Holloway v. Republic Indem. Co. of America

• Decision Date: 16 November 2006
• Docket Number: (CC02-02323-CV; CA A123072; SC S52951).
• Citation: 147 P.3d 329,341 Or. 642
• Parties: Krystal HOLLOWAY, Respondent on Review, v. REPUBLIC INDEMNITY COMPANY OF AMERICA, Petitioner on Review.
• Court: Oregon Supreme Court

147 P.3d 329

341 Or. 642

Krystal HOLLOWAY, Respondent on Review, v. REPUBLIC INDEMNITY COMPANY OF AMERICA, Petitioner on Review.

(CC02-02323-CV; CA A123072; SC S52951).

Supreme Court of Oregon.

Argued and Submitted September 7, 2006.

Decided November 16, 2006.

On review from the Court of Appeals.^*

I. Franklin Hunsaker, Beaverton, argued the cause for petitioner on review. With him on the briefs were Paul J. Killion and Michael J. Dickman, Duane Morris LLP, San Francisco, and Bernard S. Moore, Frohnmayer, Deatherage, Pratt, Jamieson, Clarke & Moore PC, Medford.

Karen E. Duncan and Donald E. Oliver, Oliver & Duncan, Redmond, argued the cause and filed the briefs for respondent on review.

Before DE MUNIZ, Chief Justice, and CARSON, GILLETTE, DURHAM, BALMER, and KISTLER, Justices.^**

CARSON, J.

The central issue in this insurance contract case is whether an anti-assignment clause providing that "[y]our rights or duties under this policy may not be transferred without our written consent[]" is ambiguous and thus should be construed against its drafter. A trial court held that the clause was not ambiguous. The Court of Appeals reversed. Holloway v. Republic Indemnity Co. of America, 201 Or.App. 376, 382, 119 P.3d 239 (2005). For the reasons that follow, we reverse the decision of the Court of Appeals and affirm the judgment of the trial court.

Fields (insured) owned and operated a restaurant as a sole proprietorship under the name "Loree's Chalet." During 1997, Republic Indemnity Company of America (Republic) undertook to insure the insured and issued her a "Workers' Compensation and Employers' Liability Policy." That insurance policy contained the following provisions:

"GENERAL SECTION

"A. The Policy

"[This policy] is a contract of insurance between you (the employer named in Item 1 of the Information Page) and us (the insurer named on the Information Page). * * *[¹]

"B. Who Is Insured

"You are insured if you are an employer named in Item 1 of the Information Page. * * *

"* * * * *

"PART TWO-EMPLOYERS LIABILITY INSURANCE

"* * * * *

"B. We Will Pay

"We will pay all sums you legally must pay as damages because of bodily injury to your employees, provided the bodily injury is covered by this Employers Liability Insurance.

"* * * * *

"C. Exclusions

"This insurance does not cover:

"* * * * *

"5. bodily injury intentionally caused or aggravated by you; [or]

"* * * * *

"7. damages arising out of * * * harassment, * * * discrimination against or termination of any employee * * *[.]

"* * * * *

"D. We Will Defend

"We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance. * * *

"We have no duty to defend a claim, proceeding or suit that is not covered by this insurance. * * *

"* * * * *

"PART SIX-CONDITIONS

"* * * * *

"C. Transfer of Your Rights and Duties

"Your rights or duties under this policy may not be transferred without our written consent."

While Republic's insurance policy was in effect, plaintiff below (Holloway) began working as a waitress for the insured's restaurant. The insured also employed Zullig as a manager and bartender for the restaurant. According to Holloway,² immediately after Zullig began working at the restaurant, he "approached [Holloway], made lewd and vulgar comments, physically interfered with [Holloway's] normal movements within her work environment, stated his intentions to engage in sexual activities with [Holloway], and subjected [Holloway] to unwelcome sexual advances and physical contact." Also, "Zullig engaged in a pattern of verbal sexual comments and innuendos designed to annoy, harass, intimidate and demean [Holloway], including explicit sexual and abusive language." Additionally, "Zullig obtained [Holloway's] home telephone number from her employment files * * * and began harassing her at home." "Zullig came into [Holloway's] house in a drunken state on more than one occasion, refused to leave when asked, kissed her against her will and told her he intended to have sexual intercourse with her whether she wanted to or not." Finally,

"Zullig gave [Holloway], over her objection, gifts of jewelry that * * * were stolen from [the insured's] jewelry display and sales case located in the restaurant. This made [Holloway] anxious and fearful that * * * Zullig intended to gain control over her by threatening to report that [Holloway] had stolen the items from the display case."

Holloway reported Zullig's conduct to the insured on several occasions, but the insured took no action to investigate or correct Zullig's harassing conduct. According to Holloway, Zullig's conduct was "known to, authorized and ratified by" the insured, and the insured "deliberately created, maintained and permitted the harassment with the specific intention that it would force [Holloway] to resign." In fact, Holloway eventually did resign, allegedly due to Zullig's harassment.

Holloway subsequently brought an action against the insured, alleging employment discrimination by means of sexual harassment constructive discharge, and intentional infliction of emotional distress. The insured notified Republic of the action and tendered her defense to Republic. Republic, however refused to defend the insured.

Following that refusal, the insured and Holloway reached a settlement agreement. Under that agreement, the insured and Holloway stipulated to the entry of a $50,000 judgment against the insured, and Holloway entered into a covenant not to execute on the judgment against the insured for more than $6,000. The insured paid Holloway the agreed-upon $6,000, and Holloway entered a satisfaction of the judgment as to the insured. Also under that settlement agreement, the insured purported to assign to Holloway all the insured's rights to any claim that she might have against Republic for breach of the insurance contract or for indemnity.

Upon receiving that purported assignment, Holloway brought the present breach of contract action against Republic, asserting that Republic had breached its duty to defend the insured and its duty to indemnify the insured. Through that action, Holloway sought to recover from Republic the insured's attorney fees and costs incurred while defending against Holloway's tort action, Holloway's attorney fees and costs incurred in her tort action against the insured, the remaining unsatisfied part of the judgment that she had received against the insured ($44,000), and Holloway's attorney fees and costs incurred in the contract action against Republic.

Holloway and Republic filed cross-motions for summary judgment. In support of its motion, Republic presented two arguments. First, Republic claimed that it had no duty to defend or indemnify the insured because, under two exclusions in the insurance policy, the tortious conduct that Holloway had alleged in her action against the insured was not covered by Republic's policy. Specifically, Republic asserted that the conduct alleged in Holloway's action against the insured fell within both the intentional acts exclusion and the harassment, discrimination, and termination exclusion of the insurance policy. According to Republic, because the alleged conduct was not covered under the terms of the insurance policy, Republic had no duty to defend or indemnify. Second, Republic maintained that, in any event, Holloway had acquired no rights from the insured under the purported assignment that was part of the settlement agreement between Holloway and the insured.

In its letter opinion, the trial court agreed with Republic's first argument and held that Republic had no duty to defend or indemnify. Accordingly, the trial court granted Republic's motion and denied Holloway's motion. The trial court did not address Republic's second argument, apparently because it found Republic's first argument to be persuasive and dispositive.

Holloway appealed the trial court's judgment, arguing that the trial court had erred in granting Republic's motion and in denying Holloway's motion. The Court of Appeals agreed with Holloway, holding that Holloway's complaint against the insured alleged conduct that did not fall within the insurance policy's exclusions and that the purported assignment to Holloway was valid. Holloway, 201 Or.App. at 382, 391, 119 P.3d 239.

As to the Court of Appeals' first conclusion, that court examined the text of the insurance policy's exclusions and the nature of the factual allegations that Holloway had made in her complaint against the insured. Id. at 384-91, 119 P.3d 239. Ultimately, the Court of Appeals reasoned that Holloway's complaint alleged an unpleaded battery claim that did not fall within the insurance policy's exclusions. Id. at 390-91, 119 P.3d 239.

Regarding its second conclusion, the Court of Appeals explained:

"[T]he insurance policy at issue in this case provides that the `rights or duties under this policy may not be transferred without [Republic's] written consent.' Nothing in the policy states what `rights or duties' may not be `transferred.' The `rights or duties' could refer to pre-loss rights or duties, post-loss rights or duties, or both. We must choose among those understandings.

"If the provision prohibits the assignment of pre-loss rights or duties, then it would `protect the insurer against increased risks of loss resulting from an assignment of coverage to a new insured.' Conrad Brothers v. John Deere Ins. Co., 640 N.W.2d 231, 237 (Iowa 2001). The insurer has bargained to accept the risk presented by the particular insured with whom it has contracted, and it makes sense for the insurer to seek to protect itself from the unknown risks to which an assignee insured might expose it. However, it would also be reasonable for the policy to insulate the insured from exposure to claims for indemnification from third-party claimants after a loss has occurred. The context of the policy provides little guidance, and,...