Knappenberger v. Cascade Ins. Co.

• Decision Date: 15 July 1971
• Citation: 487 P.2d 80,259 Or. 392
• Parties: John D. KNAPPENBERGER and James Knappenberger, Respondents, v. CASCADE INSURANCE COMPANY, a Washington corporation, Appellant.
• Court: Oregon Supreme Court

Page 80

487 P.2d 80

259 Or. 392

John D. KNAPPENBERGER and James Knappenberger, Respondents, v. CASCADE INSURANCE COMPANY, a Washington corporation, Appellant.

Supreme Court of Oregon.

Argued and Submitted May 7, 1971.

Decided July 15, 1971.

J. D. Bailey, Hillsboro, argued the cause for appellant. With him on the briefs were Carrell F. Bradley and Schwenn, Bradley & Batchelor, Hillsboro.

L. M. Schouboe, Portland, argued the cause for respondents. With him on the brief were Schouboe & Cavanaugh, Portland.

Before O'CONNELL, C.J., and McALLISTER, DENECKE, HOLMAN, TONGUE ^* and HOWELL, JJ.

O'CONNELL, Chief Justice.

This is a declaratory judgment suit brought to determine the liability of defendant insurance company under an automobile liability policy issued to plaintiff John D. Knappenberger on April 21, 1968. Defendant appeals from an adverse decree.

The question presented is the effect of an endorsement purporting to change a pre-existing policy of insurance so as to exclude coverage while the automobile was being driven by James Knappenberger, the 18-year old son of the insured.

Before the endorsement in question was executed defendant could not, under the terms of the policy terminate coverage except by refusing to renew the policy upon its anniversary date. In order to make an effective refusal to renew the policy it was necessary for the insurer to give the insured written notice of the decision not to renew 20 days prior to the anniversary date.

During the first ten months the policy was in effect the insured's son James was involved in two automobile accidents. Because of this defendant decided that it would discontinue coverage for James as soon as possible. An underwriter for defendant informed Craig Hannum (the insurance broker through whom John Knappenberger had bought the policy) that Mr. Knappenberger would have to choose between losing his policy for the coming year or eliminating James from coverage under the policy.

It was impossible to deal directly with the insured because he had suffered a massive stroke in January of 1969. It was necessary, therefore, for Hannum to carry on the negotiations with Mrs. Knappenberger for the change in the policy. Mrs. Knappenberger was not familiar with business matters. Hannum testified that he informed Mrs. Knappenberger that defendant wished to terminate coverage of James prior to the anniversary date of the policy. Mrs. Knappenberger denied that she was so informed, and testified that she believed that the purpose of the negotiations was to remove James from coverage as of the anniversary date of the policy on April 21, 1969, and not before that date.

On April 3, 1969 Hannum wrote a letter to the Knappenbergers which was as follows:

'Mr. & Mrs. John D. Knappenberger

3055 S.W. 66th Court

Portland, Oregon 97225

Re: Cascade Insurance Company

Policy No. 195851

Dear Mr. & Mrs. Knappenberger:

Enclosed is an endorsement deleting your son, James, from the policy. We attempted to keep him on this contract but in accordance with your and my discussion the company is remaining adamant about him being excluded.

I have discussed your risk with several other insurance companies in hopes of shifting the entire account. They, however, feel the same as Cascade and I therefore conclude that Cascade's action is warranted.

Because of this deletion, there will be a reduction in premium under your contract. As Jim's exposure will no longer be charged for, the premium on the Buick will reduce.

If Jim is to remain a driver, it will be necessary that an alternative market, at a higher cost, be obtained. The approximate cost would be $350 per year and it will allow principal usage of the vehicle described under the higher cost policy. This provides for liability only and, therefore, it would not be good to provide this special coverage for anything but an older vehicle (not requiring Collision and Comprehensive).

I am certain that many questions will remain and I would appreciate a call at your convenience.

'Yours very truly,

/sgd/ Craig

CRAIG HANNUM'

The endorsement referred to in the letter contained the statement: 'This endorsement * * * is effective 03--20--69 * * *.' This was followed by a five line statement to the effect that no insurance was afforded to named insured while the automobile covered by the policy was operated by or under the control of James Knappenberger. Immediately below this statement of exclusion was a heading 'ACCEPTANCE' under which the following appeared in bold face type: 'I have read this endorsement and understand its content.' The endorsement was signed in three places: 'acknowledged' by Jim Knappenberger, 'accepted' by Ruth Knappenberger and signed J. D. Knappenberger in the space calling for 'Signature of Named Insured.' ¹ However, it is undisputed that J. D. Knappenberger had not signed the endorsement, his name having been written in by one of his sons. The endorsement was executed early in April although, as we have noted, the endorsement purported to be effective on March 20, 1969.

On April 13, 1969 after the endorsement had been executed the covered automobile was involved in an accident while under the control of James Knappenberger. Defendant denied liability under the policy, whereupon plaintiffs filed the present suit.

If Mrs. Knappenberger had read the endorsement it would be clear from its express language that the exclusion of her son James from coverage was to be effective as of March 20, 1969, or at least that such coverage would be excluded after the execution of the endorsement. ²

Plaintiffs' principal contention is that it was the duty of defendant to inform Mrs. Knappenberger of the effect of the endorsement and that the recitation in the endorsement purporting to make the exclusion effective prior to the anniversary date was not in itself sufficient to discharge defendant's duty to apprise the insured of the effect of the agreement. It is not contended that defendant was guilty of any fraud, or deliberate misrepresentation. But it is asserted that defendant, acting through Hannum, was guilty of inequitable conduct in failing to advise Mrs. Knappenberger of the effect of the endorsement.

In the absence of special circumstances a person who signs a written instrument embodying an agreement is bound by the terms of the agreement. ³ Plaintiffs argue that when Mrs. Knappenberger was advised that she would have to choose between losing coverage for her son James and the subsequent cancellation of the policy it 'amounted to a form of economic coercion by the more powerful party to the contract.' This is a part of plaintiffs' argument that an insurance contract 'is not truly a contract of bargaining but of adhesion; that is, the insured purchases the contract, prepared solely by the insurer, which the insured seldom reads, but just assumes is what he ordered.' ⁴

We have recognized that the insurer's control over the bargain may be an important factor in determining the insured's rights under the policy. ⁵ But we did not intend to say that because the insured is normally in a disadvantageous position in bargaining for insurance coverage, he is free to disregard all of the principles of contract law the application of which prove to be inimical to his interests. As with other contracts of adhesion, in the absence of special circumstances an insured is bound by the terms of an insurance policy purchased by him even though he is unaware of those terms because he has failed to read the policy, or having...