State Farm Fire and Cas. Co. v. Jones

• Decision Date: 16 August 1988
• Docket Number: No. CV-85-959,CV-85-959
• Citation: 759 P.2d 271,306 Or. 415
• Parties: STATE FARM FIRE AND CASUALTY COMPANY, Respondent on Review, v. Linda R. JONES, Petitioner on Review, and Randall Frank, Defendant. TC; CA A38727; SC S34407.
• Court: Oregon Supreme Court

Page 271

759 P.2d 271

306 Or. 415

STATE FARM FIRE AND CASUALTY COMPANY, Respondent on Review, v. Linda R. JONES, Petitioner on Review and Randall Frank, Defendant.

TC No. CV-85-959; CA A38727; SC S34407.

Supreme Court of Oregon In Banc.

Argued and Submitted Jan. 19, 1988.

Decided Aug. 16, 1988.

Robert J. Vanden Bos, Portland, argued the cause and filed a memorandum of additional authorities for petitioner on review. With him on the petition for review was Ann K. McNamara, Portland.

W. Eugene Hallman, Pendleton, argued the cause for respondent on review. With him on the response and memorandum of additional authorities were Joel DeVore, and Mautz, Hallman & DeVore, Pendleton.

CARSON, Justice.

Plaintiff insurer began this declaratory judgment proceeding to determine its liability under an automobile liability policy issued to defendant insured. Plaintiff contends that the policy does not cover the bodily injuries sustained by defendant.

Defendant sustained the bodily injuries while riding as a passenger in her automobile. The driver, Frank, was operating the automobile with defendant's permission. Defendant brought a negligence action against Frank. Plaintiff then brought this separate action for a declaration that "pursuant to the contract of insurance [issued to defendant] the plaintiff has no duty to defendant or [sic] pay * * * for bodily injury to [defendant]." Plaintiff moved for summary judgment, which the trial court granted. ¹ The Court of Appeals affirmed. State Farm Fire and Casualty Co. v. Jones, 86 Or. 584, 739 P.2d 1090 (1987). We reverse.

The automobile liability policy at issue excludes liability coverage for bodily injury to, among others, "any insured." Under the terms of the policy, plaintiff argues that it neither has the duty to defend Frank nor the obligation to pay a judgment awarded defendant against Frank for bodily injury. As a matter of contract, the policy speaks unambiguously and excludes defendant from coverage for bodily injuries sustained. See State Farm Fire and Casualty Co. v. Jones, supra, 86 Cr.App. at 588, 739 P.2d 1090; see also Lee v. State Farm Auto. Ins., 265 Or. 1, 507 P.2d 6 (1973). Were that the issue before us, defendant could not prevail.

Defendant, however, argues that the exclusion violates the Financial Responsibility Law (FRL). ² According to defendant, the purpose of the FRL is to assure that automobile drivers can respond in damages for liability. She argues that her automobile liability policy violates the FRL if construed to deny Frank, a permissive user and thus an insured under the policy, the ability to respond in damages for liability. If defendant is correct and the policy does violate the FRL, the policy must be construed to include whatever coverage is mandated by statute. Hartford Acc. and Indem. v. Kaiser, 242 Or. 123, 126, 407 P.2d 899 (1965). ³

As defendant correctly suggests, state financial responsibility laws generally are designed to ensure that motor vehicle drivers can respond in damages for liability. Such laws, above all, seek to ensure that motor vehicle accident victims are compensated for injuries received. M.G. Woodroof, J.R. Fonseca, & A.M. Squillante, Automobile Insurance & No-Fault Law 74-75 (1974). See State Farm Ins. v. Farmers Ins. Exch., 238 Or. 285, 292-93, 387 P.2d 825, 393 P.2d 768 (1964). But the general purpose expressed by such laws does not address the particular question presented here: Whether an automobile liability policy may exclude an insured from liability coverage where a permissive user injures the insured while driving the insured's automobile? To answer that question, we must look to the Oregon statutory scheme concerning financial responsibility requirements for motor vehicle drivers.

Oregon requires that motor vehicle drivers either obtain motor vehicle liability insurance or otherwise comply with financial responsibility requirements. ORS 806.010(1) (former 486.075 (1981)). The phrase "financial responsibility requirements" is defined as "the ability to respond in damages for liability" for accidents arising from the ownership, operation, or maintenance of a motor vehicle. ORS 801.280 (see former 486.011(7) (1981)). In addition to obtaining liability insurance, financial responsibility may be satisfied by maintaining a bond, making a deposit, or becoming self-insured. ORS 806.060. When an insurance policy is obtained to comply with financial responsibility requirements, however, the policy must insure "the named insured and all other persons insured under the terms of the policy against loss from the liabilities imposed by law." (Emphasis added.) ORS 806.080(1) (see former 486.011(11) (1981)). Not all liabilities need be insured; ORS 743.778 (former 486.546 (1981)) allows insurers to exclude from liability coverage, inter alia, "damage to property owned by, rented to, in charge of, or transported by the insured." (Emphasis added.)

In construing these and other statutes comprising the FRL, this court and the Court of Appeals ⁴ have addressed issues analogous to the one presented here. In Bowsher v. State Farm Fire Co., 244 Or. 549, 551-53, 419 P.2d 606 (1966), the question was whether an insured who was injured by an uninsured permissive user of the insured's vehicle could recover under the "uninsured automobile" provisions of the insured's insurance policy. This court concluded that the insured could. Sixteen years later, the Court of Appeals concluded that the insured could not, relying upon an intervening change in statutory law. State Farm Mut. Ins. v. Whitlock, 59 Or.App. 303, 307-09, 650 P.2d 1042 (1982). Although the question was not presented, Whitlock apparently assumed that an exclusion of the insured from liability coverage for bodily injury does not violate the FRL. See State Farm Mut. Ins. v. Whitlock, supra, 59 Or.App. at 308, 650 P.2d 1042; Dowdy v. Allstate Insurance Co., 68 Or.App. 709, 714, 685 P.2d 444 (1984).

More pertinently for our analysis, this court decided in Lee v. State Farm Auto Ins., supra, that an injured insured was properly excluded from liability coverage under her policy. In Lee, the insured was injured, as here, while riding as a passenger in her own automobile, which was being driven by another with the insured's permission. The insurance company argued that a family-household exclusion clause applied to the insured, and this court agreed. Lee v. State Farm Auto. Ins., supra, 265 Or. at 7, 507 P.2d 6. We do not understand Lee, however, to address the issue raised by the parties in this case because Lee solely concerned the correct construction of the insurance contract. Id. at 3, 507 P.2d 6; see also State Farm Fire and Casualty Co. v. Jones, supra, 86 Or.App. at 587 n 3, 739 P.2d 1090. It did not address whether the FRL mandates that coverage for bodily injury be provided to an insured.

The Court of Appeals in Dowdy v. Allstate Insurance iCo., supra, however, did address a question closely analogous to the one before us. In Dowdy, the plaintiff and the insured were sisters and both resided in the insured's home. At the time of the automobile accident giving rise to the claim, the insured was driving and the plaintiff was her passenger. The plaintiff sought to recover on the underlying judgment against the insured. The insurance company argued that the plaintiff was barred from recovery by the family exclusion clause of the insurance policy, which excluded coverage for bodily injury to a relative residing in the insured's household.

In addressing this question, the Court of Appeals noted that "[t]he purpose of the [FRL] is to assure that vehicle owners and drivers have 'the ability to respond in damages for liability ' * * * arising from their ownership or operation of vehicles." Dowdy v. Allstate Insurance Co., supra, 68 Or.App. at 714, 685 P.2d 444. (Emphasis in original.) (Citation omitted.) Exclusion of the insured from coverage "is not inconsistent with that purpose, because the insured can establish financial responsibility without demonstrating an ability to respond in damages to herself." Id. at 714-15, 685 P.2d 444. According to the Court of Appeals, however, the same could not be said of excluding coverage for relatives of the insured to whom the insured becomes liable; they required coverage if the policy was to comply with the FRL. Id. at 715-17, 685 P.2d 444.

This conclusion rested, in part, upon an interpretation of ORS 743.778 (former ORS 486.546), which purports to allow exclusion for certain types of liability. See 306 Or. at 273-74. The Dowdy court concluded that risks not enumerated by this statute must be covered by an insurance liability policy. Dowdy v. Allstate Insurance Co., supra, 68 Or.App. at 715, 685 P.2d 444. ORS 743.778 does not list liability coverage for bodily injury as one of the risks that an insurance policy...