Farmers Ins. Co. of Oregon v. Stockton

• Decision Date: 11 March 1992
• Citation: 112 Or.App. 120,827 P.2d 938
• Parties: FARMERS INSURANCE COMPANY OF OREGON, An Oregon corporation, Respondent, v. Bobby James STOCKTON, Helen M. Wells, Dan E. Wells, Michael E. Wells, James Daniels, Personal Representative for the Estate of Steven Leslie Daniels, Deceased, Denise Susan Rose, Richard Michael Hibbert, Mary Ann Sulick, Lanette Marie Willyard, Defendants, and Jane Krimmel, as Guardian Ad Litem for Dawna K. Van Tryfle, Appellant. 16-89-07051; CA A66326.
• Court: Oregon Court of Appeals

Page 938

827 P.2d 938

112 Or.App. 120

FARMERS INSURANCE COMPANY OF OREGON, An Oregon corporation, Respondent, v. Bobby James STOCKTON, Helen M. Wells, Dan E. Wells, Michael

E. Wells, James Daniels, Personal Representative for the

Estate of Steven Leslie Daniels, Deceased, Denise Susan

Rose, Richard Michael Hibbert, Mary Ann Sulick, Lanette

Marie Willyard, Defendants,

and

Jane Krimmel, as Guardian Ad Litem for Dawna K. Van Tryfle, Appellant.

16-89-07051; CA A66326.

Court of Appeals of Oregon.

Argued and Submitted Sept. 13, 1991.

Decided March 11, 1992.

Leslie M. Swanson, Jr., Eugene, argued the cause for appellant. With him on the briefs were Suzanne B. Chanti and Swanson & Walters, P.C., Eugene.

Joel S. DeVore, Eugene, argued the cause for respondent. With him on the brief were John Luvaas and Luvaas, Cobb, Richards & Fraser, Eugene.

Before RICHARDSON, P.J., and EDMONDS and DE MUNIZ, JJ.

DE MUNIZ, Judge.

Defendant, guardian ad litem of an accident victim, appeals from a declaratory judgment for plaintiff. The issue is whether default judgments against the named insured and the automobile driver bar the accident victim from litigating the issue of whether the driver was covered under the named insureds' policy. We conclude that the victim was not barred from litigating the issue, and we reverse.

On May 8, 1988, Stockton was driving a truck owned by the Wellses and insured by plaintiff. The truck was involved in an accident in which Dawna Van Tryfle, a passenger, was injured. Plaintiff sought a declaratory judgment that its policy does not cover liability for claims against Stockton on the ground that Stockton did not have "sufficient reason to believe that [he was using the truck] with permission of [the] owner." Plaintiff joined as defendants the named insureds, Stockton and the six passengers, including Van Tryfle, through her guardian ad litem, Krimmel. ¹

All of the defendants, except Van Tryfle, failed to appear, and the trial court entered default judgments against them. On the basis of their defaults, the trial court made a finding that Stockton was not covered by the policy. Plaintiff, relying on the default judgments against the Wellses and Stockton, moved for summary judgment against Van Tryfle. The trial court granted the motion.

Van Tryfle argues that the default judgments against the Wellses and Stockton do not preclude her from litigating the coverage issue and that allowing their defaults to defeat her claims eviscerates the purpose of the Uniform Declaratory Judgments Act. ² Plaintiff responds that Van Tryfle's right to recover on the policy is derivative of the named insureds' contractual rights, that the defaults by the Wellses and Stockton admitted that Stockton was not covered and, therefore, Van Tryfle was barred from litigating the coverage issue.

Plaintiff's assertion that the right of an accident victim to recover under an insurance policy is derived from the contractual rights of the named insured is correct. See Allegretto v. Or. Auto Ins. Co., 140 Or. 538, 13 P.2d 647 (1932); Viking Ins. Co. v. Petersen, 96 Or.App. 46, 49, 771 P.2d 1022 (1989); see also ORS 23.230; ORS 742.031. ³ By the same token, any right that Stockton, the driver, has to coverage is also derived from the rights of the named insureds. The default judgments against the Wellses and Stockton amount to admissions by them of all of the material facts alleged against them. State ex rel Nilsen v. Cushing, 253 Or. 262, 265, 453 P.2d 945 (1969). By allowing default judgments to be entered against them, they admitted that Stockton had used the Wellses' truck without sufficient reason to believe that he had their permission, that plaintiff's policy did not cover liability for claims against Stockton and that plaintiff had no duty to defend any claims against him.

With respect to those admissions, plaintiff argued below that "Defendant * * * is bound by the result." Plaintiff argues in its brief:

"Because the rights of defendant Krimmel or Van Tryfle are not independent of those of defendants Stockton or Wells, her rights were determined with theirs. Summary judgment was proper."

The parties have framed the issue as this question of law: Could defendant have litigated the coverage issue any further, after the trial court entered default judgments against the Wellses and Stockton?

In Grange Insurance Association v. Beleke, 90 Or.App. 416, 752 P.2d 864 (1988), the insurer had brought a declaratory judgment against the named insureds, the driver and the accident victim. It alleged that the accident was not covered, because the named insureds had made misrepresentations about the ownership and use of the car when they obtained insurance. The named insureds and the driver defaulted, and judgment was entered against them. We held that the rights between the named insureds, the driver and the insurer were established and concluded that entry of judgment against the accident victim was, therefore, proper. 90 Or.App. at 422, 752 P.2d 864.

Plaintiff contends, and the trial court agreed, that Grange Insurance controls this case. However, the posture of the parties in this case requires a different outcome. In Grange Insurance, the default by the named insureds resolved a misrepresentation issue against their interests. Their default substantially increased their exposure, by rendering them potentially liable for the full amount of any claim by the accident victim against them. They had ample motivation to contest the allegation of misrepresentation vigorously.

In contrast, the Wellses had everything to gain by conceding all of the issues in the declaratory judgment action in this case. If Stockton had driven their truck without permission, then Van Tryfle could have no viable claim against them for Stockton's use of it. Conversely, if the Wellses had entrusted the truck to Stockton, they would potentially be exposed to the amount of any judgment that exceeded the limits of their insurance policy. Clearly, it is in their best interest for the law of this case to be that Stockton was driving their truck without sufficient reason to believe that he had their permission. In reality, the Wellses' default was not an admission at all. A true admission requires conceding a fact that is adverse to one's interests. Allowing the Wellses to escape liability for Stockton's use of their truck by simply not answering a complaint against them defies logic. Considering that the Wellses' default did not really embrace any concessions, we see no reason to assure plaintiff victory against Van Tryfle on the basis of their default.

Plaintiff's reliance on Allegretto v. Or. Auto Ins. Co., supra, is misplaced. In that case, the accident victim had obtained judgments against Harris (the named insured) and Akre. Unable to satisfy those judgments, the victim sued the insurer. While the insurer was preparing its defense against the victim, Harris lied to Swett, the insurer's attorney. Harris told Swett that Akre, and not Harris, had been driving the car when the accident occurred. At trial, the evidence was uncontroverted that Harris had lied to Swett. The court granted the victim's motion for a directed verdict against the insurer. In reversing the judgment, the Supreme Court concluded that, by lying to Swett, Harris had breached the "cooperation clause" of his insurance contract. 140 Or. at 541, 13 P.2d 647. Because of his breach, Harris could not have recovered on the policy. 140 Or. at 544, 13 P.2d 647. The court held that the victim was precluded from recovering on the insurance contract, because her right could not be greater than Harris' rights under the contract, and he had none. 140 Or. at 545, 13 P.2d 647.

Allegretto is inapposite to this case, because it had nothing to do with a default or issue preclusion. The evidence was uncontroverted that Harris breached the "cooperation clause" by lying to Swett. Nothing in that opinion even remotely suggests that the victim was barred from presenting contravening evidence. We assume that there simply was none available. Allegretto provides no authority for the proposition that the victim in this case is precluded from litigating the coverage issue. See also State Farm Fire & Cas. v. Reuter, 299 Or. 155, 167 n. 10, 700 P.2d 236 (1985).

We hold that a default judgment does not bar a third party from litigating an issue, if the party against whom the issue was previously decided was not adversely affected by that adjudication. It makes no difference whether the issue was decided in a prior proceeding or in the same one, as it was in this case. The Wellses' default cannot bar Van Tryfle from litigating the issue of whether plaintiff's policy covered Stockton.

In contrast, Stockton's default did adversely affect his interests. His admission that he was using the Wellses' truck without their permission meant that he would be personally exposed to the full amount of any judgment that the victim might obtain against him. Nonetheless, Stockton's default does not preclude Van Tryfle from litigating the coverage issue. ORS 28.110 provides, in part:

"When declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding."

This provision requires joinder of any person whose rights might be affected by a declaratory action and provides that the action may not prejudice the rights of a non-party. By its language, it makes Van Tryfle a necessary party.

In Hough v. Porter, 51 Or. 318, 95 P. 732 (1908), mod. 51 Or. 382, 98 P. 1083, reh. den. 51 Or. 445, 102 P. 728 (1909), a similar statute brought several parties before the trial court. In that case, the plaintiffs alleged that the defendant had wrongfully constructed a dam on Silver Creek, which interfered with the flow of water onto their land. The court recognized that the water rights...