Georgetown Realty, Inc. v. Home Ins. Co.

Decision Date01 May 1992
Citation313 Or. 97,831 P.2d 7
PartiesGEORGETOWN REALTY, INC., an Oregon corporation, Petitioner on Review, v. The HOME INSURANCE COMPANY, a New Hampshire corporation, Respondent on Review. CC A8708-05098; CA A50656; SC S37524.
CourtOregon Supreme Court

Larry Dawson, Portland, argued the cause, for petitioner on review and was on the petition with Kathryn H. Clarke, Portland.

I. Franklin Hunsaker, of Bullivant, Houser, Bailey, Pendergrass & Hoffman, Portland, argued the cause, for respondent on review. With him on the response to the petition were Lisa E. Lear and Douglas G. Houser. Also on the petition was Donald A. Greig, of Landerholm, Memovich, Lansverk & Whitesides, Inc., P.S., Vancouver, Wash.

Henry Kantor, of Pozzi, Wilson, Atchison, O'Leary & Conboy, Portland, filed a brief on behalf of amicus curiae Oregon Trial Lawyers Ass'n.

Arthur C. Johnson, Eugene, filed a brief on behalf of amici curiae Wayne C. Annala, James G. Breathouwer, Frederic D. Canning, Wilford K. Carey, Thomas E. Cooney, Forest Evashevski, Jr., Gray, Francher, Holmes & Hurley, William E. Flinn, Christopher James, Joelson, Gould, Wilgers & Dorsey, P.C., John H. Kottkamp, Roderic S. MacMillan, Joseph J. McCarthy, Dennis W. Percell, Richard A. Roseta, Ray W. Shaw, James C. Tait, Thomas H. Tongue, Jan Thomas Baisch, William A. Barton, Burt, Swanson, Lathen, Alexander & McCann, Emmons, Kyle, Kropp, Kryger & Alexander, Ferder, Ogdahl, Brandt & Casebeer, Jeffrey P. Foote, Phil Goldsmith, John Paul Graff, Burl L. Green, James B. Griswold, Haugeberg, Rueter, Stone, Gowell & Fredericks, Johnson, Clifton, Larson & Bolin, P.C., Jolles, Sokol & Bernstein, Garry L Kahn, Charles F. Mitchell, Marvin S. Nepom, Richard P. Noble, Charles P.A. Paulson, Pippin & Bocci, Pozzi, Wilson, Atchison & O'Leary, Ringo & Stuber, Elden M. Rosenthal, Linda J. Rudnick, John D. Ryan, E.B. Sahlstrom, Michael R. Shinn, Charles J. Strader, Welch, Bruun & Green, Williams, Troutwine & Bowersox, D. Lawrence Wobbrock, and Portland Bd. of Realtors.

William L. Hallmark and William G. Earle, Portland, filed a brief on behalf of amicus curiae Oregon Ass'n of Defense Counsel.

PETERSON, Justice.

This case involves an "excess claim" 1 by an insured against its liability insurer. Plaintiff's first claim was for damages for breach of contract in the amount of a judgment returned against it in an earlier case, less amounts paid by defendant under its liability policy, and for attorney fees. Plaintiff's second claim was for damages for "breach of fiduciary duty," "damage to its professional reputation," lost income and earning capacity, and punitive damages. The jury found for plaintiff on both claims and awarded punitive damages on the second claim. Defendant appealed, arguing that the second claim should not have been submitted to the jury and that the award of punitive damages should be reversed. 2

The pivotal question is whether plaintiff's second claim is assertable as a tort claim. The Court of Appeals held that it is not and reversed. Georgetown Realty v. The Home Ins. Co., 102 Or.App. 611, 796 P.2d 651 (1990). We hold that it is and reverse the decision of the Court of Appeals.

A. PROCEDURAL BACKGROUND

Plaintiff had a liability insurance policy with defendant. A third person filed a tort action against plaintiff. Defendant assumed plaintiff's defense under its policy. The policy provided that the company "shall * * * defend any suit against Insured(s) * * * and the Company may make such investigation, negotiation and * * * settlement of any claim or suit as it deems expedient." In the action filed by the third person, a verdict was returned against plaintiff for compensatory and punitive damages. Defendant refused to pay the entire judgment. Plaintiff then brought this action against defendant. Plaintiff's amended complaint bore the heading "Action at Law Breach of Contract; Breach of Fiduciary Duty." The first claim asked for damages for the amount of the judgment in excess of the amount paid by defendant and for attorney fees. In a second claim, plaintiff alleged that defendant violated its duty to conduct the defense "with due care, skill and diligence" in eight respects. 3 Plaintiff asked for $100,000 for "damage to its professional reputation[,] * * * lost income and earning capacity." Plaintiff also alleged in the second claim that defendant's "wanton, reckless and intentional disregard of [plaintiff's] rights and financial interest * * * constitutes a breach of defendant's fiduciary duty [in eight specified particulars]," and sought punitive damages of $2 million.

On the first claim, the jury returned a verdict in favor of plaintiff for $32,500 for defendant's "breach of contract"; on the second claim, the jury awarded $35,000 for defendant's "breach of duty" and punitive damages of $1,500,000. Defendant appealed, asserting that defendant's duties "were purely contractual" and that the trial court erred in submitting plaintiff's second claim, including the punitive damages claim, to the jury. The Court of Appeals held that "[p]laintiff did not state a claim for negligence" and "[r]emanded for entry of an amended judgment that deletes awards of compensatory and punitive damages on breach of fiduciary duty claim." Georgetown Realty v. The Home Ins. Co., supra, 102 Or.App. at 618-19, 796 P.2d 651.

B. AN EXCESS CLAIM AGAINST A LIABILITY INSURER IS ASSERTABLE AS A TORT

Nearly a century ago, this court held that, where a duty arises from a contractual relationship between the parties, an action in tort may lie. In Currey v. Butcher, 37 Or. 380, 61 P. 631 (1900), the plaintiff employed the defendants, two lawyers practicing law as partners, to make a real property title search. They did so, but overlooked a judgment lien, which the plaintiff paid. The plaintiff then brought an action against the defendants. The opinion states that "the gist of the action is the negligence of the defendants in the performance of a duty which they owed to the plaintiff by reason of their employment." 37 Or. at 384, 61 P. 631. The defendants claimed that the complaint was duplicitous in that it alleged more than one basis for relief and assigned error to the trial court's denial of their motion to require the plaintiff to elect whether she would proceed in contract or in tort. The court held that the complaint stated but one cause of action, explaining:

"Where one adopts the legal profession, and assumes to exercise its duties in behalf of another for hire, the law imposes a duty to exercise reasonable care and skill, and if an injury results to his client from want thereof he is liable to respond in damages to the extent of the injury sustained. This duty and liability arises from the relation of the parties under the contract, rather than from the contract itself, and at common law the injured party could sue, either in assumpsit, for a breach of the implied promise, or in case, for the neglect of duty: 3 Enc.Pl. & Prac. 107. In the latter instance it is necessary to aver the contract of employment, showing the relation of attorney and client, as a matter of inducement, because without such contract there could be no duty to the plaintiff, and hence no liability. As stated by Mr. Justice McDonald, in Emigh v. Pittsburg, etc. R.R. Co. 4 Biss. 114 ( Fed.Cas. No. 4,449): 'When there is a contract, either express or implied, from which a common law duty results, an action on the case lies for a breach of that duty, in which case the contract is laid as mere inducement, and the tort arising from the breach of duty as the gravamen of the action. Thus, if a lawyer or physician is engaged by special contract to render professional services, and if, in the performance of such services, he is guilty of gross ignorance or negligence, an action on the case will lie against him notwithstanding such special contract.' And Mr. Bliss, after quoting from Chitty that 'the inducement or averment by way of introductory allegation is peculiarly proper where a party is charged upon, or in respect of, the breach of a contract or implied duty resulting from any particular character or capacity of defendant,' says: 'This doctrine is applied to declarations against attorneys, physicians and mechanics for negligence, and against carriers and innkeepers for loss of goods; the contract or possession of the property and the injury being the gist or substance, while the allegations showing the occupation of the defendant, in reference to which the contract was made or the duty arose, show matter of inducement:' Bliss, Code Pl. (3 ed.) § 150." Id. at 384-86, 61 P. 631.

The rule stated in Currey v. Butcher, supra, has been followed since 1900, in cases involving physicians, lawyers, real estate brokers, architects, engineers, and landlords. Most of the cases involve statutes of limitations, cases in which the defendant asserts that the longer contract statute of limitations is inapplicable and that the tort statute of limitations is applicable and has run. See Goodman v. Fernald, 154 Or. 654, 662, 61 P.2d 1253 (1936) (claim against landlord by tenant for personal injuries, asserting breach of an agreement to repair, held barred by two-year tort statute of limitations); Wilder v. Haworth, 187 Or. 688, 690, 213 P.2d 797 (1950) (in negligence claim against a physician for personal injuries, tort limitations statute applies; "[t]he action, being based upon alleged negligent performance by defendant of his contract with plaintiff, sounds in tort"); Dowell v. Mossberg, 226 Or. 173, 188-89, 355 P.2d 624, 359 P.2d 541 (1961) (failure of a physician to exercise due care in the treatment of a patient is a tort, not a breach of contract; therefore, tort statute of limitations applies); Bales for Food v. Poole, 246 Or. 253, 256, 424 P.2d 892 (1967) (claim against engineer for failure to use due care in preparing plans barred by...

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