North Pac. Ins. Co v. Hamilton

• Decision Date: 19 April 2001
• Docket Number: S45493,SC S45393
• Citation: 22 P.3d 739,332 Or. 20
• Parties: NORTH PACIFIC INSURANCE CO., Respondent on Review/Petitioner on Review, v. DONALD J. HAMILTON and BONNIE J. HAMILTON, husband and wife, Petitioners on Review/Respondents on Review.
• Court: Oregon Supreme Court

332 Or. 20

22 P.3d 739

NORTH PACIFIC INSURANCE CO. Respondent on Review/Petitioner on Review,

v.DONALD J. HAMILTON and BONNIE J HAMILTON, husband and wife, Petitioners on Review/Respondents on Review.

SC S45393

S45493

Supreme Court Of OREGON

November 5, 1999

Argued and Submitted April 19, 2001

Bruce J. Brothers, of Brothers & Ash, Bend, argued the cause and filed the brief for petitioners on review/respondents on review.

Stephen E. Lawrence, Portland, argued the cause and filed the brief for respondent on review/petitioner on review.

Phil Goldsmith, Portland, and David Nathan Allen, of MacPherson, Gintner, Gordon & Diaz, Newport, filed the brief for amicus curiae Oregon Trial Lawyers Association.

Before Carson, Chief Justice, and Gillette, Durham, Kulongoski, Leeson, and Riggs, Justices. **

** Van Hoomissen, J., retired December 31, 2000, and did not participate in the decision of this case. De Muniz, J., did not participate in the consideration or decision of this case.

GILLETTE, J.

The issue in this insurance coverage case is whether a provision in the exclusions section of a motor vehicle liability policy operates to reduce liability coverage for an injured insured below the limit provided on the declarations page of the policy. The trial court ruled that the insurance company was liable only for the reduced coverage limits, and the Court of Appeals affirmed that ruling. North Pacific Ins. Co. v. Hamilton, 153 Or. App. 332, 957 P.2d 165 (1998). For the reasons that follow, we conclude that the provision at issue is ambiguous, that the ambiguity cannot be resolved and, therefore, that the provision is unenforceable. Accordingly, we reverse in part the decision of the Court of Appeals.

The facts are not in dispute. In 1994, defendant Donald Hamilton (Hamilton) was injured seriously in a single car collision. Hamilton's wife, defendant Bonnie Hamilton, was the driver of the car. At the time of the accident, Hamilton and his wife were covered as named insureds on a motor vehicle insurance policy issued by plaintiff North Pacific Insurance Company (North Pacific). The policy contained a declaration providing $60,000 in liability coverage for each accident for bodily injury and property damage, and $25,000 for personal injury protection (PIP) coverage. Hamilton's economic damages exceeded $60,000. He made a claim under the policy.

North Pacific paid Hamilton $25,000 in PIP benefits, but refused to make any payment under the liability coverage. North Pacific relied on "Exclusion 10" in the policy, which, according to North Pacific, limits the amount payable to an injured insured or to an injured member of the family of an insured to the minimum liability coverage required by ORS 806.070(2)(a) for bodily injury to one person in any one accident, viz., $25,000. Moreover, as North Pacific interpreted the policy, it was entitled to offset the $25,000 already paid under the PIP provisions against the $25,000 that it conceded that it owed under the liability provisions of the policy. When the parties could not resolve their dispute, North Pacific brought the present declaratory judgment proceeding, ¹ seeking to validate its construction of the contract. The trial court ruled in North Pacific's favor on both points.

The Hamiltons appealed. The Court of Appeals summarily affirmed the trial court's ruling with respect to North Pacific's obligations under the liability provisions of the policy, Hamilton, 153 Or. App. at 336, but reversed the ruling regarding the PIP offset. Id. at 341. We allowed the Hamiltons' petition for review respecting the liability provisions of the policy. ²

Before this court, the only issue is whether the exclusion provision on which North Pacific relies limits bodily injury liability coverage to $25,000, rather than the $60,000 limit set out in the declaration. That exclusion provides:

"EXCLUSIONS

"A. We do not provide Liability Coverage for any person:

"* * * * *

"10. For bodily injury or property damage to you or any family member to the extent that the limits of liability for this coverage exceed the limits of liability required by the Oregon financial responsibility law."

(Boldface type in original.)

North Pacific has contended from the outset that the foregoing wording clearly and unambiguously limits coverage to injured insureds (and their family members) to the minimum liability coverage required for compliance with the Oregon Financial Responsibility Law, ORS 806.060 and ORS 806.070. ORS 806.060 provides that, to meet the financial responsibility requirements of this state, a person must be able to respond in damages for liability arising out of the ownership, operation, maintenance, or use of an automobile according to a payment schedule set out in ORS 806.070. ORS 806.070, in turn, sets the minimum required level of coverage, whether by insurance, bond, or otherwise, for property damage, bodily injury, or death under various circumstances. Under ORS 806.070(2)(a), the minimum required payment of a judgment for "bodily injury to or death of one person in any one accident" is $25,000. As noted, the Court of Appeals agreed with North Pacific that Exclusion 10 in the Hamilton's policy limited bodily injury liability coverage to $25,000.

On review, the Hamiltons assert that the wording of Exclusion 10 is not direct or clear enough to accomplish the result for which North Pacific argues. They claim that the wording is (at best) ambiguous and, accordingly, must be construed against the drafter of the policy and in favor of extending coverage.

The interpretation of an insurance policy is a question of law. Hoffman Construction Co. v. Fred S. James & Co., 313 Or. 464, 469, 836 P.2d 703 (1992). A court's goal in interpreting a policy is to determine the intent of the parties. Id., citing Totten v. New York Life Ins. Co., 298 Or. 765, 770, 696 P.2d 1082 (1985). Intent is determined by looking to the terms and conditions of the policy. ORS 742.016; Hoffman, 313 Or. at 469. The policy "must be viewed by its four corners and considered as a whole." Denton v. International Health & Life, 270 Or. 444, 449-50, 528 P.2d 546 (1974). All parts and clauses of the policy "must be construed to determine if and how far one clause is modified, limited or controlled by others." Id. at 450.

If a term of the policy is ambiguous, then the court employs a rule of construction by which the question of the meaning of the term is resolved by construing the term against the drafter of the policy, here, North Pacific. Hoffman, 313 Or. at 470. We do not resort to that rule of construction upon a mere showing that a term in a policy is capable of more than one construction, however. As the court explained in Hoffman,

"a term is ambiguous in a sense that justifies application of the rule of construction against the insurer only if two or more plausible interpretations of that term withstand scrutiny, i.e., continue[] to be reasonable, after the interpretations are examined in the light of, among other things, the particular context in which the term isused in the policy and the broader context of the policy as a whole."

Id. If the ambiguity remains after the court has engaged in those analytical exercises, then "any reasonable doubt as to the intended meaning of such [a] term[] will be resolved against the insurance company and in favor of extending coverage to the insured." Shadbolt v. Farmers Insur. Exch., 275 Or. 407, 411, 551 P.2d 478 (1976);Hoffman, 313 Or. at 470; cf. Joseph v. Utah Home Fire Ins. Co., 313 Or. 323, 328, 835 P.2d 885 (1992) (when term in insurance policy is ambiguous, court will interpret it according to perceived understanding of ordinary purchaser of insurance).

We note that the decision in Hoffman dealt with circumstances in which it could be argued that a term is ambiguous because it is capable of more than one plausible interpretation. In the present case, however, the Hamiltons do not offer their own, competing explanation of the meaning of the term at issue, Exclusion 10. Rather, they argue that Exclusion 10 is not capable of even one plausible interpretation. In support of that position, they contend that the interpretation of Exclusion 10 offered by North Pacific does not withstand scrutiny in isolation, in the context of the section in which it is found or in the context of the policy as a whole.

This court never before has confronted a case in which a party contends that the term or phrase under review simply is not comprehensible. In Hoffman, for example, the dispute focused on the meaning of an undefined term in the policy for which the insured and the insurer both offered competing, seemingly plausible, interpretations. ³ Nonetheless, we agree that a term also can be considered "ambiguous" if its meaning is not comprehensible for some reason, such as indefiniteness, erroneous usage, or form of expression. ⁴ In such a case, as when a term is ambiguous because it has multiple plausible meanings, the court does not permit the party who drafted the term or phrase to benefit from the obscurity. Hoffman, 313 Or. at 470-71. Accordingly, if the court cannot clarify the obscurity by undertaking the analytical steps set out inHoffman, then the court will construe the provision against the drafter. Id. We turn to an examination of Exclusion 10 in light of the foregoing principles.

As noted, Exclusion 10 excludes coverage for bodily injury or property damage to insureds and their family members "to the extent that the limits of liability for this coverage exceed the limits of liability required by the Oregon financial responsibility law." North Pacific claims that Exclusion 10 is a valid "family household exclusion" that is intended to avoid friendly or collusive lawsuits between family members. North Pacific claims that this court expressly held such provisions to be enforceable in Collins v. Farmers Ins. Co., 312 Or. 337, 822 P.2d 1146 (1991).

In Collins, the court addressed the validity of...