JGN CORP. v. National American Ins. Co.

Decision Date15 December 1988
Docket NumberCiv. No. 86-649-PA.
Citation736 F. Supp. 1570
PartiesJ.G.N. CORP., an Oregon corporation, Plaintiff, v. NATIONAL AMERICAN INSURANCE COMPANY, a Nebraska corporation, National American Insurance Company of California, a California corporation, and National American Insurance Company of New York, New York corporation, Defendants.
CourtU.S. District Court — District of Oregon

Michael C. McClinton and James C. Edmonds, Clark, Lindauer, McClinton, Todd, Krueger & Fetherston, Salem, Or., for plaintiff.

Barnes H. Ellis, Stoel, Rives, Boley, Jones & Grey, Portland, Or., for Nat. American Ins. Companies.


PANNER, Chief Judge.

Plaintiff J.G.N. Corp. brings this action against defendants National American Insurance Co., National American Insurance Co. of California, and National American Insurance Co. of New York. Plaintiff alleges breach of contract and, in interpleader, requests that funds deposited into court be awarded as damages. In the pretrial order, plaintiff sought to amend the complaint to add a claim for fraud. At the pretrial conference, plaintiff withdrew its motion to amend.

On April 5 and 6, 1988, a court trial was held. At the trial, the parties agreed that I would determine the issue of liability and reserve ruling on the amount of damages. The parties filed post-trial briefs. I find in favor of plaintiff on the breach of contract claim.


Plaintiff J.G.N. Corp. is a managing general agent for various insurance companies. Bo Newman is president of J.G.N. Corp. Defendants are insurance companies. The parties executed their first agency agreement in 1970 and a second agreement in 1975.

In July 1984, the parties executed a General Agency Contract and Profit Sharing Agreement that was modified in March 1985 (1984 Agreement). The 1984 Agreement provided:

The Company defendants shall prepare Profit Sharing participation statements within three (3) months after the close of each calendar year and forward to the General Agent for examination, and the amount of the Profit Sharing participation due General Agent shall be promptly paid after confirmation.... The first Profit Sharing year shall end December 31, 1984. The Profit Sharing shall be calculated annually on a calendar year basis. Payment shall be made on or before April 1, of the succeeding year....
In the event notice of termination and cancellation of this agreement is given by either party, no Profit Sharing participation statement shall be rendered until after the expiration or termination of liability of all policies and the settlement of all losses thereunder or coming under this agreement.

Exh. 5.

In August 1985, defendants announced their immediate withdrawal from the insurance business and rescinded plaintiff's authority to write defendants' policies. Plaintiff had difficulty finding other insurance carriers to replace some of its lost business. Plaintiff considered defendants' immediate mass termination a breach of the 1984 Agreement and threatened to sue. In response, defendants allowed plaintiff limited authority to continue some business for 90 days.

In October, when it became apparent to plaintiff that defendants were committed to a complete termination, plaintiff made additional requests, including the acceleration of its 1985 profit share. Under the 1984 Agreement, plaintiff's profit share for a termination year was not due until all claims were settled. Under those terms, payment would not be due for a very long time, if ever. On October 14, 1985, Newman, Ronald Bailey, plaintiff's attorney, Robert Barbarowicz, an attorney for defendants, and Mike Johnson, a representative of defendants, talked by telephone. Bailey listed four conditions for an amicable termination. One condition was to pay the profit share for 1985 in April 1986 as though it was not a termination year.

On November 7, 1985, Johnson and Dale Ogden, representing defendants, and Newman, representing plaintiff, met in Portland to discuss the termination. The meeting was friendly and lasted approximately one hour. At the end of the meeting, after all other problems were resolved, Newman brought up the profit share issue. Ogden suggested adding a provision for "IBNR" (Incurred But Not Yet Reported losses). Using IBNR, defendants would estimate and create a reserve for losses which have occurred in one year, but are not yet reported until the following year. Newman rejected the inclusion of IBNR because he did not want to use estimates or actuarial tables. Ogden then suggested that defendants would be willing to pay the profit share in two parts, half in 1986 and half in 1987. Newman rejected that proposal and suggested that the profit share be paid in April 1986 and plaintiff would waive all future earned premiums. Newman testified that Ogden said, "It's a deal." Ogden testified that he suggested allowing a three month "run off." A run off period would allow defendants to account for 1985 losses that were actually reported within the first three months of 1986, without using estimates.

In December 1985, the parties executed a Settlement Agreement and Release (Settlement Agreement). The Settlement Agreement provided:

Notwithstanding the termination of the General Agency Agreement ..., the profit sharing participation due plaintiff for calendar year 1985 shall be calculated at April 1, 1986 on all business transacted in 1985, and defendants agree to pay such profit sharing participation to plaintiff within 10 days of April 1, 1986.

Exh. 41. The agreement was drafted by defendants. Plaintiff added the words, "on all business transacted in 1985."

In late December 1985, defendants shut down to consolidate their operations before the new year. Losses reported the last ten days of 1985 were not entered into defendants' computer system until 1986. Defendants did not complete processing their backlog of claims until March 1986.


A court should avoid destruction of a contract because of uncertainty and, where possible, should construe agreements to effectuate the reasonable intentions of the parties. Van v. Fox, 278 Or. 439, 445, 564 P.2d 695 (1977). Neither party should be required to perform additional, material terms to which it did not explicitly or implicitly agree. However, neither party should be allowed to avoid contractual duties because the language of the agreement is less specific and complete than a careful lawyer would ordinarily apply. Id. at 446, 564 P.2d 695.

Extrinsic evidence is generally inadmissible when the terms of an agreement have been reduced to writing. ORS 41.740. Evidence may be admitted to show the circumstances under which the contract was made or to explain an ambiguity in the contract. ORS 41.740; Deerfield Commodities Ltd. v. Nerco, Inc., 72 Or.App. 305, 317, 696 P.2d 1096, review denied, 299 Or. 314, 702 P.2d 1111 (1985).

A contract is not ambiguous merely because the parties disagree on its interpretation. Port of Portland v. Water Quality Ins. Syndicate, 796 F.2d 1188, 1194 (9th Cir.1986) (applying Oregon law). Ambiguity arises where the words of a contract are reasonably susceptible to more than one meaning. Western Fire Ins. Co. v. Wallis, 289 Or. 303, 308, 613 P.2d 36 (1980). However, the court should not attribute possible but unlikely meanings to the terms of a contract. Id.


Plaintiff contends that under the Settlement Agreement, its profit share should be based on the income and incurred losses reported in 1985. Plaintiff contends that according to its calculations its profit share for 1985 is $937,467.

Defendants contend that the parties intended the profit share to be based on income reported during 1985 and incurred losses reported from January 1, 1985 through March 31, 1986. If the losses reported in the first three months of 1986 are included, plaintiff's profit share is zero. Defendants contend that if the parties did not agree to the 1986 run off period, then there was no meeting of the minds on the profit share provision of the Settlement Agreement, and the profit share determination should be governed by the provisions of the 1984 Agreement. Under the 1984 Agreement, plaintiff's profit share would not be due until the last claim was settled. Under the 1984 Agreement, plaintiff's profit share probably would be zero.

Within the insurance industry, the term calendar year refers to a twelve-month period. The 1985 calendar year would be January 1, 1985 through December 31, 1985. When "1985 calendar year" is replaced with its definition, the profit sharing clause of the Settlement Agreement provides:

The profit sharing participation due plaintiff for January 1 through December 31, 1985, shall be calculated at April 1, 1986, on all business transacted in 1985, and defendants agree to pay such profit sharing participation to plaintiff within 10 days of April 1, 1986.

Defendants contend that "at" is synonymous with "as of." Defendants also contend that "on all business transacted in 1985" includes income and losses occurring in 1985, regardless of when they become known. When these definitions are added, the profit sharing clause provides:

The profit sharing participation due plaintiff for January 1 through December 31, 1985 shall be calculated as of April 1, 1986 on all income and losses that occurred in 1985, and defendants agree to pay such profit sharing participation to plaintiff within 10 days of April 1, 1986.

Defendants contend that under their interpretation, the losses that occurred in 1985 but reported within the first three months of 1986 would be included within the profit sharing calculation. It is unlikely that defendants' interpretation was the intended meaning of the provision.

Plaintiff added the phrase "on all business transacted in 1985." That phrase does not expand the period for losses attributable to the profit share calculation. Rather, that phrase emphasizes the twelve-month limitation of the 1985 calendar year. Defe...

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  • JGN CORP. v. National American Ins. Co.
    • United States
    • U.S. District Court — District of Oregon
    • 24 Abril 1989
    ...7, 1988, I issued an opinion finding that defendants had breached their contract with plaintiff. J.G.N. Corp. v. National Am. Ins. Co., 736 F.Supp. 1570 (D.Or. Sept. 7, 1988). On December 14, I issued an order clarifying certain terms in that opinion. J.G.N. Corp. v. National Am. Ins. Co., ......

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