Ferguson v. Birmingham Fire Ins. Co.
| Decision Date | 16 December 1969 |
| Citation | 254 Or. 496,460 P.2d 342 |
| Parties | Helen L. FERGUSON, Appellant, v. BIRMINGHAM FIRE INSURANCE COMPANY, Respondent. |
| Court | Oregon Supreme Court |
Donald H. Pearlman, Portland, argued the cause for appellant. With him on the briefs were Keane, Haessler, Bauman & Harper, and David W. Harper, Portland.
David N. Hobson, Portland, argued the cause for respondent. With him on the briefs were Phillips, Coughlin, Buell & Phillips, and Jarvis B. Black, Portland.
Before PERRY, C.J., and McALLISTER, SLOAN, O'CONNELL, DENECKE, HOLMAN and LANGTRY *, JJ.
This is an appeal from a judgment dismissing the complaint of Helen L. Ferguson, executrix of the estate of Thomas E. Ferguson in which she sought damages under an insurance policy issued by defendant Birmingham Fire Insurance Company.
The parties filed an agreed narrative statement of the proceedings pursuant to ORS 19.088.
Mr. Ferguson purchased from defendant company a policy insuring him in the following terms ():
'Coverage L--Personal Liability: (Insurer agrees) To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage, and the company shall defend any suit against the insured alleging such bodily injury or property damage and seeking damages which are payable under the terms of this endorsement, even if any of the allegations of the suit are groundless, false or fraudulent; but the company may make such investigation and settlement of any claim or suit as it deems expedient.'
The following exclusions are recited with reference to Coverage L:
'This endorsement does not apply: * * *
'(c) * * * to bodily injury or property damage caused intentionally by or at the direction of the insured.
'* * *
'(g) * * * to property damage to property used by, rented to or in the care, custody or control of the insured or property as to which insured for any purpose is exercising physical control.'
Mr. Ferguson died February 14, 1962. Kenneth W. Guenther and Marva Guenther filed a claim against his estate, contending that about September 1, 1961, Mr. Ferguson had cut four trees on their property. The evidence showed that Mr. Ferguson had employed a laborer to clean brush off the back of his lot. The line separating his lot from the Guenther's adjoining land was unmarked. The laborer cleared beyond the line and in doing so cut down the trees. Ferguson did not exercise any direct control over the workman and did not know that a trespass was being committed. Mrs. Ferguson, as executrix, rejected the claim and notified the Birmingham Fire Insurance Company that the claim had been asserted. In June, 1962, the company informed Mrs. Ferguson that it would not extend coverage under the policy, reciting the two exclusions quoted above, along with others, as the basis for its refusal.
The Guenthers filed a complaint against the estate. Mrs. Ferguson requested that the company defend the action. The company denied that the claim was covered under the policy, but offered to defend on the understanding that its defending and conducting settlement negotiations would not have the effect of waiving its right to deny liability under the policy. Mrs. Ferguson answered that she would not accept the company's offer to defend under a reservation-of-rights agreement. Her response was 'We will expect you to defend under the terms of the policy with no reservations.' After renewing her demand that the company defend, she defended at her own expense and won an involuntary nonsuit at the close of the Guenther case.
The Guenthers again filed the same complaint. Mrs. Fersguson again demanded that the company defend her and the company responded as it had in the first action. The cause went to trial in February, 1965 and the jury returned a verdict for the Guenthers. The jury found that actual damage caused by the trespass was $1,000. In answer to a special interrogatory, the jury found that the trespass was not committed 'willfully and intentionally.' The judgment was for $2,189, representing double damages as provided for in ORS 105.815, and costs. Mrs. Ferguson paid the judgment.
Mrs. Ferguson demanded that the insurance company pay (1) the costs of her defense in the first action ($1,578.10), (2) the cost of her defense in the second action ($1,272.50), and (3) the judgment recovered against the estate ($2,189). The company refused to pay whereupon Mrs. Ferguson brought this action to recover the above amounts plus interest and attorney fees. The case was tried on a stipulated statement of facts.
The trial court dismissed plaintiff's complaint on the ground that the insurance contract did not cover the Guenther actions. This ruling was made upon the ground that plaintiff's employee was exercising physical control over the property damaged and therefore the case fell within the clause of the policy excluding 'property damage to * * * property as to which insured for any purpose is exercising physical control.'
The trial court felt that the present case was controlled by Crist v. Potomac Insurance Co., 243 Or. 254, 263, 413 P.2d 407, 411 (1966). In that case the insured hired Roberts, the owner of a shovel loader, to load and deck logs at the site of the insured's logging operations. Insured's employee operated the loader without Roberts' consent and damaged it. We held that the insured, through his employee, exercised physical control over the loader within the meaning of the policy exclusion and that it was 'of no consequence that the insured acted without the consent of the owner of the property.' 1
In the present case, as in Crist, the damage to the property arose out of a trespassory invasion by the insured. It is argued, however, that the conduct of Ferguson's employee did not amount to possession or control of the land but merely the infliction of an injury upon it. To appraise this argument it is necessary to consider the purpose which the exclusion clause was intended to serve.
The reason for adopting this type of exclusion clause is not entirely clear. The first part of the clause excluding coverage as to damage to property in the 'care, custody or control of the insured's has long been a standard part of the general liability policy. 2 One purpose of this clause was to avoid the 'adverse selection of risks.' Those buying insurance often seek coverage for certain types of losses common to their particular enterprise. The underwriters felt that the premium of a general liability policy should not be burdened with these special risks; separate policies with appropriate premiums for the risks involved are available. 3 Another reason given for the 'care, custody and control' provision is the 'moral hazard' involved when property which has been entrusted to the insured's care, custody or control is injured; the insured 'feels morally responsible for any damage caused by him and is more interested in seeing the owner is generously compensated by his company.' 4
In the interpretation of the 'care, custody and control' provision as it originally appeared in standard policies the courts held that if the insured did not have Complete dominion and the Legal right to control the damaged property the exclusion clause would not apply. To avoid this interpretation the insurers added the clause 'or property as to which the insured for any purpose is exercising physical control.' 5 Although the latter clause is interpreted as extending the exclusion to cases in which the insured's possession is wrongful, it is still necessary to show that the insured was 'exercising physical control' before the clause is operative.
There remains, however, the crucial question: What kind of control is contemplated under this clause? The answer is not to be found in an abstract analysis of the word 'control.' We must turn to the reasons for the adoption of the exclusion clause and determine whether in light of those reasons the policy was intended to exclude coverage in the circumstances of the particular case. We have mentioned the 'moral hazard' as one of the factors considered in adopting the exclusion clause. That factor would not be present in the case at bar because Ferguson did not take charge of Guenthers' property under circumstances which would generate a feeling of moral responsibility to reimburse him for damage caused to it. It has been observed that one of the purposes in the adoption of the exclusion clause in a general liability policy was to eliminate from coverage the ordinary business risk of damaging property, whether owned by the insured or others, which was used or otherwise involved as a usual incident of carrying on the insured's business. 6 Thus the holding in Crist that the damage fell within the exclusion clause can be explained on the ground that the shovel loader was a piece of equipment ordinarily used in carrying on a logging operation. The damage to Guenthers' property did not arise out of any business activity carried on by Ferguson; he was simply attempting to clear the brush off the back of his lot.
But the exclusion clause is in broad terms and does not by its terms, at least, purport to exclude business risks only. Can we say, then, that Ferguson's non-business activity in clearing the brush on Guenthers' land constituted an exercise of control over the property within the meaning of the policy. We think not.
We interpret the phrase 'property as to which the insured for any purpose is exercising physical control' to mean property over which the insured assumes control, knowing that it belongs to another. Where the insured knowingly assumes control over another person's property, either with or without permission, there are reasons for excluding coverage. 7 But we are unable to think of any valid reason for excluding coverage where the insured, while...
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