School Dist. No. 1, Multnomah County v. Mission Ins. Co.

• Decision Date: 25 August 1982
• Docket Number: No. A7707-09610,No. A7707-09611,A7707-09610,A7707-09611
• Parties: , 6 Ed. Law Rep. 819 SCHOOL DISTRICT NO. 1, MULTNOMAH COUNTY, Oregon, Respondent--Cross-Respondent, v. MISSION INSURANCE COMPANY, a California corporation; The Insurance Company of the State of Pennsylvania, a Pennsylvania corporation; and Stonewall Insurance Company, an Alabama corporation, Respondents--Cross-Appellants, and Cross-Respondents, Northwestern Pacific Indemnity Company, an Oregon corporation, Appellant--Cross-Respondent. SCHOOL DISTRICT NO. 1, MULTNOMAH COUNTY, Oregon, Respondent--Cross-Respondent, v. NORTHWESTERN PACIFIC INDEMNITY COMPANY, an Oregon corporation, Appellant--Cross-Respondent, The Insurance Company of the State of Pennsylvania, a Pennsylvania corporation, and Stonewall Insurance Company, an Alabama corporation, Respondents--Cross-Appellants, and Cross-Respondents. ; CA 15221,; CA 15222.
• Court: Oregon Court of Appeals

Page 929

650 P.2d 929

58 Or.App. 692, 6 Ed. Law Rep. 819

SCHOOL DISTRICT NO. 1, MULTNOMAH COUNTY, Oregon, Respondent--Cross-Respondent, v. MISSION INSURANCE COMPANY, a California corporation; The

Insurance Company of the State of Pennsylvania, a

Pennsylvania corporation; and Stonewall Insurance Company,

an Alabama corporation, Respondents--Cross-Appellants, and

Cross-Respondents,

Northwestern Pacific Indemnity Company, an Oregon

corporation, Appellant--Cross-Respondent.

SCHOOL DISTRICT NO. 1, MULTNOMAH COUNTY, Oregon, Respondent--Cross-Respondent, v. NORTHWESTERN PACIFIC INDEMNITY COMPANY, an Oregon

corporation, Appellant--Cross-Respondent,

The Insurance Company of the State of Pennsylvania, a

Pennsylvania corporation, and Stonewall Insurance

Company, an Alabama corporation,

Respondents--Cross-Appellants,

and Cross-Respondents.

No. A7707-09610; CA 15221, No. A7707-09611; CA 15222.

Court of Appeals of Oregon.

Argued and Submitted July 15, 1981.

Decided Aug. 25, 1982.

Katherine H. O'Neil, Portland, argued the cause for appellant--cross-respondent. With her on the briefs were Kenneth E. Roberts, and Schwabe, Williamson, Wyatt, Moore & Roberts, Portland.

Mark C. McClanahan, Portland, argued the cause for respondent--cross-respondent. With him on the briefs were John R. Bakkensen, Michael E. Arthur, and Miller, Nash, Yerke, Wiener & Hager, Portland.

Arden E. Shenker, Portland, argued the cause for respondent--cross-appellant--cross-respondent, The Insurance Company of the State of Pennsylvania. With him on the briefs were Elizabeth A. Trainor, Lamar Tooze, Jr., and Tooze, Kerr, Marshall & Shenker, Portland.

James M. Callahan, Portland, argued the cause for respondent--cross-appellant--cross-respondent Stonewall Insurance Company. With him on the briefs was Landis, Aebi & Bailey, Portland.

Scott F. Gilman, Portland, attorney for respondent--cross-appellant--cross-respondent Mission Insurance Company, joined in the brief of appellant--cross-respondent.

Before GILLETTE, P.J., and WARDEN, ^* and YOUNG, JJ.

YOUNG, J.

Defendant Northwestern Pacific Indemnity (Northwestern) appeals from the judgment of the trial court finding it obligated as primary carrier by its policy of comprehensive general liability insurance to defend School District No. 1 (district) on discrimination claims filed against the district and to indemnify the district for the amounts the district had agreed to pay in settlement of certain of those claims. Northwestern also contends that the trial court erred in holding that it was required to defend the district in a counterclaim brought by the Teachers' Retirement Fund Association (TRFA) and in awarding attorney fees and prejudgment interest. The Insurance Company of the State of Pennsylvania (ICSP) and Stonewall Insurance Company (Stonewall), the district's excess carriers, cross-appeal from that portion of the trial court's order holding them alternatively liable for defense and settlement costs and jointly and severally liable with the primary carriers for costs and attorney fees. The Mission Insurance Company (Mission), successor to Northwestern as the district's primary carrier, is no longer involved in this appeal. We affirm in part and reverse in part.

Northwestern insured the district under a primary comprehensive liability policy from July 1, 1970, to August 1, 1973. ¹ That policy contained a provision that

"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay on account of any claim for breach of duty made against the insured by reason of any negligent act, error or omission of the insured * * * and the company shall have the right and duty to defend any suit against [the insured] seeking damages on account of such breach of duty even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient * * *."

This provision is referred to as "errors and omissions" coverage. Mission provided similar coverage from August 1, 1973, to July 1, 1974. The excess carriers, ICSP and Stonewall, provided coverage from July 1, 1970, to July 1, 1972, and from July 1, 1972 to July 1, 1975, respectively.

Beginning in July, 1970, a number of complaints alleging employment discrimination within the periods covered by defendants' policies were filed against the district. The complaints were initially filed with the Bureau of Labor (BOL), which investigated the complaints on behalf of the state, see ORS ch. 659, or with the Equal Employment Opportunity Commission (EEOC), which investigated discrimination claims under federal law, see 42 U.S.C. § 2000e et seq. (Title VII), or with both. A few of the complaints resulted in actions being filed in state or federal court. ²

With one exception, defendants refused to accept the defense of and liability for any of the claims. The district undertook its own defense and in some cases reached monetary settlements with the claimants.

The trial court ruled that under the errors and omissions coverage of their policies Northwestern and Mission were obligated to pay the amounts the district had incurred in settlement of the discrimination claims to the extent that the conduct or condition complained of was committed or had occurred during the policy period of each, up to the policy limits. This is characterized as the duty to pay. The sums were allocated between Northwestern and Mission after a separate trial on damages.

The trial court also determined that Northwestern and Mission had a duty to defend the district as to each discrimination claim from the point in time when there was

"a) an action, suit or claim filed in Court or

"b) an administrative finding or determination (by the Oregon Bureau of Labor or the Equal Employment Opportunity Commission) of substantial evidence to support the complaint or charge."

The primary carriers (Northwestern and Mission) were held jointly and severally liable for defense costs incurred by the district in defending the discrimination claims.

In addition, in 1972, the district brought a declaratory judgment action against TRFA seeking a determination of the legal status of the unassigned surplus of the fund subsequent to the pending merger of the TRFA with the Public Employment Retirement System. TRFA counterclaimed for the district's alleged wrongful failure to approve a variable annuity account as allowed by the legislature in 1969. See former ORS 239.210(1). In the proceedings that followed the trial court declined to rule on the counterclaim. After appeal to this court on the district's claim, School Dist. No. 1 v. Teachers' Retirement, 30 Or.App. 747, 567 P.2d 1080 (1977), the case was remanded, and the parties reached a settlement. The district paid no money to TRFA as a result of that settlement.

Northwestern, ICSP and Stonewall were notified of the counterclaim against the district and declined defense of the action. The trial court in the instant proceeding determined that Northwestern's policy required that it defend the counterclaim and held Northwestern liable for the defense costs incurred by the district.

The court further determined that each excess carrier had a duty to pay the discrimination claims arising from actions taken during its policy period to the extent that the sums exceeded the amounts recoverable under the policies of the primary carriers. In addition, the court held that, if there was no coverage under the policies of the primary carriers, the excess carriers had both a duty to defend and a duty to pay the claims for discrimination occurring during their respective periods of coverage. The court also held the primary carriers liable to Stonewall for defense costs it had incurred in the defense of one of the discrimination claims. It awarded prejudgment interest to the district and held all defendants liable for costs and attorney fees pursuant to ORS 743.114.

DISCRIMINATION CLAIMS

1. Errors and Omissions Coverage

The duty to defend an insured under an insurance policy is broader than the duty to pay. The duty to defend arises whenever there is a possibility that the policy provides coverage for the claim made. The rule for determining whether there is a duty to defend was formulated in Ferguson v. Birmingham Fire Ins., 254 Or. 496, 507, 460 P.2d 342 (1969):

" * * * If the complaint, without amendment, may impose liability for conduct covered by the policy, the insurer is put on notice of the possibility of liability and it has a duty to defend. For example, in an action of trespass brought against the insured, if the complaint alleges a willful entry (in order to support a claim for punitive damages), the plaintiff could, without amending the complaint, recover ordinary damages for a non-willful entry. The insurer, therefore, would have the duty to defend. The innocent trespass may be treated as a 'lesser included offense' by analogy to the criminal law."

See Ross Island Sand & Gravel Co. v. General Ins. Co. of Amer., 472 F.2d 750 (9th Cir. 1973) (applying Oregon law); Casey v. N.W. Security Ins. Co., 260 Or. 485, 491 P.2d 208 (1971); 7C Appleman, Insurance Law and Practice § 4682 et seq (1979).

Any doubts regarding coverage are resolved in favor of the insured. Continental Casualty Company v. Reinhardt, 247 F.Supp. 173 (D. Or. 1965), aff'd, 358 F.2d 306 (9th Cir. 1966). However, an insurer is not required to defend claims which, if proved, would provide no basis for recovery under the policy. 7C Appleman, Insurance Law and Practice § 4684.01 (1979). The rules for interpreting insurance contracts are well established. The primary objective is to give effect to the intent of the parties. Denton v. International Health & Life, 270 Or. 444, 528 P.2d 546 (1974); Ramco, Inc. v. Pacific Ins., 249 Or. 666, 439 P.2d 1002 (1968). If the language is susceptible of more than one construction, the policy is construed most...