Holloway v. Republic Indem. Co. of America, 02-02323-CV; A123072.

• Decision Date: 31 August 2005
• Docket Number: 02-02323-CV; A123072.
• Citation: 119 P.3d 239,201 Or. App. 376
• Parties: Krystal HOLLOWAY, Appellant, v. REPUBLIC INDEMNITY COMPANY OF AMERICA, Respondent.
• Court: Oregon Supreme Court

119 P.3d 239

201 Or. App. 376

Krystal HOLLOWAY, Appellant, v. REPUBLIC INDEMNITY COMPANY OF AMERICA, Respondent.

02-02323-CV; A123072.

Court of Appeals of Oregon.

Argued and Submitted May 2, 2005.

Decided August 31, 2005.

COPYRIGHT MATERIAL OMITTED

Donald E. Oliver, Redmond, argued the cause for appellant. On the briefs were Karen E. Duncan and Oliver & Duncan.

Bernard S. Moore, Medford, argued the cause for respondent. With him on the brief were Frohnmayer, Deatherage, Pratt, Jamieson, Clarke & Moore, P.C. and Paul J. Killion, Banch T. Abegaze, Michael J. Dickman, and Hancock Rothert & Bunshoft.

Before ARMSTRONG, Presiding Judge, and BREWER, Chief Judge, and LANDAU Judge.^*

ARMSTRONG, P.J.

Plaintiff appeals from a summary judgment in defendant's favor in an action arising from plaintiff's claims of sexual harassment against defendant's insured, Loree's Chalet Restaurant. Plaintiff initially had brought an action against the insured, asserting claims for sexual harassment, constructive discharge, and intentional infliction of emotional distress (IIED). The insured tendered its defense to defendant under the insurance policy that it had with defendant. Defendant refused to defend or indemnify its insured in the action. Consequently, the insured entered into a settlement agreement with plaintiff, in which the parties stipulated to the entry of a $50,000 judgment against the insured. The parties also agreed that plaintiff would enter a satisfaction of that judgment and would covenant not to execute the judgment against the insured in exchange for $6,000 and an assignment of all the insured's rights under its policy with defendant. With that assignment in hand, plaintiff brought this action against defendant for breach of its duties to defend and indemnify the insured. In granting defendant's motion for summary judgment and denying plaintiff's cross-motion, the trial court concluded that defendant had no duty to defend or indemnify the insured in the underlying action because of two coverage exclusions in the relevant policy. We reverse on the failure to defend claim and reverse and remand on the failure to indemnify claim.

Plaintiff's complaint in the underlying action against defendant's insured alleged as follows. Defendant's insured hired plaintiff to work as a waitress. At the time, plaintiff was 16 years old. Shortly thereafter, the insured hired Zullig as a bartender and manager. Zullig immediately began directing "lewd and vulgar comments" and "unwelcome sexual advances and physical contact" at plaintiff. Zullig also "obtained plaintiff's home telephone number from her employment files * * * and began harassing her at home." Zullig entered "plaintiff's house in a drunken state on more than one occasion, refused to leave when asked, kissed [plaintiff] against her will and told her he intended to have sexual intercourse with her whether she wanted to or not."

Plaintiff reported Zullig's actions to the insured on more than one occasion, but the harassment did not cease. According to plaintiff's underlying complaint, Zullig's acts "were known to, authorized and ratified by" the insured. After approximately one month of working with Zullig, plaintiff was forced to quit because her "working environment became intolerable * * * and she feared for her safety."

As noted above, plaintiff, through her guardian ad litem because she was a minor at that time, brought an action against the insured asserting three enumerated claims: employment discrimination (sexual harassment), constructive discharge, and IIED. Counsel for the insured sent a letter to defendant, notifying it of plaintiff's claims and requesting that defendant defend and indemnify the insured under the terms of the insurance policy. Defendant never responded to that request and, in its answer in this case, admits that it effectively denied the insured coverage and defense.

The insured eventually spent approximately $5,000 defending plaintiff's action against it. Ultimately, the insured and plaintiff reached the settlement agreement described above, wherein the insured assigned its rights under the policy to plaintiff.

Plaintiff, as the assignee of the insured, then brought this contract action against defendant asserting two claims: breach of the duty to defend and breach of the duty to indemnify. The parties filed cross-motions for summary judgment. In support of its motion, defendant made two arguments. First, based on certain coverage exclusions in its policy with the insured, defendant argued that it had no duty to defend or to indemnify its insured against plaintiff's claims in the underlying action. Second, it argued that plaintiff had acquired no rights against it as a result of the assignment from the insured. In a letter opinion, the trial court agreed with defendant that the coverage exclusions applied and, therefore, granted defendant's motion and denied plaintiff's. The trial court did not address defendant's argument that plaintiff had acquired no enforceable rights as a result of the assignment.

On appeal, plaintiff assigns error to the trial court's grant of defendant's motion for summary judgment and to the denial of its motion. We review the evidence to determine whether there are any issues of material fact and, if there are not, which party is entitled to judgment as a matter of law. Powell v. Bunn, 185 Or.App. 334, 338, 59 P.3d 559 (2002), rev. den., 336 Or. 60, 77 P.3d 635 (2003).

Although the trial court did not address the question, we begin with the validity of the insured's assignment of rights. Defendant makes a two-pronged attack on that purported assignment. First, it argues that certain provisions in the relevant insurance policy render the assignment ineffective. Second, defendant argues that, under Stubblefield v. St. Paul Fire & Marine, 267 Or. 397, 517 P.2d 262 (1973), and its progeny, plaintiff's covenant not to execute the stipulated judgment against the insured effectively insulated defendant from any liability.

To support its first argument challenging the validity of the assignment, defendant points to three provisions of the policy that, it insists, preclude the transfer of any enforceable rights to plaintiff. The first provision states that the insured's "rights or duties under this policy may not be transferred without [defendant's] written consent." The second and third provisions relate to the insured's duties under the policy. The former provides that "[t]here will be no right of action against [defendant] under this insurance unless * * * [the insured has] complied with all the terms of this policy; and * * * [t]he amount [the insured] owe[s] has been determined with [defendant's] consent or by actual trial and final judgment." The latter prohibits the insured from "voluntarily mak[ing] payments, assum[ing] obligations or incur[ring] expenses."

Plaintiff argues that, under Jaloff v. United Auto Indemnity Exch., 121 Or. 187, 253 P. 883 (1927), defendant waived those policy provisions by refusing to defend the insured in the underlying action. Plaintiff is correct with respect to the second and third provisions, which concern the duties of the insured. In Jaloff — which, contrary to defendant's position, has not been "effectively * * * overruled" — the Supreme Court held that, when an insurer refuses to defend an action, it waives policy provisions requiring the amount of the loss to be determined after a trial and prohibiting the insured from settling claims without the insurer's consent. 121 Or. at 196-200, 253 P. 883. The second and third provisions identified above are of the same sort as those at issue in Jaloff, and we conclude that defendant waived those provisions by refusing to defend its insured in the underlying action.

However, the first policy provision identified above — the anti-assignment provision — is not of the same sort as those at issue in Jaloff, and we conclude that such a provision is not waived by a failure to defend. That is because, logically, an anti-assignment provision does not have the same nexus to the duty to defend that the provisions at issue in Jaloff have. Thus, defendant's failure to defend its insured did not waive the anti-assignment provision. We therefore must determine whether, properly interpreted, that provision renders the assignment invalid.

We recently described the analytical framework for interpreting insurance policies this way:

"We first determine whether the policy defined the term at issue and, if it did not, we look to the plain meaning of the term. * * * If we determine that there are two or more plausible interpretations of the term, then we consider whether those interpretations withstand scrutiny, i.e., continue to be reasonable, after the interpretations are examined in the light of, among other things, the particular context in which that term is used in the policy and the broader context of the policy as a whole. * * * Only if more than one interpretation remains reasonable after such an examination will we conclude that the policy provision is ambiguous. * * * If the provision is ambiguous, we construe it against the insurer as its drafter."

Clinical Research Institute v. Kemper Ins. Co., 191 Or.App. 595, 600, 84 P.3d 147 (2004) (internal citations and quotation marks omitted). Again, the insurance policy at issue in this case provides that the "rights or duties under this policy may not be transferred without [defendant'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 20...