First Far West Transp., Inc. v. Carolina Cas. Ins. Co.

• Decision Date: 21 July 1980
• Docket Number: No. A7810-17210,A7810-17210
• Citation: 47 Or.App. 339,614 P.2d 1187
• Parties: FIRST FAR WEST TRANSPORTATION, INC., a corporation, Appellant, v. CAROLINA CASUALTY INSURANCE COMPANY, a corporation, Respondent. ; CA 15590.
• Court: Oregon Court of Appeals

Page 1187

614 P.2d 1187

47 Or.App. 339

FIRST FAR WEST TRANSPORTATION, INC., a corporation, Appellant, v. CAROLINA CASUALTY INSURANCE COMPANY, a corporation, Respondent.

No. A7810-17210; CA 15590.

Court of Appeals of Oregon.

Argued and Submitted June 11, 1980.

Decided July 21, 1980.

Gerald R. Pullen, Portland, argued the cause and filed the brief for appellant. With him on the brief were James G. Breathouwer and Breathouwer & Gilman, Portland.

James M. Callahan, Portland, argued the cause and filed the brief for respondent. With him on the brief was Landis, Aebi & Bailey, Portland.

Before GILLETTE, P. J., and ROBERTS and CAMPBELL, JJ.

CAMPBELL, Judge.

Plaintiff brought this action for a declaratory judgment seeking a declaration of its coverage under an "additional interest endorsement" to an automobile liability insurance policy issued by defendant to Ralph Hollister. From the trial court's decision that plaintiff was not covered under the endorsement, plaintiff appeals. We affirm.

On November 20, 1975, plaintiff, formerly known as Trans-Pac Equipment Inc. dba Gunderson-White Trucks, Inc., leased a tractor-trailer combination to Hollister. Under the lease agreement Hollister as lessee was required to maintain insurance "protecting Lessor, as an additional insured or loss payee, or both at the option of the lessor . . . ." At that time Hollister, a commercial truckdriver, was the named insured under an automobile liability insurance policy issued by defendant. Contemporaneously with the lease agreement, defendant issued an "additional interest endorsement," which provided that the Hollister "policy is extended to cover the interest of: Gunderson-White Trucks, Inc. (Lessor) * * * but only as respects the equipment specifically described below (the tractor-trailer leased to Hollister), while operating exclusively in the business of the named insured * * *." The endorsement specifically stated that it became a part of the policy issued to Hollister. No additional premium was charged for this endorsement.

On December 2, 1975, while Hollister was operating the leased truck in the course and scope of his trucking business, he lost control of the truck on the exit of the Fremont Bridge in Portland, crashed through a guard rail and collided with a parked truck and a building, whereupon the truck exploded and burst into flames, killing Hollister. The personal representative of Hollister's estate brought a wrongful death action against plaintiff in three counts. Count I alleged the truck was in an unreasonably dangerous condition when leased to Hollister by plaintiff due to a defective brake system, which defect caused Hollister's death. Count II alleged various specifications of negligence by plaintiff in leasing the truck, repairing the air compressor and main air line of the brake system, failing to warn Hollister of the defective brake system, and representing the safety of the brake system. Count III alleged that plaintiff breached warranties to Hollister (1) that the truck would remain in good operating condition for 30 days after delivery, and (2) on repairs performed on or about December 1, 1975, by plaintiff on the air compressor. Plaintiff tendered the defense of the wrongful death action to defendant, which refused the tender. In this action plaintiff requests a declaration that under the endorsement defendant has the duty to defend the wrongful death action and to pay all costs, attorney's fees, and damages incurred in the action.

Under the policy issued by defendant to Hollister, defendant agreed

"To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury, sickness or disease, including death at any time resulting therefrom, sustained by any person, caused by accident and arising out of the ownership, maintenance or use of the automobile."

The policy also required defendant to "defend any suit against the insured alleging such injury * * * and seeking damages on account thereof * * *." Plaintiff argues that it was made an additional insured under the endorsement and, therefore, it is entitled to the protection of these provisions. Defendant contends that the endorsement only protects plaintiff from any vicarious liability it may incur as a result of injuries to third parties caused by the negligence of the lessee.

In support of its position, plaintiff argues that we should construe the contract in accordance with the maxim stated in O'Neill v. Standard Insurance, 276 Or. 357, 361, 554 P.2d 997, 999 (1976):

* * * The defendant prepared the insurance contract and the certificate of insurance held by the decedent. Such contracts for insurance are construed liberally in favor of the insured.

" 'The language used in a contract of insurance is entitled to a construction as favorable to the insured as in good conscience will be permitted, and every reasonable intendment will be allowed to support a view that will protect the insured and prevent forfeiture. (Citations omitted.)' Schweigert v. Beneficial Life Ins. Co., 204 Or. 294, 301, 282 P.2d 621 (1955)."

This rule is particularly applicable when the policy language is ambiguous. See, e. g., Allen v. Continental Casualty Co., 280 Or. 631, 633, 572 P.2d 617 (1977); Shadbolt v. Farmers Insur. Exchange, 275 Or. 407, 411, 551 P.2d 478 (1976).

As defendant properly points out, the rule of liberal construction in favor of the insured is subordinate to the rule that with insurance contracts, as with other contracts, the primary and governing consideration is to ascertain the intent of the parties. Waller v. Rocky Mtn. Fire & Casualty, 272 Or. 69, 79, 535 P.2d 530 (1975); Denton v. International Health & Life, 270 Or. 444, 449, 528 P.2d 546 (1974); Ramco. Inc. v. Pacific Ins., 249 Or. 666, 439 P.2d 1002 (1968); I-L Logging Co. v. Mfgrs. & Whlse. Ind. Exc., 202 Or. 277, 273 P.2d 212, 202 Or. 317, 275 P.2d 226 (1954). In I-L Logging, supra 273 Or. at 318, 275 P.2d at 231, the court quoted from 13 Appleman, Insurance Law and Practice § 7383:

" 'It has been stated, therefore, that a court will look to the entire instrument and all of its provisions to ascertain its meaning, and will construe it as a whole or in its entirety. * * * The entire context and subject matter of the contract of insurance will be considered in determining the meaning and application of specific words and expressions. Nor will any insurance policy be considered ambiguous merely because a word or phrase, isolated from its context, is susceptible to more than one meaning, or because, in its context, it is susceptible to one reasonable and one unreasonable meaning.

" 'The courts will, rather, take into consideration the apparent object or purpose of the insurance, in making its construction, and may consider, along with the context of the policy, the subject matter of insurance, the situation of the parties, and the circumstances surrounding the making of the contract.' "

The court stressed that a concession by the court that policy language is ambiguous does not require it to adopt the construction urged by the insured. Rather, that rule of construction "is applied when the particular facts of a case warrant its application and when such application will lead to a sound conclusion." 202 Or. at 319, 275 P.2d at 232.

An endorsement becomes a part of the insurance contract and must be construed with it. Close-Smith v. Conley, 230 F.Supp. 411, 417 (D.Or.1964); 13A Appleman, Insurance Law and Practice § 7537 (1976). To the extent of any conflict between the policy and endorsement, the endorsement controls. Close-Smith v. Conley, supra.

An insurer's duty to defend "is determined by comparing the terms of the insurance policy with the allegations in the underlying damage (complaint)." General Ins. v. Western Am. Development, 43 Or.App. 671, 603 P.2d 1245, 1247 (1979).

"When a complaint is filed against the insured which alleges, without amendment, that the insured is liable for conduct covered by the policy, the insurer has the duty to defend the insured, even though other conduct is also alleged which is not within the coverage. Oakridge Comm. Ambulance v. U. S. Fidelity, 278 Or. 21, 24, 563 P.2d 164 (1977); Ferguson v. Birmingham Fire Ins., 254 Or. 496, 507, 460 P.2d 342 (1969); Blohm et al. v. Glens Falls Ins. Co., 231 Or. 410, 414-15, 373 P.2d 412 (1962). The insurer owes a duty to defend if the claimant can recover against the insured under the allegations of the complaint upon any basis for which the insurer affords coverage. Oakridge Comm. Ambulance v. U. S. Fidelity, supra [47 Or.App. 345] at 24, 563 P.2d 164; Casey v. N. W. Security Ins. Co., 260 Or. 485, 489, 491 P.2d 208 (1971)." Nielsen v. St. Paul Companies, 283 Or. 277, 280, 583 P.2d 545, 547 (1978). (emphasis in original)

Plaintiff argues that each count of the wrongful death complaint states a cause of action within the coverage of the policy. The parties agree that the first count, which alleges the lease of a product in an unreasonably dangerous condition, is based on strict liability in tort. Since, plaintiff contends, such liability arises from the lease of a product, the injury arose from plaintiff's ownership of the truck and is, therefore, covered by the policy. The second count, which alleges plaintiff's negligent repair of the truck, and that Hollister's death was caused by that negligence, alleges in substance, plaintiff asserts, that the injury arose from the maintenance of the truck. As a result, plaintiff argues, plaintiff's potential liability was covered by the policy. As to the third count, based on breach of express warranty, plaintiff suggests that the injury arose from plaintiff's ownership of the vehicle. ¹

It is possible that the bare language of the policy is broad enough to protect plaintiff. As discussed above, however, it is important in construing the contract to examine the purpose and subject...