Mutual of Enumclaw Ins. Co. v. McBride

• Decision Date: 26 July 1983
• Citation: 295 Or. 398,667 P.2d 494
• Parties: MUTUAL OF ENUMCLAW INSURANCE CO., a corporation, Petitioner on Review, v. Paul Robert McBRIDE and Sabrina McBride, Respondents on Review. CA A23657; SC 29101.
• Court: Oregon Supreme Court

Page 494

667 P.2d 494

295 Or. 398

MUTUAL OF ENUMCLAW INSURANCE CO., a corporation, Petitioner on Review, v. Paul Robert McBRIDE and Sabrina McBride, Respondents on Review.

CA A23657; SC 29101.

Supreme Court of Oregon.

Argued and Submitted Dec. 29, 1982.

Decided July 26, 1983.

W.V. Deatherage, Medford, argued the cause for petitioner on review. With him on the petition and briefs were John B. Rogers and Frohnmayer, Deatherage, deSchweinitz & Pratt, Medford.

Robert A. Sacks, Portland, argued the cause and filed the brief for respondents on review.

Before LENT, C.J., LINDE, PETERSON, CAMPBELL, ROBERTS and CARSON, JJ., and JONES, J. Pro Tem.

ROBERTS, Justice.

In this declaratory judgment action plaintiff insurer alleged that defendant insureds committed fraud or false swearing, thus rendering their fire insurance policy void, ORS 743.612. Following a jury verdict and judgment for plaintiff, the trial court ordered a new trial on grounds that the jury had been erroneously instructed regarding the measure of proof. The Court of Appeals affirmed per curiam, 60 Or.App. 168, 652 P.2d 382 (1982), citing Transamerica v. Bloomfield, 55 Or.App. 31, 637 P.2d 176 (1981). We allowed review to decide whether proof of fraud or false swearing, in an action to void a fire insurance policy under the provision required by ORS 743.612, must be by clear and convincing evidence or by the preponderance of evidence.

We hold the jury was properly instructed that the measure of proof is by a preponderance. Accordingly, we reverse the Court of Appeals and remand for entry of judgment based on the original verdict.

Plaintiff contracted to provide defendants with fire insurance coverage for their residence and its contents, which were then damaged by fire. Like all fire policies in Oregon, this one is void if the insured commits fraud or false swearing, ORS 743.612. ¹ Defendants executed a sworn proof of loss.

The insurer brought a declaratory judgment action seeking to determine whether defendants committed fraud or false swearing. Defendants denied the crucial allegation and counterclaimed for the $123,000 allegedly owed under the policy. The insurer raised fraud and false swearing as a defense to the counterclaim.

At trial investigators testified that no evidence was found by search of the debris of a number of the claimed items of personal property. Instructed to decide by a preponderance of the evidence, and after deliberating seven hours, the jury returned a special verdict that there had been false statement or false swearing. Accordingly, the circuit court rendered judgment for plaintiff, declaring the policy void and dismissing the counterclaim. Defendants' motion for new trial, based on the very recent opinion in Transamerica, supra, was granted. The present appeal is from the order for new trial.

Both parties agree Transamerica is indistinguishable ² but plaintiff argues that it was wrongly decided. Transamerica held that the elements of misrepresentation and false swearing under ORS 743.612 are sufficiently similar to the elements of common law fraud as to compel application of the same standard of proof. The court applied the measure of proof for common law fraud, clear and convincing evidence, in reliance on Cook v. Michael, 214 Or. 513, 330 P.2d 1026 (1958) and Fahrenwald v. Hemphill, 239 Or. 421, 398 P.2d 174 (1965).

ORS 10.095(5) and (6) provide:

"The jury subject to the control of the court, in the cases specified by statute are the judges of the effect or value of evidence addressed to them, except when it is thereby declared to be conclusive. They are, however, to be instructed by the court on all proper occasions:

"* * *

"(5) That in civil cases the affirmative of the issue shall be proved, and when the evidence is contradictory, the finding shall be according to the preponderance of evidence;

"(6) That in criminal cases a person is innocent of a crime or wrong until the prosecution proves otherwise, and guilt shall be established beyond reasonable doubt."

In spite of the fact that this provision has been a part of the Oregon statutes since the Deady Code the earliest compilation of Oregon laws, a third measure of proof has developed by case law. Cook v. Michael, supra.

Prior to Cook v. Michael this court had adhered to the two levels of proof specified in the statute but had held that in some cases a certain "quality" of proof such as "clear and satisfactory" proof was required in order for there to be a preponderance. Metropolitan Cas. Ins. Co. v. Lesher, 152 Or. 161, 52 P.2d 1133 (1935). ³ See Wilkerson Est. Hill v. U.S. Nat. Bank, 187 Or. 635, 213 P.2d 209 (1949) emphasizing that Metropolitan had not altered the rule that the measure of proof in civil actions is by a preponderance.

Cook v. Michael, supra, was an action for damages for assault and battery. We affirmed instructing the jury to decide by the "preponderance of the evidence," and held that defendant's requested instruction by a "preponderance of the satisfactory evidence" would have been erroneous because the term "satisfactory" describes an elevated measure of proof. The measure of proof was defined in terms of the degree of probability of belief which the jury must have in order to find for the party with the burden of proof. 214 Or. at 527, 330 P.2d 1026. Cook v. Michael then held that the statute permits an intermediate measure of proof "in appropriate cases." Thus, in some civil cases, the measure of proof may be an intermediate level, higher than by a preponderance, which is clear and convincing evidence. ⁴ Cook v. Michael went on to say that cases of fraud are "appropriate" ones to instruct the jury in terms of clear and convincing evidence, citing McCormick, Evidence (1954) and Metropolitan Cas. Ins. Co. v. Lesher. 214 Or. at 525, 330 P.2d 1026. This was dictum since Cook v. Michael was not a fraud case, as a casenote immediately recognized. Lacy, Evidence--1959 Oregon Survey, 39 Or.L.Rev. 19, 27 (1959). However, this court has regularly cited Cook v. Michael for the proposition that fraud must be proved by clear and convincing evidence. See, e.g., Zeleny v. Karnosh, 224 Or. 419, 424, 356 P.2d 426 (1960); Medak v. Hekimian, 241 Or. 38, 46, 404 P.2d 203 (1965); and Webb v. Clark, 274 Or. 387, 391, 546 P.2d 1078 (1976).

So well established is this rule that the commentary to OEC 305 states, "[i]n actions that allege fraud or gift, for example, the trier of fact must be persuaded by 'clear and convincing evidence,' which means that the truth of the facts asserted must be highly probable," citing Cook v. Michael, supra. This is repeated in L. Kirkpatrick, Oregon Evidence 51 (1982). The dictum of Cook v. Michael has become the accepted practice in Oregon. Thus, while the preponderance standard is the rule in most civil cases, an exception to the standard is applied in civil cases of common law fraud.

Defendants claim that the elements of fraud and false swearing under ORS 743.612 and common law fraud are sufficiently similar as to indicate a legislative intent to incorporate into the statutory action the judicially created elevated measure of proof. Plaintiff invites us not only to determine that the statutory preponderance is all that is required in this case but to reevaluate whether a higher level of proof should be required to prove common law fraud. Plaintiff relies on Metropolitan Cas. Ins. Co. v. Lesher, supra, and the skepticism often voiced regarding the practical importance of an intermediate measure of proof. ⁵ The time may come when it is proper to address the question of the requirement of a higher level of proof in actions for common law fraud; but we decline to do so here because we disagree that the statutory provisions of fraud and false swearing are sufficiently similar to common law fraud as urged by defendants, nor do we think that to be the proper basis on which to decide this case.

As Transamerica points out, that case presented Oregon appellate courts a first opportunity to address the question of the application of the burden of proof in common law fraud to the statute at issue here. The Court of Appeals compared the elements of the statutory and common law actions in an attempt to glean the intended measure of proof under the statute. It relied on Willis v. Horticultural Fire Relief, 69 Or. 293, 137 P. 761 (1914) and Henricksen v. Home Ins. Co., 237 Or. 539, 392 P.2d 324 (1964) to conclude that not all the elements coincided: "the proscribed misrepresentations must be made knowingly and wilfully, but the showing necessary to defeat coverage does not include other elements of common law fraud such as intent to defraud or mislead, reliance or actual injury." 55 Or.App. at 35, 637 P.2d 176. Nonetheless, the Court of Appeals rejected plaintiff's claim that an action under ORS 743.612 is as dissimilar from common law fraud as an action under the Unlawful Trade Practices Act (UTPA), ORS 646.605 et seq., which we specifically held to require only proof by the preponderance in State ex rel. Redden v. Discount Fabrics, 289 Or. 375, 615 P.2d 1034 (1980). It distinguished Discount Fabrics because in the UTPA the definition of "wilful" includes negligent conduct, a standard implicating the preponderance burden of proof. "Conversely, coverage cannot be avoided under ORS 743.612 unless it is established that the insured's misrepresentation or false swearing was knowing and wilful." (Footnote omitted.) 55 Or.App. at 37, 637 P.2d 176. The Court of Appeals appeared to reason that because both the statutory and the common law actions require that an insured's falsity be knowing and wilful, the legislature, "by enacting a statute which attaches consequences only to conduct which the courts have made subject to the clear and convincing evidence standard of proof," 55 Or.App. at 40, 637 P.2d 176, intended to incorporate the higher standard into the statutory cause of action. On this point we disagree with the...