National Union Fire Ins. v. Starplex Corp.

• Decision Date: 18 June 2008
• Docket Number: 030505535.,A128666.
• Citation: 188 P.3d 332,220 Or. App. 560
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH PENNSYLVANIA and Port of Portland, Plaintiffs-Appellants, v. STARPLEX CORPORATION, an Oregon Corporation, Defendant-Respondent, and Scottsdale Insurance Company and Nautilus Insurance Company, Defendants. Starplex Corporation, an Oregon Corporation, Cross-Claim Plaintiff, v. Scottsdale Insurance Company and Nautilus Insurance Company, Cross-Claim Defendants. National Union Fire Insurance Company of Pittsburgh Pennsylvania and Port of Portland, Plaintiffs, v. Starplex Corporation, an Oregon Corporation, Defendant-Respondent, and Scottsdale Insurance Company and Nautilus Insurance Company, Defendants-Appellants.
• Court: Oregon Court of Appeals

188 P.3d 332

220 Or. App. 560

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH PENNSYLVANIA and Port of Portland, Plaintiffs-Appellants, v. STARPLEX CORPORATION, an Oregon Corporation, Defendant-Respondent, and Scottsdale Insurance Company and Nautilus Insurance Company, Defendants.

Starplex Corporation, an Oregon Corporation, Cross-Claim Plaintiff, v. Scottsdale Insurance Company and Nautilus Insurance Company, Cross-Claim Defendants.

National Union Fire Insurance Company of Pittsburgh Pennsylvania and Port of Portland, Plaintiffs, v. Starplex Corporation, an Oregon Corporation, Defendant-Respondent, and Scottsdale Insurance Company and Nautilus Insurance Company, Defendants-Appellants.

030505535.

A128666.

Court of Appeals of Oregon.

Argued and Submitted May 1, 2007.

Decided June 18, 2008.

Pamela J. Stendahl argued the cause for appellants National Union Fire Insurance Company of Pittsburgh Pennsylvania and Port of Portland. On the briefs were Peter R. Chamberlain, Richard A. Lee, Vicki M. Smith, and Bodyfelt Mount Stroup & Chamberlain, LLP, Portland.

Michael A. Lehner, Portland, argued the cause for appellant Scottsdale Insurance Company. With him on the briefs was Lehner & Rodrigues PC.

James M. Callahan, Portland, argued the cause for appellant Nautilus Insurance Company. With him on the briefs was Callahan & Shears, P.C.

Lainie Block argued the cause for respondent. With her on the brief were Julie R. Vacura and Larkins Vacura, LLP, Portland.

Before SCHUMAN, Presiding Judge, and ORTEGA, Judge, and CARSON, Senior Judge.

ORTEGA, J.

Starplex Corporation entered into a contract with the Port of Portland to provide ground transportation services at Portland International Airport (PDX). The contract provided in part that Starplex would hold the Port harmless as to all claims resulting from Starplex's acts or services arising from its performance of the contract. Two independent shuttle van drivers (the Pierre plaintiffs) brought an action (the underlying action) against both the Port and Starplex under 42 U.S.C. sections 1981, 1983, and 2000d; for negligence; and for intentional interference with business relations. Following a jury trial and entry of judgment in favor of the Pierre plaintiffs against the Port under section 1983 and against Starplex on the claims for intentional interference with business relations, the parties settled the underlying action.

The Port and its liability insurer, National Union Fire Insurance Company (National) (collectively, the Port), then brought this action against Starplex and its liability insurers, Nautilus Insurance Company (Nautilus) and Scottsdale Insurance Company (Scottsdale), seeking to recover its costs of defending and settling the Pierre plaintiffs' claims. Starplex cross-claimed against Nautilus and Scottsdale for breach of contractual duties to defend and indemnify.

The Port settled its claims against Nautilus and Scottsdale. The trial court granted Starplex's motion for summary judgment against Nautilus and Scottsdale as to Starplex's claim for breach of the duty to defend and granted Scottsdale's and Nautilus's motions for summary judgment as to Starplex's claim for indemnity. The Port's claims against Starplex then were tried to the court, which entered judgment in Starplex's favor on all claims.

The Port now appeals the judgment against it in Starplex's favor. Nautilus and Scottsdale likewise appeal the judgment in Starplex's favor on their duty to defend Starplex. We reverse the judgment as to Starplex's duty to defend and indemnify the Port and remand for entry of judgment in favor of the Port. We affirm the judgment in favor of Starplex as to the duty of Nautilus and Scottsdale to defend Starplex.

The material facts are not in dispute. The underlying action involved the conduct of Starplex employees colloquially known as "starters" (called "transportation assistants" in the contract between the Port and Starplex). The contract between the Port and Starplex included the following provisions relating to starters' job functions and duties:

"A. Scope of Work

"1. [Starters] are to ensure that passengers who need commercial ground transportation at [PDX] are given accurate transportation information options on all modes available. [They] must be able to provide this information in a courteous and professional manner. Excellent customer service is the highest priority of this position.

"2. [Starters] are required to monitor ground transportation operations by providers. [They] must fully understand the Commercial Roadway rules and regulations as well as requirements for all providers and employees. If infractions of the ground transportation rules and regulations are observed, [starters] will be required to accurately record the infraction and occasionally take limited action with the provider. [They] must be able to accurately testify at administrative hearings on violations.

"3. [Starters] are required to accurately record all customer and provider complaints on forms provided by the Port * * *.

"4. [Starters] may experience conflict from time-to-time between providers, customers, and [starters]. The [starter] is expected to minimize conflicts and avoid provoking any confrontations with commercial roadway drivers and customers."

The contract also contained an indemnity clause, which provided:

"Indemnity: [Starplex] acknowledges responsibility for liability arising out of the performance of this contract and shall hold [the] Port harmless from and indemnify [the] Port for any and all liability, settlements, loss, costs, and expenses in connection with any action, suit, or claim resulting or allegedly resulting from [Starplex's] acts, omissions, activities, or services in the course of performing this contract."

(Underscoring in original.)

Several years into the contract, the Pierre plaintiffs initiated their action against the Port and Starplex, ultimately filing an original and three amended complaints. Because duties to defend in that litigation potentially arose from the allegations of any of those complaints, we describe each in turn.¹

In their original complaint (filed in June 1999), the Pierre plaintiffs named the Port, but not Starplex, as the sole defendant. They generally alleged that the Port was an independent public agency that operated PDX and regulated commercial ground transportation services there, including shuttle vans; that the Port controlled the van operators through rules that were enforced by employees known as "starters"; and that the starters engaged in acts of illegal discrimination against the Pierre plaintiffs, who are black, including referring to the Pierre plaintiffs in racially offensive terms and enforcing rules of conduct against, threatening violence against, and referring customers to the Pierre plaintiffs based on race and national origin, as well as seeking to exclude them from working at the airport. The Pierre plaintiffs also generally alleged that they complained on numerous occasions about illegal conduct and that the Port failed to investigate or determine the merits of the complaints or take corrective or preventive measures in relation to the alleged discriminatory conduct. In their first, second, and third claims for relief, the Pierre plaintiffs alleged that the Port's conduct violated, respectively, 42 U.S.C. section 1981, 42 U.S.C. section 2000d, and 42 U.S.C. section 1983. In their fourth claim for relief, they alleged that the Port was negligent in failing reasonably to supervise or train the starters and in failing to conduct a reasonable investigation in response to the Pierre plaintiffs' complaints. In their fifth and six claims for relief, they alleged, respectively, that the Port intentionally interfered with their business relations and breached the covenant of good faith and fair dealing. On each claim, each plaintiff sought $75,000 in economic damages—specifically, loss of earnings—and $350,000 in noneconomic damages plus injunctive relief, attorney fees, and costs.

The Port tendered its defense of the action to Starplex and its insurers. When Starplex failed to respond after five months, the Port informed Starplex's legal counsel that it understood that Starplex had refused its tender and that, accordingly, the Port would proceed with its own defense and would consider Starplex to be in breach of contract.

Shortly after the Port's original tender, the Pierre plaintiffs filed an amended complaint in which they added Starplex as a defendant, referred to the starters as Starplex's rather than the Port's employees, and alleged that, at all material times, Starplex acted pursuant to a contract with the Port and as the Port's agent. The Pierre plaintiffs' general allegations otherwise were unchanged from their original complaint, and they again asserted claims for relief under 42 U.S.C. sections 1981, 1983, and 2000d; in regard to the section 1983 claim, they alleged that Starplex was acting jointly with the Port and hence under color of state law. The Pierre plaintiffs also reasserted their claims for negligence, intentional interference with business relations, and breach of the covenant of good faith and fair dealing.

The following year, the Pierre plaintiffs filed their second amended complaint. As pertinent here, it alleged that the starters' supervisors, as well as the starters, engaged in the alleged discriminatory conduct. It also added an allegation that the starters and their supervisors demanded bribes, gratuities, and kickbacks from the Pierre plaintiffs based on their race and national origin; alleged that the discriminatory conduct continued after the Pierre plaintiffs' filing of the action; and alleged that, while the action was pending, an employee and supervisor of the Port made discriminatory statements to one of the plaintiffs. The Pierre plaintiffs reasserted the claims for relief asserted in their first amended complaint, with the exception of their...