Lamb-Weston, Inc. v. Oregon Auto. Ins. Co.

Decision Date24 June 1959
Citation341 P.2d 110,219 Or. 110
Parties, 76 A.L.R.2d 485 , an Oregon corporation, and St. Paul Fire and Marine Insurance Company, a Minnesota corporation, Respondents, v. OREGON AUTOMOBILE INSURANCE COMPANY, an Oregon corporation, Appellant.
CourtOregon Supreme Court

John H. Kottkamp, Pendleton, argued the cause for appellant. With him on the brief were Kilkenny & Fabre, Pendleton.

Carl G. Helm, Jr., La Grande, argued the cause for respondents. On the brief were Helm & Neely, La Grande, and Minnick & Hahner and James B. Mitchell, Walla Walla.


PERRY, Justice.

Defendant appeals from a judgment in the sum of $3,399.23. The case was tried without a jury. There are two assignments of error, the first listing eight subdivisions, and the second, two. The first assignment, in general, challenges rulings of the trial court in denying motions for nonsuit and for judgment for defendant. The second assignment of error raises the question of whether or not the trial court erred in entering judgment against the defendant for the entire loss, instead of prorating the loss between the two insurers.

The essential facts are these: The plaintiff Lamb-Weston, Inc., an insured of the plaintiff St. Paul Fire and Marine Insurance Company, leased a truck from Dick Shafer for its use in connection with its business of canning and freezing peas. This included hauling water to crews in the pea fields. Nathan Cole, employee of Lamb-Weston, Inc., drove the truck. The evening of June 18, 1956, Cole was driving the truck to Elgin, Oregon, where he resided, for repair of faulty brakes and gears, a condition he had noticed for some little time. He had been advised to have the brakes repaired in Elgin. About two miles from Elgin his axle refused to 'engage', his engine died, and his brakes would not hold in descending a grade and he lost control of the truck and crashed into and damaged a warehouse of the Union County Grain Growers. The Union County Grain Growers demanded damages and threatened suit. Plaintiff Lamb-Weston, Inc., settled the claim, borrowing the amount paid from its insurer St. Paul Mercury Indemnity Company, a subsidiary of St. Paul Fire & Marine Insurance Company, on a 'loan receipt.'

Defendant had, prior to this accident, issued its policy of insurance protecting Shafer against liability for property damage resulting from the operation of the leased truck. This policy contained an 'omnibus' clause extending the protection afforded Shafer to 'any person or organization legally responsible for the use thereof, * * *' with Shafer's permission. The insurance contract also contained these provisions:

'The insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for such immediate medical and surgical relief to others as shall be imperative at the time of the accident.

'* * * if the insured has other insurance against a loss covered by this policy the Company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability stated in the declaration bears to the total applicable limit of all valid and collectible insurance against such loss.

'No action shall lie against the Company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after trial or by written agreement of the insured, the claimant and the Company.'

The policy also contained this clause:

'* * * The Company shall: (a) Defend any suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit it deems expedient.'

Plaintiff Lamb-Weston, Inc., notified defendant of the threatened suit and the latter denied liability and refused to pay or recognize the claim. Thereafter, on July 9, 1956, defendant sent the following letter to plaintiff St. Paul Fire & Marine Insurance Company:

'This will confirm our understanding to the effect that you may settle the property damage claim of Union County Grain Growers for the approximate amount of Thirty-four Hundred Dollars ($3,400.00), and that the payment of said sum by you will not be construed to waive in any way your right to contend that our policy of insurance covers the loss.'

Acting thereon, plaintiffs settled the claim. The judgment from which this appeal was taken resulted from plaintiffs' effort to collect under the terms of defendant's policy for its payment of damages to the Union County Grain Growers.

The defendant contends under its first assignment of error that it is not liable under its policy contract, because (1) it was not established that Lamb-Weston, Inc., was in fact negligent and, therefore, defendant was not liable: (2) Lamb-Weston, Inc., failed to plead or prove it had complied with the provisions of the policy, to be complied with by an assured; (3) Lamb-Weston was not another insured within the provisions of the policy, because at the time of the accident the truck was not being operated with the consent of its named insured Mr. Shafer.

The defendant's first contention is entirely without merit. There is ample evidence Lamb-Weston, Inc., authorized and permitted a known defective motor vehicle to be operated by its agent upon the highway and thus created the occurrence.

The second contention of the defendant is likewise without merit. The plaintiffs in their complaint alleged:

'That said Union County Grain Growers demanded that plaintiff Lamb-Weston, Inc., pay for such loss and threatened to sue said plaintiff therefor; that said plaintiff, as an additional assured under said automobile insurance policy, requested defendant to perform its insurance contract, to settle the claim of Union County Grain Growers and to save plaintiff Lamb-Weston, Inc., harmless therefrom; that defendant, in violation of the terms of defendant's insurance contract, refused and continues to refuse to pay said claim or to recognize any responsibility therefor.'

This is an allegation to the effect that defendant denied to Lamb-Weston, Inc., as another insured, the coverage of its policy. While it is true that one suing on a contract must allege and prove performance of its conditions upon his part, it is also well-established in the law that if he has not performed he may allege and prove in lieu thereof a valid excuse therefor. Jaloff v. United Auto Indemnity Exch., 121 Or. 187, 253 P. 883; Waller v. City of New York Ins. Co., 84 Or. 284, 164 P. 959. A valid excuse is established, which releases the insured from complying with the provisions of the policy against settlement of a claim without the insurer's consent and those requiring that the claim be reduced to judgment, when the insurer denies liability under the contract and refuses to defend its assured. Jaloff v. United Auto Indemnity Exch., supra. See cases cited in annotations 142 A.L.R. 809, 812.

We also find no merit in defendant's third contention, for while there is evidence that Lamb-Weston, Inc., intended to use the truck only for hauling water in the field, it is also quite clear that bailment was not thus restricted. In fact, the terms of the bailment were that Lamb-Weston was to maintain the truck and from the evidence we gather one of the purposes of their agent Cole in driving the truck to Elgin was to have it repaired.

It is also argued, the loan receipt arrangement was a 'sham and subterfuge.' Oregon, however, recognizes these transactions as entirely legal and effective, depending upon the intention of the parties. Furrer v. Yew Creek Logging Co., 206 Or. 382, 292 P.2d 499. Generally, see 29 Am.Jur. 1002, Insurance § 1337. Here there is no evidence of intention other than as expressed in the instrument itself. We conclude a valid borrower-lender arrangement was intended and effected.

Referring now to the second issue presented, the trial court in its findings of fact found that defendant was the primary insurer and thereon based its conclusion of law that defendant was liable to indemnify the plaintiffs for their entire loss from the occurrence. The defendant duly excepted to the finding of fact and conclusion of law and proposed a conclusion of law that it was liable for but one-half as its share of the loss.

This issue, which is of first impression in this jurisdiction, presents a question of importance only as between the insuring companies, which bears upon the financial responsibility of each for the accrued loss, for it must be conceded by each insurance company that if the other was not an insurer against this occurrence then it would be liable for the full amount.

For a complete understanding of this issue it is necessary to set forth the provisions of the insuring policies and for convenience in this part of the opinion the plaintiff St. Paul Fire and Marine Insurance Company will be hereinafter referred to as St. Paul, and the defendant Oregon Automobile Insurance Company will be referred to as Oregon.

The St. Paul policy contract, which insured the plaintiff Lamb-Weston, Inc., defines 'insured' as follows:

'The unqualified word 'Insured' includes the Named Insured and also includes (1) under Coverages A and C, except with respect to the ownership, maintenance or use of automobiles while away from premises owned, rented or controlled by the Named Insured or the ways immediately adjoining, any executive officer, director or stockholder thereof while acting within the scope of his duties as such, and any organization or proprietor with respect to real estate management for the Named...

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