Savage v. Grange Mut. Ins. Co.

• Jurisdiction: Oregon
• Citation: Savage v. Grange Mut. Ins. Co., 970 P.2d 695, 158 Or.App. 86 (Or. App. 1999)
• Docket Number: C-10434
• Parties: Patricia SAVAGE, personal representative of the Estate of Tony Lee Savage, deceased. Respondent, v. GRANGE MUTUAL INSURANCE COMPANY, an Oregon non-profit corporation, Appellant. 97; CA A99325.
• Court: Oregon Court of Appeals
• Decision Date: 13 January 1999

Page 695

970 P.2d 695

158 Or.App. 86

Patricia SAVAGE, personal representative of the Estate of Tony Lee Savage, deceased. Respondent, v. GRANGE MUTUAL INSURANCE COMPANY, an Oregon non-profit corporation, Appellant.

97C-10434; CA A99325.

Court of Appeals of Oregon.

Argued and Submitted July 6, 1998.

Decided Jan. 13, 1999.

Thomas M. Christ, Portland, argued the cause for appellant. With him on the briefs was Mitchell, Lang & Smith.

J. Michael Alexander, Salem, argued the cause for respondent. With him on the brief was Burt, Swanson, Lathen, Alexander, McCann & Smith, P. C.

Before De MUNIZ, P.J., and DEITS, C.J., and HASELTON, J.

HASELTON, J.

Defendant insurer, Grange Mutual Insurance Company, appeals a judgment requiring it to pay up to $1 million in underinsured motorist (UIM) coverage under an umbrella liability policy. The sole issue on appeal is whether ORS 742.468, ¹ which became effective after defendant issued the umbrella policy but before the underlying accident, precludes recovery of UIM benefits. We conclude that it does not, and affirm.

The material facts underlying this declaratory judgment action are substantially undisputed: On July 1, 1993, defendant issued two insurance policies--one primary automobile policy and one umbrella policy, which included auto liability coverage--to Tony Lee Savage and his wife, Patricia, the plaintiff in this action. At that time, defendant offered, and the Savages accepted, $250,000 in UIM coverage under the auto policy. Under the then-applicable version of ORS 742.502(2) and our decision in American Economy Ins Co. v. Canamore, 114 Or.App. 348, 834 P.2d 542, rev. den. 314 Or. 727, 843 P.2d 454 (1992), defendant was also obligated to offer the Savages UIM coverage under the umbrella liability policy. However, defendant never did so. Nor did defendant otherwise change or amend the umbrella policy after it was issued.

On November 1, 1993, ORS 742.468 became effective. As described below, that statute exempted umbrella liability policies from the requirement of certain statutes "mandating kinds or amounts of coverage" in auto liability policies.

On July 1, 1994, defendant renewed the Savages' umbrella policy for the policy period July 1, 1994 through July 1, 1995. On October 24, 1994, after that renewal, Tony Lee Savage was killed in an automobile accident caused by an underinsured motorist.

Plaintiff, as the personal representative of her husband's estate, collected the available policy limits on the tortfeasor's liability policy and an additional $150,000 under the auto policy's UIM coverage. ² Plaintiff then made a claim for UIM benefits under the umbrella policy. Defendant denied that claim, asserting that the policy, as written, provided no UIM coverage. That denial led plaintiff to file this action, seeking a declaration that she was entitled to UIM benefits under the umbrella policy, up to the policy's $1 million liability limits.

The parties filed cross-motions for summary judgment on the coverage issues. Plaintiff argued that under the law existing at the time the policy was executed, see American Economy Ins. Co., 114 Or.App. at 352, 834 P.2d 542, defendant was obligated to have offered the Savages UIM coverage up to the umbrella policy's limits; that defendant failed to do so; and that, because of that breach, the policy, as a matter of law, included $1 million in UIM coverage. Defendant asserted that, notwithstanding its failure to offer UIM coverage when it issued the umbrella policy, entitlement to such coverage must be based on the insurer's breach of a legal obligation existing at the time the underlying casualty occurred. Defendant thus reasoned that, because ORS 742.468, which abrogated the duty to offer UIM coverage under umbrella policies, was enacted before the fatal accident, there was no such coverage here. The trial court adopted plaintiff's analysis, and defendant appeals.

This appeal turns on the interplay between an insurer's obligations under ORS 742.502(2) (1991) and the subsequent enactment of ORS 742.468. In July 1993, when defendant issued the umbrella policy, ORS 742.502 (1991) provided, in part:

"(1) Every motor vehicle liability policy insuring against loss suffered by any natural person resulting from liability imposed by law for bodily injury or death arising out of the ownership, maintenance or use of a motor vehicle shall provide uninsured motorist coverage therein or by indorsement thereon when such policy is * * *:

"(a) Issued for delivery in this state * * *

" * * * * *

"(2) The insurer issuing such policy shall offer one or more options of uninsured motorist coverage * * * up to the limits provided under the policy for motor vehicle bodily injury liability insurance. Offers of uninsured motorist coverage * * * shall include underinsurance coverage * * *." (Emphasis added.) ³

In American Economy Ins. Co., we construed "every motor vehicle liability policy" in ORS 742.502(1) to encompass umbrella liability policies as well as standard motor vehicle liability policies. 114 Or.App. at 358, 834 P.2d 539. Consequently, insurers who issued umbrella policies were required to comply with ORS 742.502(2) by offering additional UIM coverage up to the umbrella policy's liability limits. Id.

Earlier, in Blizzard v. State Farm Automobile Ins. Co., 86 Or.App. 56, 61, 738 P.2d 983, rev. den. 304 Or. 149, 743 P.2d 166 (1987), we had addressed the consequence of an insurer's breach of its statutory duty to offer UIM coverage. There, we concluded that "the appropriate remedy for defendant's failure to comply with its statutory duty is to read into the insurance contract the coverage which defendant should have offered." Id. at 61, 738 P.2d 983. In so holding, we relied on, and quoted with approval, decisions from other jurisdictions to the same effect. See Tucker v. Country Mutual Insurance Co., 125 Ill.App.3d 329, 337, 80 Ill.Dec. 610, 465 N.E.2d 956 (1984); Kuchenmeister v. Ill. Farmers Ins. Co., 310 N.W.2d 86, 88 (Minn.1981).

Thus, at the time defendant issued the umbrella policy to the Savages: (1) defendant had a statutory duty to offer UIM coverage up to the umbrella policy's liability limits; (2) defendant breached that duty; and (3) the remedy for that breach was to impute UIM coverage up to the liability limits.

On November 1, 1993, after the issuance of the umbrella policy and before the fatal accident, ORS 742.468 became operative. ⁴ That statute provides in part:

"For the purpose of statutes mandating kinds or amounts of coverage that motor vehicle liability policies must contain, the following shall not be considered motor vehicle liability policies:

" * * * * *

"Umbrella liability policies."

Thus, under ORS 742.468, insurers who issued umbrella policies after November 1, 1993, were not required to comply with the requirements of ORS 742.502(2) (1991), or any other statutory provision that mandated kinds or amounts of motor vehicle liability coverage. ORS 742.468 does not explicitly address whether, or to what extent, it applies to previously issued umbrella policies, including umbrella coverage renewed after the statute's effective date.

Defendant does not dispute that, at the time it issued the umbrella policy, it breached a then-existing statutory duty to offer UIM coverage. Defendant argues, however, that that breach does not warrant imputation of UIM coverage here:

"Failure to offer UIM coverage, as required by ORS 742.502(2) (1991), did not create an immediate right to such coverage. Reformation of the policy, to create that coverage, was, instead, a judicial remedy for injury caused by breach of the statutory duty, which injury did not arise until the insured was in an accident with an underinsured motorist. In this case, the accident occurred in November 1994, more than a year after the enactment of ORS 742.468, which ended defendant's duty to offer UIM coverage under this umbrella policy. Accordingly, reformation is not an available remedy."

Thus, defendant's argument rests on two related propositions. First, UIM coverage was not imputed, as a matter of law, upon issuance of the umbrella policy. Rather, plaintiff merely had a right to seek reformation that (1) remained inchoate until a claim was actually made and (2) ultimately depended on the insurer's statutory obligations at the time of the casualty. Second, and consequently, the enactment of ORS 742.468 after the issuance of the policy and before the accident abrogated any entitlement to reformation.

Plaintiff's position, not surprisingly, is the obverse of defendant's:

"The rights and obligations of the parties, as they relate to this issue, were fixed as of the date that the policy was issued. * * * The passage of ORS 742.468 is thus irrelevant unless it can be construed to retroactively modify the existing contract between the parties, and similarly retroactively nullify the Defendant's statutory obligation at that time. Under basic principles of construction, it can not have such effect."

Thus, in plaintiff's view, entitlement to UIM benefits immutably "vested" at the time the policy issued.

We begin by examining defendant's first premise: Did defendant's breach of its then-existing statutory obligation to offer UIM coverage automatically confer coverage as of the date of issuance, or did it merely confer a right to seek reformation, with the entitlement, if any, to that remedy being conditioned on the insurer's legal obligations existing at the time the underlying casualty occurs? That, in turn, requires us to consider the exact nature of the relief conferred in Blizzard and its progeny.

In Blizzard, in concluding that the defendant insurer's breach of its statutory duty to offer UIM coverage warranted the imputation of such coverage, we rejected the insurer's argument that the plaintiff insureds were not entitled to UIM coverage because they had not proved that they would have purchased such coverage if it had been...