DeJonge v. Mutual of Enumclaw

• Decision Date: 23 February 1993
• Citation: 315 Or. 237,843 P.2d 914
• Parties: Abe F. and Saundra A. DeJONGE, dba Midway Grocery, Petitioners on Review, v. MUTUAL OF ENUMCLAW, a Washington corporation, Respondent on Review. and Keesecker Insurance, an Oregon corporation, Defendant. CC 86-0829; CA A61480; SC S37708.
• Court: Oregon Supreme Court

Page 914

843 P.2d 914

315 Or. 237

Abe F. and Saundra A. DeJONGE, dba Midway Grocery Petitioners on Review, v. MUTUAL OF ENUMCLAW, a Washington corporation, Respondent on Review and Keesecker Insurance, an Oregon corporation, Defendant.

CC 86-0829; CA A61480; SC S37708.

Supreme Court of Oregon In Banc.

Argued and Submitted May 8, 1991.

Reassigned Aug. 11, 1992.

Decided Dec. 31, 1992.

Reconsideration Denied Feb. 23, 1993.

Margaret H. Leek Leiberan of Leiberan & Gazeley, Portland, argued the cause and filed the petition for petitioners on review.

Lynn E. Ashcroft of Rhoten, Speerstra, Rinehart & Ashcroft, Salem, argued the cause for respondent on review. With him on the response brief was Sam F. Speerstra.

GRABER, Justice.

The issue in this declaratory judgment action is whether defendant insurer is estopped to deny liability coverage to plaintiffs based on a policy exclusion. ¹ Plaintiffs sought a declaration that their liability insurance policy with defendant covered a wrongful death action, in which it was alleged that plaintiffs had negligently sold alcoholic beverages to a minor who later, and as a result of ingesting the alcoholic beverage, caused the death that was the subject of the wrongful death action. The jury in the present case returned a verdict for plaintiffs. The trial court granted defendant's motion for judgment notwithstanding the verdict and entered judgment for defendant, ruling that plaintiffs had failed to prove all the elements of an equitable estoppel. The Court of Appeals affirmed on the ground that there was no evidence of a false representation. DeJonge v. Mutual of Enumclaw, 104 Or.App. 296, 800 P.2d 313 (1990). We affirm, but on different grounds. We hold that the insurance policy excluded coverage for liability related to the sale of liquor to a minor and that defendant was not estopped to deny such coverage.

Because plaintiffs prevailed before the jury, we review the evidence in the light most favorable to them. Jacobs v. Tidewater Barge Lines, 277 Or. 809, 811, 562 P.2d 545 (1977). In 1980, plaintiffs bought a small grocery store. Shortly afterwards they met with an insurance agent, Keesecker, to obtain coverage for the store. Plaintiffs testified that they told Keesecker that they wanted "full" or "complete" coverage. Keesecker replied that "he was there to serve [plaintiffs'] purposes."

Although Keesecker knew that plaintiffs sold alcoholic beverages at the store, he never specifically discussed coverage for liquor liability. Keesecker obtained for plaintiffs an insurance policy issued by defendant. The policy excluded coverage for liquor liability, as follows:

"I. COVERAGE S--STOREKEEPER'S LIABILITY

" * * * * *

"Exclusions

"This coverage does not apply:

" * * * * *

"(h) to bodily injury or property damage for which the insured or his indemnitee may be held liable

"(1) as a person or organization engaged in the business of * * * selling or serving alcoholic beverages, or

"(2) * * * as an owner or lessor of premises used for such purposes, if such liability is imposed

" * * * * *

"(ii) by reason of the selling, serving or giving of any alcoholic beverage to a minor * * *." (Bold in original.)

Plaintiffs did not read the policy in the three years following its original issuance to them and were not aware of the exclusion until they were named as defendants in the wrongful death action. Plaintiffs tendered the defense of the action to defendant, which rejected the tender. A judgment of $675,000 was entered against plaintiffs in the wrongful death action. They then brought this action for a declaratory judgment. ²

Plaintiffs do not dispute that their only remaining claim is under the policy and that the policy itself clearly excludes coverage in this case. At trial, the sole issue submitted to the jury was whether defendant was estopped to rely on the exclusion. The jury returned a verdict for plaintiffs. Defendant moved for a judgment notwithstanding the verdict, having previously moved for a directed verdict. In addition to arguing that plaintiffs had failed to prove all the elements of estoppel, defendant argued in its motion for directed verdict and in its motion for judgment notwithstanding the verdict that, as a matter of law, estoppel was not available in this case.

The rule in Oregon supports defendant's contention that, in this situation, estoppel cannot be used to negate an express exclusion in a policy of insurance. In ABCD ... Vision v. Fireman's Fund Ins. Companies, 304 Or. 301, 307, 744 P.2d 998 (1987), this court held that "[e]stoppel cannot be invoked to expand insurance coverage or the scope of an insurance contract." The ABCD ... Vision court distinguished between using estoppel affirmatively, to create a right to coverage not contained in the insuring clauses of the policy, and using it defensively, to preserve a right to coverage already acquired by preventing its forfeiture. The court held that estoppel is not available in the former situation to negate an express exclusion in the written contract but is available in the latter situation to avoid a condition of forfeiture of coverage. 304 Or. at 307, 744 P.2d 998. In Wyoming Sawmills v. Transportation Ins. Co., 282 Or. 401, 410, 578 P.2d 1253 (1978), this court had held that "the rule [precluding estoppel or waiver] must be limited to failure to assert an exclusion." ³

Plaintiffs do not quarrel with the specific rule, stated in ABCD ... Vision v. Fireman's Fund Ins. Companies, supra, and Wyoming Sawmills v. Transportation Ins. Co., supra, that estoppel cannot be invoked to negate an express exclusion in a written insurance policy. Instead, to avoid that rule, plaintiffs ask us to superimpose a distinction based on the timing of the conduct on which the insured seeks to rely. Plaintiffs contend that the rule precluding the use of estoppel to negate an express written exclusion applies only to an insurer's conduct after the loss, not to conduct before the loss. The pertinent distinction with respect to timing in a claim of estoppel to negate an express written exclusion, however, is between conduct before and after the issuance of the policy. The legislature has expressed this distinction in a form of the parol evidence rule that applies to written contracts of insurance. ORS 742.016(1) provides:

"Except as provided in ORS 742.043 [concerning binders of insurance], every contract of insurance shall be construed according to the terms and conditions of the policy. When the contract is made pursuant to a written application therefor, if the insurer delivers a copy of such application with the policy to the insured, thereupon such application shall become a part of the insurance policy. Any application that is not so delivered to the insured shall not be a part of the insurance policy and the insurer shall be precluded from introducing such application as evidence in any action based upon or involving the policy. Any oral representations by the insured that are not included in an application shall not be a part of the insurance policy and the insurer shall be precluded from introducing such representations as evidence in any action based upon or involving the policy." (Emphasis added.)

In 1917, the legislature first enacted the substantial equivalent of ORS 742.016 (formerly ORS 736.305 and then ORS 743.045). 1917 General Laws of Oregon, ch 203, § 12.

Although there are exceptional circumstances in which an insurer can be estopped to deny the existence of coverage notwithstanding the policy's terms and conditions, ⁴ the statute states the rule that written contracts of insurance "shall be construed according to the terms and conditions of the policy." ORS 742.016(1). In the absence of those exceptional circumstances, none of which is present here--indeed, none of which plaintiffs even claim to be present here--the insured is bound by the provisions of the policy issued. To the extent that timing creates a dividing line in deciding the validity of an express exclusion in a written policy, ORS 742.016(1) suggests that the relevant time is the time when the policy is issued.

Plaintiffs argue--notwithstanding the rule of ABCD ... Vision v. Fireman's Fund Ins. Companies, supra, and this court's other estoppel cases--that Paulson v. Western Life Insurance Co., 292 Or. 38, 636 P.2d 935 (1981), limits the usual rule precluding the use of estoppel to negate an express exclusion only to an insurer's conduct after the loss. Plaintiffs read Paulson too restrictively and without sufficient regard for the context provided by its facts and by ORS 742.016(1).

In Paulson v. Western Life Insurance Co., supra, the employer, holder of a group health insurance plan, told a new employee that he would not have to prove insurability if he applied for insurance within six months of his date of hire. In fact, under the group policy, employees had to enroll within 31 days in order to avoid proving insurability. About two months after beginning work, the employee filled out the application for coverage, which was forwarded to the insurer with the premium. The insurer wrote to the employer that the employee had to furnish satisfactory evidence of insurability, but the employer did not inform the employee. Meanwhile, the employee's dependent daughter had fallen ill and had incurred substantial medical expenses. The insurer denied coverage. This court held that estoppel was available to preclude the insurer from asserting that no coverage existed due to untimely filing of the employee's application.

The Paulson court noted that two previous cases ⁵ holding that estoppel could not be invoked to "creat[e] an original grant of coverage" concerned post-loss conduct by the insurer or its agent. 292 Or. at 51, 636 P.2d 935 (quoting Wyoming Sawmills v. Transportation Ins. Co., supra, 282 Or. at 410, 578 P.2d 1253). The court distinguished Wyoming Sawmills and Schaffer v. Mill Owners Ins. Co., 242 Or. 150, 407...