Oregon Mut. Ins. Co. v. Gibson

• Decision Date: 09 December 1987
• Docket Number: CV-110
• Citation: 88 Or.App. 574,746 P.2d 245
• Parties: OREGON MUTUAL INSURANCE COMPANY, Plaintiff, v. Jack Robert GIBSON, Arlene Carol Johansson, William Brian Alexander, and Mark Allen Lee, Defendants. Arlene Carol JOHANSSON, William Brian Alexander, and Mark Allen Lee, Appellants, v. James A. CLARK, and Jim and Bob Clark's Insurance, Inc., an Oregon corporation, Respondents. 85-; CA A41875.
• Court: Oregon Court of Appeals

Page 245

746 P.2d 245

88 Or.App. 574

OREGON MUTUAL INSURANCE COMPANY, Plaintiff, v. Jack Robert GIBSON, Arlene Carol Johansson, William Brian

Alexander, and Mark Allen Lee, Defendants.

Arlene Carol JOHANSSON, William Brian Alexander, and Mark

Allen Lee, Appellants, v. James A. CLARK, and Jim and Bob Clark's Insurance, Inc., an

Oregon corporation, Respondents.

85-CV-110; CA A41875.

Court of Appeals of Oregon.

Argued and Submitted Oct. 23, 1987.

Decided Dec. 9, 1987.

David R. Maier, Portland, argued the cause for appellants. On the brief were Law Offices of Steven J. Weber, a Professional Corp., San Francisco, Cal., Thomas K. Hooper, and Hutchinson, Hutchison & Hooper, Portland.

James M. Callahan, Portland, argued the cause for respondents. With him on the brief was Bittner & Barker, P.C., Portland.

Before BUTTLER, P.J., and WARREN and ROSSMAN, JJ.

WARREN, Judge.

Third-party plaintiffs Johansson, Alexander and Lee (plaintiffs) ¹ were injured while riding as passengers in a dune buggy driven by Oregon Mutual Ins. Co.'s (Oregon Mutual) insured, Gibson. They brought an action against Gibson, asserting claims of negligence and reckless conduct. Gibson was defended by an attorney retained by Oregon Mutual. The action was settled by a stipulated judgment for Johansson for $1,500,000. Oregon Mutual agreed to pay $1,000,000 from its umbrella liability coverage. Gibson agreed to assign to Johansson all of his claims against his insurance agents, third-party defendants (defendants), for failure to procure adequate insurance. In exchange, plaintiffs executed covenants not to execute and not to sue Gibson beyond the $1,000,000 umbrella liability coverage.

Oregon Mutual initiated proceedings for declaratory relief against Gibson and plaintiffs with respect to the $500,000 balance, which equaled its primary liability coverage. Plaintiffs then filed a third-party complaint as assignees of Gibson against defendants, alleging that, if Gibson's vehicle was not covered by his primary liability coverage with Oregon Mutual, the lack of coverage was directly caused by defendants' negligent failure to advise Gibson regarding his insurance and their negligence in failing to procure insurance. Defendants moved for summary judgment on the ground that no material issues of fact existed and that, because of the covenant, they were not liable to Gibson for failure to advise or procure insurance as a matter of law and that plaintiffs therefore could not prevail as his assignees. Their motion was granted. This appeal involves only the summary judgment.

Plaintiffs argue that the Supreme Court's opinion in Lancaster v. Royal Ins. Co. of America, 302 Or. 62, 726 P.2d 371 (1986), requires reversal. Lancaster held that the interpretation of Stubblefield v. St. Paul Fire & Marine, 267 Or. 397, 517 P.2d 262 (1973), by the court's opinion in Collins v. Fitzwater, 277 Or. 401, 560 P.2d 1074 (1977), was incorrect. In Stubblefield, the plaintiff covenanted not to execute against the insured for any amount greater than $5,000 in exchange for the insured's assignment of his rights for all claims greater than $5,000 against the insurer arising from the insurance policy. The policy provided that the insured was covered for damage that he was legally obligated to pay as damages and expenses. Judgment was stipulated to and entered against the insured for $50,000. Plaintiff, as assignee, sued the insurer. The Supreme Court, in affirming the trial court's judgment for the insurer, stated:

"[T]he result of the separate 'Covenant Not to Execute' was that the amount which the insured in this case was 'legally obligated' to pay to plaintiff as damages for such personal injuries was the sum of $5,000. The insured agreed, however, to pay that amount to plaintiff himself and that amount was expressly excluded from the assignment and was reserved to the insured. It follows that by the terms of the assignment in this case plaintiff acquired no rights which are enforceable by it against defendant." 267 Or. at 400, 517 P.2d 262.

In interpreting Stubblefield v. St. Paul Fire & Marine, supra, the Supreme Court in Collins v. Fitzwater, supra, concluded that the insured was only legally obligated to pay $5,000, because no judgment was entered against the insured until after execution of the covenant not to execute. 277 Or. at 409, 560 P.2d 1074. In Lancaster v. Royal Ins. Co. of America, supra, however, the court held that that...