New Zealand Ins. Co. v. Griffith Rubber Mills

• Decision Date: 26 September 1974
• Citation: 526 P.2d 567,270 Or. 71
• Parties: NEW ZEALAND INSURANCE COMPANY et al., Appellants, v. GRIFFITH RUBBER MILLS, Respondent.
• Court: Oregon Supreme Court

Page 567

526 P.2d 567

270 Or. 71

NEW ZEALAND INSURANCE COMPANY et al., Appellants, v. GRIFFITH RUBBER MILLS, Respondent.

Supreme Court of Oregon.

Argued and Submitted Sept. 7, 1973.

Decided Sept. 26, 1974.

Lloyd B. Ericsson, Portland, argued the cause for appellants. With him on the briefs were John L. Langslet and Dusenbery, Martin, Bischoff & Templeton, Portland

Thomas K. Thorpe, Portland, argued the cause for respondent. With him on the brief were James C. Maletis and Mize, Kriesien, Fewless, Cheney & Kelley, Portland.

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

McALLISTER, Justice.

This is an insurance subrogation action. The controlling facts are admitted in the pleadings.

Plaintiff Roy D. Wright in May 1971 leased a Piper Cherokee airplane to Sky Tech, Inc., an Oregon corporation, under a rental agreement, a copy of which is attached to the amended answer.

Sky Tech, Inc., rented the airplane to George W. Smith, a member of Sky Tech Flyers, a Sky Tech, Inc., organization. Plaintiff New Zealand issued a policy of aircraft hull and liability insurance to Sky Tech, Inc., and the plaintiff Roy D. Wright was an additional insured under said policy.

That George W. Smith was an employe of defendant Griffith Rubber Mills and that while Smith was piloting the plane within the scope of his employment it was damaged in a landing at an airfield. That the damage to the plane amounted to $21,024.35, of which New Zealand paid all but the policy deduction of $1,000.

The agreement between Sky Tech and Smith was contained in the document entitled 'APPLICATION AND CONDITIONS OF SKY TECH FLYERS'. A 14-paragraph portion of that document was captioned 'SKY TECH, INC. OPERATING PROCEDURES', a portion of which we will quote below. The parties assume that Smith was a member of Sky Tech Flyers.

The trial court held that the right of subrogation had been waived by the rental contract between Sky Tech and Smith and entered judgment on the pleadings in favor of defendant. The plaintiffs appeal. The issue is whether the right of subrogation was waived by certain provisions of the contract between Sky Tech and Smith.

The portions of the 'SKY TECH, INC. OPERATING PROCEDURES' which the parties regard as determinative of this case read as follows:

'SKY TECH, INC. OPERATING PROCEDURES

'The following applies to all members of SKY TECH FLYERS and also to all persons renting SKY TECH, INC.'s aircraft.

* * *

* * *

'2. Each pilot shall agree to return the aircraft to SKY TECH, INC. at Aurora State Airport within the time and in the same condition as he received it. (Ordinary wear and tear excepted.)

* * *

* * *

'5. Each pilot shall agree to indemnify SKY TECH, INC. and its insurance carrier for any and all loss, damage, cost, and expense paid or incurred by SKY TECH, INC. or its insurance carrier because of injuries or damages sustained as a result of operation of the aircraft in violation of any of the terms and conditions of this agreement.

'6. Each pilot shall agree to pay SKY TECH, INC., on demand, a sum equal to the cost of all damages to the aircraft while in his possession or in his custody provided that they are Not covered by insurance.

* * *

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'14. All pilots should understand that insurance carried by SKY TECH, INC. is to protect SKY TECH Only and does not extend in any way to him for either hull damage or liability for bodily injury or property damage; such exposure on the part of a member or renter pilot is his own. Students taking instruction from an instructor employed by SKY TECH, INC. Are covered.

'I certify that I have read the foregoing and agree to be bound by the terms thereof.

'Dated this _ _ day of _ _ 197_ _

'SKY TECH FLYERS

MEMBER

CHIEF PILOT

SKY TECH, INC.'

The trial court found that paragraph 6 quoted above 'is not ambiguous and does not require or permit parol evidence in aid of construction' and, based on said finding, entered judgment for defendant on the pleadings.

We conclude that when paragraph 6, on which the defendant relies, is construed together with paragraph 2, paragraph 5, and paragraph 14, it must be given a different meaning or at least is so ambiguous as to permit the introduction of extrinsic evidence to aid the court in construing it.

We note at the outset that Sky Tech is not a party to this action and that neither the Wrights nor New Zealand is a party to the agreement between Sky Tech and Smith.

It is a fundamental rule in the construction of contracts that it is the duty of a court to construe a contract as a whole employing any reasonable method of interpretation so that no part of it is ignored and effect can be given to every word and phrase. Automotive Equip. v. 3 Bees Logging, 251 Or. 105, 111, 444 P.2d 1019 (1968); Hardin v. Dimension Lbr. Co., 140 Or. 385, 389, 13 P.2d 602 (1932). As a necessary consequence, the court in performing this function must reconcile inconsistent provisions if it is at all possible. Hardin supra at 388, 13 P.2d 602; Lachmund v. Lope Sing, 54 Or. 106, 111, 102 P. 598 (1909). See, also, 17A C.J.S. Contracts § 309, p. 163.

Turning to paragraph number 2 we note that it imposed on the pilot the basic liability to return the aircraft to Sky Tech in the same condition as he received it. We need not decide the full scope of the pilot's liability under paragraph 2, but, if construed literally, it makes the pilot a virtual insurer of the safe return of the aircraft.

Paragraph 5, in turn, imposes a broad liability on the pilot 'to indemnify SKY TECH, INC. and its insurance carrier for any and all loss, damage, cost, and expense paid or incurred by SKY TECH, INC. or its insurance carrier because of injuries or damages sustained as a result of operation of the aircraft in violation of any of the terms and conditions of this agreement.' Again, we need not decide the full scope of the liability imposed on the pilot nor whether a failure to return the plane in the same condition as the pilot received it would constitute damages 'sustained as a result of operation of the aircraft in violation of any of the terms and conditions of this agreement'. Suffice it to say that the potential liability imposed on the pilot by paragraph 5 is very broad, both to Sky Tech and its insurer.

Any doubt about the intent of the agreement to impose liability on the pilot is removed by a reading of paragraph 14. It warns the pilot that...