary amount of insurance. To show that the legislature distinguished...