Patton v. Mut. of Enumclaw Ins. Co., 031112054

• Decision Date: 08 October 2014
• Docket Number: A150143.,031112054
• Citation: 337 P.3d 874,266 Or.App. 154
• Parties: Lowell E. PATTON, Plaintiff–Appellant, v. MUTUAL OF ENUMCLAW INSURANCE COMPANY, a Washington corporation, Defendant–Respondent, and Hopp Insurance Agency, Inc., an Oregon corporation; and Randy W. Hopp, Defendants.
• Court: Oregon Court of Appeals

266 Or.App. 154

337 P.3d 874

Lowell E. PATTON, Plaintiff–Appellant

v. MUTUAL OF ENUMCLAW INSURANCE COMPANY, a Washington corporation, Defendant–RespondentandHopp Insurance Agency, Inc., an Oregon corporation; and Randy W. Hopp, Defendants.

031112054

A150143.

Court of Appeals of Oregon.

Argued and Submitted Sept. 13, 2013.

Decided Oct. 8, 2014.

Helen C. Tompkins, Portland, argued the cause for appellant. On the briefs was Robert K. Udziela.

Thomas M. Christ, Portland, argued the cause for respondent. With him on the brief was Cosgrave Vergeer Kester LLP.

Before ARMSTRONG, Presiding Judge, and NAKAMOTO, Judge, and EGAN, Judge.

Opinion

NAKAMOTO, J.

This insurance coverage case comes before us a second time. In the first appeal, Patton v. Mutual of Enumclaw Ins. Co., 238 Or.App. 101, 242 P.3d 624 (2010), rev. den., 349 Or. 654, 249 P.3d 542 (2011)(Patton I), this court reversed a judgment for plaintiff on his breach of contract claim on a homeowners' insurance policy and remanded for a new trial. On remand, the trial court granted the motion for summary judgment filed by defendant Mutual of Enumclaw Insurance Company (defendant or MOE), ruling that, under the terms of the policy as written, and as interpreted by this court in Patton I, plaintiff's claim was untimely. The trial court then entered a general judgment in defendant's favor. Plaintiff appeals. We review for errors of law and, for the reasons set forth below, reverse and remand.¹

In addition to basic coverage, and coverage for loss of use and damage to personal property, plaintiff's policy included an endorsement for “guaranteed replacement cost” of the house. Patton I, 238 Or.App. at 103–04, 242 P.3d 624. Pursuant to that endorsement, in the event of loss, as an alternative to payment of the basic coverage liability limit, MOE agreed to pay:

“not more than the lesser of:

“1. The replacement cost of that part of the building damaged for like construction and use on the same premises; or

“2. The necessary amount required to repair or replace the damaged building.”

As relevant to this appeal, the policy contains the following additional terms explaining that covered losses were to be settled as follows:

“(4) We will pay no more than the actual cash value of the damage unless:

“(a) actual repair or replacement is complete; or

“(b) the cost to repair or replace the damage is both:

“(i) less than 5% of the amount of insurance in this policy on the building; and

“(ii) less than $2,500.

“(5) You may disregard the replacement cost loss settlement provisions and make claim under this policy for loss or damage to buildings on an actual cash value basis. You may then make claim within 180 days after loss for additional liability on a replacement cost basis.”

An additional endorsement, which we refer to as the “no-action” clause, provides that “[n]o action can be brought unless the policy provisions have been complied with and the action is started within two years after the date of loss.”

Plaintiff's house burned down on November 8, 2001 (thus giving plaintiff, under the terms of the policy, until November 8, 2003, to bring suit against MOE). Patton I, 238 Or.App. at 105, 242 P.3d 624. Plaintiff made a claim under the policy and notified MOE of his intent to invoke the policy's replacement-cost endorsement. Id. In the ensuing months, plaintiff received several estimates for the cost of replacing his home: one for between $3.6 and $4 million, a second for $3.858 million, and a third—obtained by MOE's adjuster from Oregon Home Improvement Company (OHI)—for $1.544 million. Id.

Plaintiff did not begin reconstruction at that time because he was initially unable to obtain the required building permit. Id. After plaintiff notified MOE of the problem, plaintiff received several letters from MOE's attorney, Smith, reminding plaintiff that he could not recover replacement costs until reconstruction was complete and that he only had two years from the date of the fire to bring any action against MOE. Id. at 106–09, 242 P.3d 624. Approximately two months before the second anniversary of the fire, plaintiff entered into a construction contract to rebuild the home at a cost over twice the estimate that MOE had obtained from OHI. Id. at 110, 242 P.3d 624.

Shortly before the second anniversary of the fire, plaintiff filed a complaint against MOE. Due to continuing delays in the permitting process, plaintiff had not yet begun reconstruction. Plaintiff sought a declaration that, under the policy, MOE was obligated to compensate plaintiff for replacement costs incurred more than two years from the date of loss. Plaintiff further alleged that MOE had breached the policy by refusing to pay replacement costs in excess of the amount of OHI's bid. Id. at 110, 242 P.3d 624.

In Patton I, MOE moved for summary judgment on both the breach of contract and declaratory judgment claims. Id. at 117 n. 6, 242 P.3d 624. With regard to plaintiff's claim for declaratory relief, defendant argued that the policy required completion of construction as a condition for payment of replacement cost benefits and that plaintiff had not yet replaced the home. Id. at 110, 242 P.3d 624. Specifically, MOE argued that,

“as a matter of law, the unambiguous terms of the policy did not allow for recovery of replacement costs for work completed more than two years from the date of loss. MOE pointed out that the ‘settlement of loss' section of the policy requires that, in order to recover damages in excess of ‘actual cash value of the damage,’ the actual repair or replacement must be complete. In MOE's view, that requirement is a ‘policy provision’ that must be complied with in order to recover replacement costs. MOE asserted that, in light of the two-year limitation on filing suit, and in view of the further requirement that ‘[n]o action can be brought unless the policy provisions have been complied with,’ necessarily, the replacement of a residence must be actually completed within two years of the loss in order to recover replacement costs, and no replacement costs incurred after the two-year limitation may be recovered.”

Id. at 110–11, 242 P.3d 624 (footnote omitted). With regard to the breach of contract claim,

“MOE asserted that, in order to have recovered replacement cost benefits over and above those that MOE had previously advanced, plaintiff had only been required to submit sufficient documentation to show that additional costs were necessary and actually spent on reconstruction. Further, MOE contended, although it had advanced plaintiff funds in excess of the actual cash value of the home, i.e., the policy limits for the dwelling, MOE did not have an obligation to do so under the policy and had no obligation to pay further benefits.”

Id. at 110, 242 P.3d 624. Thus, defendant argued in its first summary judgment motion that plaintiff could not recover any replacement costs for the reconstruction of his home because he had not even begun to construct the new house at the time he commenced the action.

The trial court denied MOE's summary judgment motion in Patton I, rejecting MOE's interpretation of the policy and its contention that the only repairs and replacements compensable were those completed within two years of loss:

“The court noted the policy's requirement that suit could not be brought until ‘the policy provisions have been complied with,’ and agreed that completion of construction was a condition for recovery of replacement costs, but disagreed with MOE's view that the policy required completion of construction within two years of the loss. In the court's view, the replacement cost provision ‘only addresses the measure of compensation to which an insured is entitled, not whether an insured is entitled to any compensation at all.’ (Emphasis trial court's.) The court noted that the policy does not state an explicit time limitation on repairs or replacement. Citing Bourrie v. U.S. Fidelity and Guaranty Ins. Co., 75 Or.App. 241, 707 P.2d 60 (1985), the court concluded that, in the absence of a time limit stated in the policy, the law implies a reasonable time limit within which replacement must be completed. Thus, the court held, the two-year limitation provision of the policy does not limit plaintiff to compensation for replacement costs incurred within two years from the time of loss[.]”

Patton I, 238 Or.App. at 111–12, 242 P.3d 624. The court subsequently ordered that the case be placed in abatement so that plaintiff could complete construction. Id. at 112, 242 P.3d 624.

The case was removed from abatement and came to trial two weeks before the completion of construction. At the outset of trial, plaintiff successfully contended that the policy had been changed by MOE's agent and that the scope of the trial should be limited to whether MOE was obligated to pay replacement costs because his new house was of “like construction and use”:

“[P]laintiff sought a ruling from the trial court that Smith's letters had provided an interpretation of the policy that was binding on MOE and that required MOE to pay all replacement costs, as long as the replacement was of ‘like construction and use.’ The trial court agreed with plaintiff that Smith's letters provided an interpretation of the policy to which MOE was bound and, further, that the letters promised that MOE would pay for new construction as long as the new house was of ‘like construction and use.’ The trial court also granted plaintiff's motion in limine to limit trial to the question of whether the new house was of like construction and use, to exclude evidence of the amount that plaintiff had paid for the house that burned, and to exclude any evidence of plaintiff's failure to comply with conditions of the policy.

“The trial court then allowed plaintiff to file an amended complaint, which alleged a new breach of contract claim against MOE, based on MOE's alleged refusal to pay plaintiff the actual cost of replacing the destroyed home with a home of like construction and use. * * *

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