Farmers Ins. Co. of Or. v. Mowry

• Decision Date: 09 September 2011
• Docket Number: (CC 080202045; CA A141214; SC S058706).
• Citation: 261 P.3d 1,350 Or. 686
• Parties: FARMERS INSURANCE COMPANY OF OREGON, Respondent on Review,v.Tosha K. MOWRY, Petitioner on Review.
• Court: Oregon Supreme Court

350 Or. 686

261 P.3d 1

FARMERS INSURANCE COMPANY OF OREGON, Respondent on Review,

v.Tosha K. MOWRY, Petitioner on Review.

(CC 080202045; CA A141214; SC S058706).

Supreme Court of Oregon, En Banc.

Argued and Submitted March 1, 2011.Decided Sept. 9, 2011.

On review from the Court of Appeals.^*Kathryn H. Clarke, Portland, argued the cause and filed the brief for petitioner on review. With her on the brief was Hala J. Gores, Portland.Thomas M. Christ, Cosgrave Vergeer Kester LLP, Portland, argued the cause and filed the brief for respondent on review.BALMER, J.

This case concerns the proper application of stare decisis and requires us to decide whether Collins v. Farmers Ins. Co., 312 Or. 337, 822 P.2d 1146 (1991), is still good law. In Collins, this court held that an exclusion in a motor vehicle liability insurance policy that purported to eliminate all coverage for a claim by one insured against another insured under the same policy was unenforceable to the extent that it failed to provide the minimum coverage required by the Financial Responsibility Law (FRL), ORS 806.060 and ORS 806.070. Id. at 347, 822 P.2d 1146. The exclusion, however, was enforceable as to any coverage beyond that statutory minimum. Id. In this case, plaintiff, Farmers Insurance Company, issued an insurance policy to defendant, Tosha Mowry, that contained an exclusion identical to the exclusion in Collins. Defendant was injured in an accident in which her friend—a permissive user and thus an insured person under the policy—was driving. Plaintiff brought this action seeking a declaration that defendant had $25,000 available in coverage under her policy—the minimum coverage required by the FRL for bodily injury to one person in any one accident. Defendant argues that her coverage is $100,000, the insurance amount stated on the declarations page of her policy. The parties filed cross-motions for summary judgment, and the trial court granted plaintiff's motion and denied defendant's. The Court of Appeals affirmed in a per curiam opinion that cited Collins. Farmers Ins. Co. v. Mowry, 236 Or.App. 236, 234 P.3d 1098 (2010). We affirm.

The facts are undisputed. Plaintiff issued defendant a motor vehicle liability insurance policy that provides liability coverage with limits of $100,000 per person and $300,000 per occurrence. Exclusion 12(a) of the policy, however, states that “coverage does not apply to * * * [l]iability for bodily injury to an insured person.” The policy defines an “insured person,” in relevant part, as “you” or “[a]ny person using your insured car.” Thus, the policy provided insurance coverage for claims made against an insured by third parties, but purported to exclude coverage for claims against an insured made by other “insured persons” under the policy, such as family members or others using the insured vehicle.

In 2005, defendant was injured in a collision while riding as a passenger in her own vehicle, which her friend was driving. Under the insurance policy, defendant's friend was an insured person. Defendant made a claim under the policy, but defendant and plaintiff disagreed on the amount of coverage available for the claim. Plaintiff contended that $25,000 was available—the minimum amount required by the FRL—because exclusion 12(a) caused defendant's coverage to “drop down” from the otherwise applicable per person liability coverage in the policy. Defendant sought coverage of $100,000—the per person liability coverage stated on the declarations page of the policy. As noted, the trial court and the Court of Appeals agreed with plaintiff, citing Collins. Defendant sought review, arguing that Collins should be overruled because it was wrongly decided and is in conflict with a more recent case, North Pacific Ins. Co. v. Hamilton, 332 Or. 20, 22 P.3d 739 (2001).

We begin by reviewing the relevant statutes and then turn to this court's decision in Collins. Under ORS 742.450(4) (2005), amended by Or. Laws 2007, ch. 782, § 1,¹ “[e]very motor vehicle liability insurance policy issued for delivery in this state shall provide liability coverage to at least the minimum limits specified in ORS 806.070.” ORS 806.070(2)(a) sets the minimum limit at “$25,000 [for] bodily injury to or death of one person in any one accident.” ORS 742.464 provides:

“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] 742.450 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 [350 Or. 690] and 806.270 is subject to the requirements of those sections.”Thus, an insurance policy may limit the coverage for some types of liability, including insured-versus-insured claims, to the minimum limits required by the FRL even though the policy provides greater coverage for other types of claims.

In Collins, Farmers issued a motor vehicle liability policy that was virtually identical to the policy in this case, including a liability limit of $100,000 per person and $300,000 per occurrence and an exclusion stating that “coverage does not apply to * * * [l]iability for bodily injury to an insured person.” Collins, 312 Or. at 339, 822 P.2d 1146 (boldface type omitted). The plaintiff, a family member of the insured, was injured while a passenger in the insured's car. As a family member of the insured, the plaintiff was an insured person under the policy. Farmers notified the plaintiff that it would only provide $25,000 in coverage, the minimum amount required by the FRL. The plaintiff asserted that the absolute exclusion violated Oregon law and was therefore completely unenforceable. The plaintiff argued that he was entitled to $100,000 in coverage, the full amount stated on the declarations page of the policy. Id. at 340, 822 P.2d 1146.

After describing the relevant components of the FRL, the court stated that Oregon law implies in every motor vehicle liability insurance policy issued in the state a provision that the policy includes the minimum coverage required by ORS 742.450, ORS 806.080, and ORS 806.270. Id. at 342, 822 P.2d 1146. “Coverage other than that required by law may be limited by any lawful exclusion.” Id. at 343, 822 P.2d 1146. More specifically, the court stated:

“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.”

Id. at 342, 822 P.2d 1146.

The court then examined whether the absolute exclusion for insured-versus-insured claims in that policy—an exclusion, as noted, identical to the one in this case—limited coverage to the FRL minimum. Because the law implies in every insurance policy the minimum requirements of the FRL ² and because coverage beyond those minimums could be limited by any lawful exclusion, the court held that the absolute exclusion “although ineffective as to the first $25,000 of coverage, [was] effective as to any coverage in addition to $25,000.” Id. at 343, 822 P.2d 1146.

A dissenting opinion in Collins argued at length that the plaintiff should have had $100,000 of coverage under the policy. The dissent took issue with the majority's interpretation of ORS 742.464. In its view, that statute required an insurance policy to first grant the minimum coverage required by the FRL before the policy could exclude excess coverage. Collins, 312 Or. at 351, 822 P.2d 1146 (Unis, J., dissenting). Because the exclusion in Collins denied all coverage for insured-versus-insured claims instead of granting the minimum required by the FRL, ORS 742.464 did not allow Farmers to exclude any excess coverage. Id. at 352, 822 P.2d 1146. The dissent concluded:

“If the insurer wishes to exclude from excess coverage persons required * * * to be covered for the statutory minimum, it must first affirmatively grant the statutorily-required minimum coverage for those persons, ORS 742.464, and must state the limits of liability, ORS 742.450(1).”

Id. (emphasis omitted).

The dissent also voiced concern that the majority position would encourage insurers to rely on automatic inclusion of the statutory minimum coverage in policies they issue rather than writing policies that state precisely the actual coverage purchased by the insured. “The danger is that an insured and other parties might assume that the contract provisions are lawful and mean what they say and might thereby forgo making claims for coverage that Oregon law requires insurance companies to provide.” Id. at 353, 822 P.2d 1146 (internal quotation marks and citation omitted). The dissent argued that such a result “rewards an insurance company for selling an insurance policy that it did not certify under [the FRL] and that it should have known did not comply with [the] FRL because it contained an exclusion which improperly denied liability coverage required by [the] FRL.” Id. at 347–48, 822 P.2d 1146.

In this case, defendant argues that we should overrule Collins because it was wrongly decided and because Hamilton calls the reasoning of Collins into question. Plaintiff, on the other hand, asserts that the principle of stare decisis prohibits this court from overruling precedent without sufficient justification, which defendant, in plaintiff's view, has not provided. Plaintiff argues that the issues raised by defendant were fully considered by the Collins court and that Hamilton does not conflict with Collins.

Because the parties...