Frontier Ins. Agency, Inc. v. Hartford Fire Ins. Co.

• Decision Date: 27 July 1972
• Citation: 262 Or. 470,499 P.2d 1302
• Parties: FRONTIER INSURANCE AGENCY, INC., a corporation, Respondent, v. HARTFORD FIRE INSURANCE COMPANY, a corporation, Appellant, and Gillespie Decals, Inc., a corporation, Respondent.
• Court: Oregon Supreme Court

Page 1302

499 P.2d 1302

262 Or. 470

FRONTIER INSURANCE AGENCY, INC., a corporation, Respondent, v. HARTFORD FIRE INSURANCE COMPANY, a corporation, Appellant and Gillespie Decals, Inc., a corporation, Respondent.

Supreme Court of Oregon.

Argued and Submitted March 6, 1972.

Decided July 27, 1972.

Jack L. Hoffman, Portland, argued the cause for appellant. On the briefs were Bullivant, Wright, Johnson, Pendergrass & Hoffman.

Kenneth E. Roberts, Portland, argued the cause for respondent Frontier Insurance Agency, Inc. With him on the brief were Souther, Spaulding, Kinsey, Williamson & Schwabe, Gregory W. Byrne and Ridgway K. Foley, Jr., Portland.

Paul 'L'Roy O'Connor, Portland, argued the cause and filed a brief for respondent Gillespie Decals, Inc.

Before O'CONNELL, C.J., and McALLISTER, DENECKE, HOLMAN, and BRYSON, ^* JJ.

McALLISTER, Justice.

This is a declaratory judgment proceeding to determine the relative rights and liabilities between Hartford Fire Insurance Company, its agent, Frontier Insurance Agency, Inc., and its alleged insured, Gillespie Decals, Inc. The basic issue is whether Hartford is liable to Gillespie on an oral contract of insurance made by Frontier as Hartford's agent. The trial court found that Hartford was liable to Gillespie and that Hartford was not entitled to indemnity from Frontier. Hartford appeals. We affirm.

The controversy arose out of the following circumstances. Gillespie was in the printing business in Portland and prior to August 1968 its sole place of business was 1910 SW Stevenson Road. Frontier is an independent insurance agency which represents a number of insurance companies, including Hartford. For many years Frontier handled all of Gillespie's insurance business. On May 16, 1968, Hartford issued to Gillespie, through Frontier, its fire policy #52 FS 155139 for a term of three years, insuring for the sum of $50,000 a stock of merchandise located at 1910 SW Stevenson Road.

In August 1968 Gillespie expanded its business into a second location at 1131 SE Umatilla Avenue. At that time Mr. Locke, Gillespie's General Manager, and Mr. Cheatham, Frontier's President, discussed the insurance changes necessary because of Gillespie's expansion into the additional location. It was agreed that the insurance coverage at the new location would include $50,000 fire insurance on the stock of merchandise and fire insurance on some new machinery, a Friden computer, and the accounts receivable records. All the new insurance was to be effective at the time of the move in August 1968. Cheatham advised Gillespie that the stock of merchandise at the new location would be insured by adding the coverage to Hartford's policy #52 FS 155139.

For some unexplained reason Frontier apparently made no effort to obtain the additional insurance for Gillespie until about March 1, 1969. At about that time Cheatham ordered from Hartford's Portland office a fire insurance policy covering the equipment at the new location, including the computer, and a new policy covering those items for $37,000 was issued by Hartford.

Although Frontier could order new policies from Hartford's Portland office, it was necessary that amendments to existing policies be ordered from Hartford's Seattle office. Cheatham testified that he sent a memorandum dated March 3, 1969, to Hartford's Seattle office requesting Hartford to amend policy #52 FS 155139 to provide $50,000 fire coverage on the stock of merchandise at Gillespie's new location. Hartford contends that it never received the memorandum and therefore took no action to provide the insurance requested therein. Frontier did not follow up its request and no insurance was written on the Gillespie stock at the Umatilla Avenue location.

A fire on January 25, 1970, at the Umatilla location resulted in an estimated loss of $107,571.81. Hartford paid that portion of the loss covered by its policy on the machinery and computer, but refused to pay for the loss to the stock of merchandise, contending that it had written no insurance covering the merchandise at the Umatilla location. This proceeding was thereafter brought by Frontier to determine the Inter se rights and liabilities of the parties.

Frontier filed a 'Complaint in Equity for Declaratory Decree and Judgment,' naming Hartford and Gillespie as defendants. The complaint prayed for a declaration of the rights of all the parties, including a declaration that Frontier was not liable to either of the defendants, and for a decree reforming the insurance policy to include the merchandise at the Umatilla Street location up to $50,000. The complaint also prayed that Gillespie have a judgment against Hartford on the policy.

Although a similar procedure was employed in Leavens v. Northwestern Mutual Ins., 249 Or. 418, 439 P.2d 17 (1968), and there has been no objection to the procedure in this case, we have doubts about Frontier's standing to assert Gillespie's rights against Hartford. However, Gillespie filed a cross-complaint alleging that Hartford, through its agent Frontier, agreed to provide the additional coverage under the existing policy, and sought a declaration of its rights against Hartford and a judgment on the policy. By this cross-complaint, which is authorized by ORS 16.315(1)(a), ¹ Gillespie seeks the same relief which Frontier sought on its behalf. In Recall Bennett Com. v. Bennett, 196 Or. 299, 249 P.2d 479 (1952) this court held that omissions in the complaint in a declaratory judgment proceeding were supplied by the allegations of a cross-complaint. The opinion quotes with approval the following from 1 Anderson, Declaratory Judgments § 306, p. 707:

"So, whether a complaint for a declaratory judgment states a cause of action is immaterial, where the defendant interposed a cross pleading tendering the same issues and a judgment thereon constitutes a complete adjudication of the rights of the parties since the defendant by tendering such counterclaim or cross-complaint became a plaintiff in effect and invoked the jurisdiction of the court and submitted to it." 196 Or. at 320.

In the present case Gillespie has, by its cross-complaint, acquiesced in Frontier's choice of forum, and Hartford has made no objection to the procedure employed. We therefore consider the issues raised by the parties as properly before us, but do not intend to express our approval of the procedure employed here and in Leavens in which an insurance agent, in an attempt to forestall claims by a disappointed client, employs declaratory judgment procedures to assert the client's claims against the insurance company.

We next consider the scope of our review. Hartford contends that the case is in equity and that it is entitled to a review de novo. This depends on whether this is a suit in equity to reform Hartford's policy 52 FS 155139 or whether it is an action at law on an oral contract to insure by amending the above-numbered policy. We think the question is answered by the pleadings.

Frontier expressed the gravamen of its complaint in the following language:

'That on or about the 3rd day of March, 1969, at the request of the defendant Gillespie Decals, Inc., the plaintiff (Frontier), acting on behalf and as agent of the defendant Hartford Fire Insurance Company, bound and committed said company to a contract of fire insurance with the defendant Gillespie Decals, Inc. covering the contents of a second location at 1131 S. E. Umatilla Avenue, Portland, Oregon, in the sum of $50,000 and the said second location To be added to the aforesaid policy No. 52 FS 155139 By endorsement; * * *.' (Emphasis supplied.)

In similar language Gillespie, in its cross-complaint, alleged that Frontier had agreed that Frontier would 'issue an additional $50,000.00 stock coverage at the new location' with defendant Hartford and that 'a rider would be added to the present policy of insurance, or an endorsement thereon.'

Instead of asking in the prayer of their pleadings that Hartford's policy 52 FS 155139 be amended by 'endorsement' or 'rider', both Frontier and Gillespie asked that the existing policy by reformed to provide the additional coverage. The use of the words 'reform' and 'reformation' in the pleadings in lieu of 'amend' and 'amendment' is the primary basis for Hartford's claim that this is a suit in equity and its claim for de novo review. Hartford also relies on the allegation in the complaint that equitable intervention is necessary to avoid a multiplicity of suits and circuity of actions.

Reformation, strictly speaking, is equitable relief which is appropriate when a writing, because of fraud or mutual mistake, incorrectly expresses the true intention of the parties. Manning Lumber Co. v. Voget, 188 Or. 486, 497--498, 500, 216 P.2d 674 (1950). It is obvious from the allegations of the complaint and cross-complaint that Frontier and Gillespie were not seeking reformation of the policy in the strict sense of the term. The policy, when issued in May, 1968, expressed the intention of the parties, and it needed no reformation. In this case the court was asked, in effect, to enforce the written policy of insurance, as amended by oral agreement, to include additional coverage. An action at law supplies an entirely adequate remedy for the enforcement of such a contract. See Bird v. Central Mfg. Ins. Co., 168 Or. 1, 7, 120 P.2d 753 (1942). Nor is the aid of equity necessary to avoid a multiplicity of suits. ORS 28.110 provides:

'When declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration, * * *.'

The court in a declaratory judgment proceeding has ample authority to determine the rights of all affected parties.

Hartford was in no way misled or prejudiced by the use of the word 'reform' in the pleadings. It made no attempt to exclude evidence of the oral agreement to add new coverage to the existing policy, and was obviously prepared to meet the issues...