Portland Sch. Dist. No. 1j v. Great Am. Ins. Co.

• Decision Date: 23 February 2011
• Docket Number: 061212536; A137057.
• Citation: 241 Or.App. 161,249 P.3d 148
• Parties: PORTLAND SCHOOL DISTRICT NO. 1J, an Oregon public school district, Plaintiff–Respondent,v.GREAT AMERICAN INSURANCE COMPANY, an Ohio corporation, Defendant–Appellant,andCampbell, Galt & Newlands, Inc., an Oregon corporation, dba USI Northwest; and Whitecap Insurance, Inc., a Washington corporation, dba Countrywide Brokerage Services, Defendants.
• Court: Oregon Court of Appeals

241 Or.App. 161

249 P.3d 148

PORTLAND SCHOOL DISTRICT NO. 1J, an Oregon public school district, Plaintiff–Respondent,

v.GREAT AMERICAN INSURANCE COMPANY, an Ohio corporation, Defendant–Appellant,andCampbell, Galt & Newlands, Inc., an Oregon corporation, dba USI Northwest; and Whitecap Insurance, Inc., a Washington corporation, dba Countrywide Brokerage Services, Defendants.

061212536; A137057.

Court of Appeals of Oregon.

Argued and Submitted Sept. 11, 2009.Decided Feb. 23, 2011.

I. Franklin Hunsaker argued the cause for appellant. With him on the briefs were Peter Whalen, Kathryn Ashton, and Duane Morris LLP, California, and Sean W. Carney, and Prange Law Group, LLC.D. Gary Christensen, Portland, argued the cause for respondent. With him on the brief were Jennifer J. Roof and Miller Nash LLP.Before WOLLHEIM, Presiding Judge, and SERCOMBE, Judge, and DUNCAN, Judge.^*DUNCAN, J.

This case arises out of an insurance coverage dispute between defendant Great American Insurance Company (Great American), an excess insurer, and plaintiff Portland School District (the district), the assignee of Great American's insured. Great American appeals a limited judgment in favor of the district, assigning error to the trial court's grant of partial summary judgment for the district and denial of its own motion for summary judgment. The trial court determined that the insured's excess insurance policy with Great American did not incorporate an anti-assignment provision contained in the insured's underlying policy and, consequently, that the district as assignee could prevail on its claim for breach of contract against Great American. For the reasons explained below, we affirm.

In an appeal of a judgment resulting from cross-motions for summary judgment, where the defendant assigns error to both the denial of its motion and the granting of the plaintiff's motion, both are subject to review. Ellis v. Ferrellgas, L.P., 211 Or.App. 648, 652, 156 P.3d 136 (2007). Each moving party has the burden of demonstrating that there are no issues of material fact and that the movant is entitled to judgment as a matter of law. Eden Gate, Inc. v. D & L Excavating and Trucking, Inc., 178 Or.App. 610, 622, 37 P.3d 233 (2002). We review the record for each motion in the light most favorable to the party opposing that motion. Id.

Here, the district and Great American agree that there are no disputed issues of fact and that their opposing motions turn on issues of law, specifically, the interpretation of an insurance contract and the applicability of a statute, ORS 31.825. We summarize the facts from those stipulated by the parties for purposes of their cross-motions for summary judgment.

The district hired a roofing contractor to replace the roof of a school. The contractor was negligent in its work, and, as a result, the roof caught fire. The contractor had a liability insurance contract (the underlying policy) with CNA Insurance Company (CNA), and an excess insurance contract (the excess policy) with Great American.¹ The amount of damage to the school exceeded the limits of the underlying policy. The contractor timely submitted claims to both CNA and Great American for coverage under the policies; Great American denied coverage.

Thereafter, the contractor, the district, and CNA entered into a settlement agreement. Pursuant to that agreement, CNA agreed to pay its policy limit of $1 million, and the contractor agreed to pay $50,000, to the district. The parties agreed that, within five days after execution of the agreement, the district would file a civil action for negligence against the contractor, seeking damages of $2,393,885.43, at which time the agreed-upon payments would be made. Upon collection of payment, the district then agreed to “release [ ] [the contractor] from claims of whatever kind or nature, whether known or unknown, that could be asserted against [the contractor] up to and including the first $1,050,000 of the total amount of [the district's] damages suffered as a result of the Fire” and that “[the district's] claims exceeding the first $1,050,000 of [the district's damages] are expressly reserved.”

The agreement further provided that, within five days after the filing of the complaint against the contractor and the receipt of payment from CNA and the contractor, the district and the contractor would file a stipulated judgment against the contractor for $1,343,885.43, representing the district's remaining alleged damages. Finally, the parties agreed that, within five days after entry of the stipulated judgment, the contractor would assign its claims and rights against third parties, including Great American,² to the district in exchange for the district's agreement not to execute the judgment against it (the “Assignment of Claims and Covenant Not to Execute”).

Those events occurred,³ and, on the basis of the assignment of rights from the contractor, the district filed this action against Great American⁴ for, among other claims, breach of the insurance contract. The parties subsequently filed cross-motions for summary judgment on the issue of Great American's liability on the district's breach of contract claim.

As relevant here, Great American argued that an anti-assignment clause in the underlying policy (set out below) was incorporated into Great American's excess policy, thus precluding assignment of the contractor's rights to the district without its consent under Holloway v. Republic Indemnity Co. of America, 341 Or. 642, 147 P.3d 329 (2006). Relying on Stubblefield v. St. Paul Fire & Marine, 267 Or. 397, 517 P.2d 262 (1973), Great American further argued that, even presuming a valid assignment of the contractor's rights under the excess policy, because the settlement agreement released the contractor from any additional liability to the district beyond the amount it paid under the settlement, Great American consequently also has no obligation to the district.

In response, the district argued that (1) the excess policy does not incorporate the anti-assignment provision in the underlying policy; (2) the anti-assignment provision in any event is inconsistent with ORS 31.825 and, therefore, invalid; and (3) because the contractor's claims were not extinguished by the settlement agreement but expressly preserved by ORS 31.825, Great American's argument under Stubblefield fails as well.

The trial court agreed with the district that the anti-assignment provision in the underlying policy was not incorporated into the excess policy and, without further explanation, entered an order granting the district's motion for partial summary judgment and denying Great American's motion. A limited judgment was subsequently entered against Great American, which Great American now appeals.⁵

The central issue on appeal is whether, in light of the anti-assignment provision in the contractor's underlying policy with CNA, the district can maintain this action against Great American. That provision states: “Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured.” The excess policy, in turn, includes a section entitled “COVERAGE,” which provides, in part:

“We will pay on behalf of the Insured ‘loss' in excess of the Underlying Limits of Insurance shown in Item 5. of the Declarations, but only up to an amount not exceeding the Company's Limits of Insurance as shown in Item 4. of the Declarations. Except for the terms, conditions, definitions and exclusions of this policy, the coverage provided by this policy will follow the First Underlying Insurance Policy, as shown in Item 5. of the Declarations.” ⁶

(Capitalization omitted; emphasis added.) It is thus necessary for us to first determine whether, by virtue of the emphasized text (the disputed provision), the excess policy incorporates the anti-assignment clause of the underlying policy.

We review interpretations of insurance policies for errors of law. Hoffman Construction Co. v. Fred S. James & Co., 313 Or. 464, 469, 836 P.2d 703 (1992). As the Supreme Court recently reiterated, “the primary and governing rule” in doing so “is to ascertain the intention of the parties.” Dewsnup v. Farmers Ins. Co., 349 Or. 33, 39–40, 239 P.3d 493 (2010) (internal quotation marks and brackets omitted).

“To that end, we examine the terms and conditions of the policy, Groshong v. Mutual of Enumclaw Ins. Co., 329 Or. 303, 307, 985 P.2d 1284 (1999) (citing Interstate Fire v. Archdiocese of Portland, 318 Or. 110, 117, 864 P.2d 346 (1993)), and where a particular term is not defined in the contract, we begin by identifying that term's plain meaning. Groshong, 329 Or. at 308 . If the term has no plain meaning; that is, if the term is ambiguous, we examine that term within the context of the policy as a whole. Hoffman, 313 Or. at 470 . If two or more plausible interpretations still remain, we construe the term against the drafter and in favor of the insured. Id. at 470–71 .”

Dewsnup, 349 Or. at 40, 239 P.3d 493.

Great American contends that the only plausible reading of the disputed provision demonstrates that the excess policy is a “follows-form” contract—that is, that it “incorporates all the terms, conditions, definitions and exclusions of the underlying CNA insurance contract except for provisions that contradict language contained in Great American's own insurance contract.” Because the excess policy does not address the assignment of rights, it thus follows, according to Great American, that the excess policy incorporates the anti-assignment clause from the underlying policy.

The district, on the other hand, interprets the provision to mean that the excess policy follows only the “coverage” section of the underlying policy, not its “terms, conditions, definitions and exclusions,” such as the anti-assignment clause. In other words, in the district's view, the disputed text unambiguously provides...