Farmers Ins. Co. of Oregon v. Stockton

• Court: Court of Appeals of Oregon
• 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.
• Decision Date: 11 March 1992

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.

Page 939

[112 Or.App. 121] 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.

[112 Or.App. 122] 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

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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.

[112 Or.App. 123] 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?

[112 Or.App. 124] 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.

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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 [112 Or.App. 125] 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...