Kabban v. Mackin

• Decision Date: 21 November 1990
• Docket Number: CV-274
• Citation: 104 Or.App. 422,801 P.2d 883
• Court: Oregon Court of Appeals
• Parties: Joseph KABBAN, Respondent, v. Harry MACKIN, Bob Hart Insurance, Inc., an Oregon corporation, the Travelers Insurance Company, a Connecticut corporation, the Charter Oak Fire Insurance Company, a Connecticut corporation, Appellants. 87-; CA A51117.

Page 883

801 P.2d 883

104 Or.App. 422

Joseph KABBAN, Respondent, v. Harry MACKIN, Bob Hart Insurance, Inc., an Oregon corporation, the Travelers Insurance Company, a Connecticut corporation, the Charter Oak Fire Insurance Company, a Connecticut corporation, Appellants.

87-CV-274; CA A51117.

Court of Appeals of Oregon.

Argued and Submitted June 4, 1990.

Decided Nov. 21, 1990.

James M. Callahan, Portland, argued the cause, for appellants Harry Mackin and Bob Hart Ins., Inc. With him on the briefs, were Bittner & Barker, P.C., and Callahan & Shears, P.C., Portland.

Patrick C. Ford, Medford, argued the cause, for appellants Travelers Ins. Co. and Charter Oak Fire Ins. Co. With him on the briefs, was Patrick Ford, P.C., Medford.

Clayton C. Patrick, Salem, argued the cause, for respondent. With him on the brief, were Nancy G. Neslund and Neslund and Neslund, Salem, and Thomas M. Hull and Burrows & Hull, Medford.

Before BUTTLER, P.J., and ROSSMAN and DeMUNIZ, JJ.

DeMUNIZ, Judge.

Plaintiff brought this action against Travelers Insurance Company (Travelers), Mackin and his employer, Bob Hart Insurance, Inc. (Hart), alleging claims for coverage by estoppel, negligence and reformation of the insurance policy. A jury found against defendants and awarded damages to plaintiff. The trial court also granted reformation of the policy. Defendants raise numerous separate assignments of error. We reverse on the reformation claim, reverse and remand on the negligence claim and otherwise affirm.

In 1979, plaintiff purchased a building in Grants Pass housing a restaurant and lounge, then known as "The Woodshed." He obtained insurance for the premises through his insurance agent Mackin in 1981. Travelers began insuring the premises in 1983, and the policy was renewed yearly thereafter.

Plaintiff operated "The Woodshed" until 1982, when ill health caused him to close the restaurant and move to San Diego. In May, 1982, he leased the premises to Wehab, who operated a restaurant on the premises until September, 1985. Plaintiff testified that he notified Mackin that "The Woodshed" was closed after Wehab quit operating.

An engineer for Travelers visited the premises on November 20, 1985, and determined that the building was not occupied. On January 9, 1986, Travelers sent a memorandum to Mackin, indicating that the policy would have to be cancelled unless the building were reoccupied. Mackin went to the premises on January 30, 1986. He found the building locked but observed cars in the parking lot, heard people working inside and noted that the marquee read, "Opening Soon." On the basis of those observations, he reported to Travelers that "The Woodshed" was open for business. Mackin did not notify plaintiff about Travelers' concern that the building was vacant and its intention to cancel the policy. Sometime in 1986, plaintiff leased the premises to Kabrzycki, who obtained a retail liquor license in April, 1986, but was unable to obtain liquor liability insurance.

On July 29, 1986, plaintiff called Mackin's office to inquire about liquor liability insurance for Kabrzycki. However, before Mackin had contacted plaintiff, plaintiff sent a telegram to Kabrzycki telling her to vacate the premises. Later plaintiff told Mackin that he had sent the telegram to Kabrzycki. Kabrzycki vacated the premises on July 30, 1986. After that date, the premises were unoccupied. Plaintiff called Mackin again on November 3, 1986, asking for the name of a realtor with whom to list "The Woodshed" and told Mackin that "The Woodshed" was still closed. On November 7, 1986, Mackin forwarded the renewal policy on the premises to plaintiff, along with a memo advising him that the building was "now covered for replacement" and suggesting that plaintiff review the policy and contact him if he had questions. The effective date of the policy was November 10, 1986.

The unoccupied premises were destroyed by an arson fire on November 16. The insurance policy contained the statutorily required clause excluding coverage when the building is vacant for more than 60 consecutive days. ¹ Travelers denied coverage, because plaintiff's building had been unoccupied for more than 60 consecutive days when the fire occurred.

Travelers contends that its motion for directed verdict against plaintiff's coverage by estoppel claim should have been granted on a number of grounds. First, it asserts that Mackin's conduct was not the "conduct of an agent within the meaning of ORS 744.165." We disagree.

ORS 744.165(1) provides:

"Except as provided in a group contract of insurance under subsection (2) of this section, any person who solicits or procures an application for insurance shall in all matters relating to the application for insurance and the policy issued in consequence of the application be regarded as the agent of the insurer issuing the policy and not the agent of the insured. Any provisions in the application and policy to the contrary are invalid and of no effect whatever."

The purpose of the statute is to bind insurers by the acts of persons employed in the insurance business. Paulson v. Western Life Insurance Co., 292 Or. 38, 636 P.2d 935 (1981). Since Paulson, we have applied the statute to misstatements on applications for insurance and the interpretation of policy coverage. Nofziger v. Kentucky Central Life Insurance Co., 91 Or.App. 633, 639, 758 P.2d 348, rev. den. 306 Or. 527, 761 P.2d 928 (1988); C.I.S. Northwest v. Berjac of Portland, 87 Or.App. 233, 237, 742 P.2d 618, adhered to as clarified, 89 Or.App. 117, 747 P.2d 406 (1987), rev. den. 305 Or. 433, 753 P.2d 1380 (1988). Although this case requires a somewhat different analysis, we conclude that Mackin's conduct, contacts with plaintiff and subsequent written coverage representation to plaintiff did involve "matters relating to the * * * policy issued."

Mackin had been obtaining insurance for plaintiff since 1981. He and plaintiff had communicated about insurance and business matters more frequently than simply on the renewal dates of the policy. In late 1985, Mackin was alerted to the vacancy and unoccupancy clause in the policy when Travelers indicated that the policy would have to be cancelled if the building was not occupied. In late July, 1986, Mackin knew that plaintiff had ordered Kabrzycki to cease operating in the building because Kabrzycki had not obtained liquor liability insurance. On November 3, 1986, plaintiff informed Mackin that "The Woodshed was still closed." Although plaintiff did not ask insurance coverage questions during the July and November telephone conversations, Mackin was clearly alerted to the potential coverage problem. Yet on November 7, Mackin represented to plaintiff in writing that the building was now "covered." Given Mackin's knowledge that the building was not occupied and Travelers' previous concern regarding the occupancy of the building, we cannot say as a matter of law that Mackin's communication to plaintiff did not involve "matters relating to the * * * policy issued." See Paulson v. Western Life Insurance Co., supra, 292 Or. at 62, 636 P.2d 935. The trial court did not err in denying Travelers' motion for directed verdict on this ground.

Travelers next contends that, as a matter of law, Mackin's conduct was insufficient to establish coverage by estoppel. To establish an estoppel against Travelers, plaintiff had to prove a representation or conduct amounting to a representation by someone acting on behalf of the insurer that was inconsistent with the express terms of the policy and that he reasonably relied on the representation. Farley v. United Pacific Ins. Co., 269 Or. 549, 525 P.2d 1003 (1974); Allstate Ins. v. State Farm Ins., 67 Or.App. 623, 628, 679 P.2d 879 (1984); Goddard v. Avemco Ins. Co., 43 Or.App. 39, 43, 602 P.2d 291 (1979).

Travelers contends that nothing in the July and November telephone conversations between Mackin and plaintiff or Mackin's November 7, 1986, letter related to the occupancy clause of the policy; therefore, Mackin did not represent that the occupancy clause would not apply under the circumstances. Regarding reliance, Travelers argues that, even if we find that Mackin's conduct amounted to a representation that the occupancy clause did not preclude coverage, plaintiff could not have relied on such a representation, because he did not know about it. Moreover, Travelers argues that any reliance that plaintiff placed on such a representation could not have been reasonable under the circumstances, because "the restaurant had been closed well beyond sixty days." These arguments ignore the context in which the renewal of plaintiff's policy occurred and we reject them.

Plaintiff had been purchasing fire insurance coverage on the building through Mackin for six years. For six months, from September, 1985, to April, 1986, no business was operated in the building. Mackin was aware of the coverage problem that that created, but he did not alert plaintiff. Mackin also knew, as late as November 3, 1986, that no restaurant or other business was being operated in the building. Under those circumstances, a jury was entitled to find that Mackin's renewal of the policy without discussion, coupled with his November 7 letter, amounted to a representation that the unoccupied building was covered under the policy. Moreover, the jury was entitled to find that plaintiff had relied on that representation in renewing the policy.

Travelers' argument concerning the reasonableness of plaintiff's reliance is similar to a separate assignment of error in which Travelers contends that its motion for directed verdict should have been granted because "plaintiff was bound by the terms of the policy even though he failed to read it." Although it is raised separately, we consider the latter point in our discussion of the reasonableness of plaintiff's reliance on Mackin's representation.

Travelers contends that this issue is controlled by the...