State Farm Fire and Cas. Co. v. Reuter

• Decision Date: 25 January 1983
• Parties: STATE FARM FIRE AND CASUALTY COMPANY, Petitioner on review, v. Richard Scott REUTER, Defendant, and Gail Theresa Bullen, Respondent on review. TC 16-80-07796; CA A22866; SC 28979.
• Court: Oregon Supreme Court

Page 1231

657 P.2d 1231

294 Or. 446

STATE FARM FIRE AND CASUALTY COMPANY, Petitioner on review, v. Richard Scott REUTER, Defendant and Gail Theresa Bullen, Respondent on review.

TC 16-80-07796; CA A22866; SC 28979.

Supreme Court of Oregon.

Argued and Submitted Dec. 29, 1982.

Decided Jan. 25, 1983.

Daniel M. Holland, Eugene, for petitioner on review. With him on the brief was Jaqua, Wheatley, Gallagher & Holland, P.C., Eugene.

James C. Jagger, Eugene, for respondent on review. With him on the briefs was Jagger & Holland, Eugene.

Before LENT, C.J., LINDE, PETERSON, CAMPBELL, ROBERTS and CARSON, JJ., and JONES, J. Pro Tem.

JONES, Justice Pro Tem.

This case is before us on a petition by State Farm Fire and Casualty Company for a review of the decision by the Court of Appeals which held sua sponte that the insurance company's action for a declaratory judgment presented no justiciable controversy between a rape victim and the insurance company which had issued a homeowner's policy to the convicted rapist's parents. The Court of Appeals, 59 Or.App. 103, 650 P.2d 172, decision reversed the circuit court's granting of a summary judgment in favor of the insurance company.

The facts as stated by the Court of Appeals are not in dispute:

"Defendant Reuter was charged in Lane County Circuit Court with knowingly committing the crime of rape after he attacked defendant Bullen. Reuter pleaded not guilty by reason of mental disease or defect and was found guilty in a jury trial of rape in the first degree. Bullen then brought a civil action against Reuter for her damages caused by the rape. She alleged that the attack took place while Reuter was suffering from a mental disorder that caused him to be unable to conform his behavior to the requirements of the law.

"Defense of that action was tendered to plaintiff, which had in effect at the time of the rape a homeowner's liability policy under which Reuter's parents were the named insureds. That policy contained an exclusion for 'bodily injury or property damage which is either expected or intended from the standpoint of the insured.' Plaintiff brought this declaratory judgment action naming Reuter and Bullen as defendants. It claimed that there was no coverage because of the above-quoted policy exclusion and sought a declaration of the rights of the parties. In support of its motion for summary judgment, plaintiff claimed that defendants were estopped by the criminal proceedings in which Reuter was found guilty of first degree rape to claim that the rape was anything but an intentional act excluded by the policy.

"The trial court granted summary judgment in favor of plaintiff. Only Bullen appeal[ed]."

The requirement that there be a justiciable case or controversy is not less strict in a declaratory judgment proceeding than in any other type of litigation. Brown v. Oregon State Bar, 293 Or. 446, 648 P.2d 1289 (1982).

In order to invoke the provisions of ORS 28.010 et seq., ¹ a justiciable controversy must exist. Oregon Medical Assn. v. Rawls, 276 Or. 1101, 1107, 557 P.2d 664 (1976). As we stated in Brown, 293 Or. at 449, 648 P.2d 1289, "[j]usticiability is a vague standard but entails several definite considerations." To be a justiciable controversy there must be parties having existing and genuine rights or interests; controversy on which judgment may effectively operate; controversy of a nature as to lend itself to final judgment in law or equity on rights, status or other legal relationships of one or more of real parties in interest; and the proceedings must be genuinely adversary in character as to engender thorough research and analysis of major issues. A declaratory judgment normally does not bind any nonjoined party. Farmers Ins. Co v. Lotches, 276 Or. 81, 85, 554 P.2d 169 (1976). To issue declaratory relief, the court must have jurisdiction over the subject matter.

The case before us involves the use of the declaratory judgment proceeding ² to construe a liability policy where there are legitimate questions of coverage or noncoverage arising under the policy issued for the protection of the insured against the claims of third persons sustaining injury or damage. The policy excludes coverage for "bodily injury or property damage which is either expected or intended from the standpoint of the insured."

A declaratory judgment action has been held to be a proper proceeding to determine whether the insurer is obligated to defend and indemnify the insured as regards a pending action against him where the policy excluded liability for damages arising out of the performance of a criminal act, Aetna Casualty & Surety Co. v. Yeatts, 99 F.2d 665 (4th Cir.1938). ³ In a like situation it has been held to be a proper proceeding where the insurer contended that the defendant named insureds fell within an "intentional injury" exclusion, Pawtucket Mut. Ins. Co. v. Lebrecht, 104 N.H. 465, 190 A.2d 420, 2 A.L.R.3d 1229 (1963). In Pawtucket, the insurer instituted a declaratory judgment ⁴ action against, among others, the named insureds, husband and wife, to determine the rights and obligations of the parties under the comprehensive personal liability coverage of a homeowner's policy with regard to an assault against a third person by the insureds' son which had resulted in the institution of suits against the named insureds on the basis of their alleged negligent upbringing of their son. One of the insurer's contentions was that liability coverage for the assault, an intentional act, was excluded under the provisions of the policy.

We agree with the Tenth Circuit's discussion of the propriety of joining potential third party claimants:

" * * * The purpose of the declaratory judgment action is to settle actual controversies before they have ripened into violations of law or legal duty or breach of contractual obligations. In declaratory actions brought to determine coverage under insurance policies issued to protect the insured against liability to third persons, third persons asserting such liability have been held to be proper parties to a declaratory judgment proceeding, although their claims against the insurer are contingent upon recovery of a judgment against the insured. * * * " Franklin Life Ins. Co. v. Johnson, 157 F.2d 653, 658 (10th Cir.1946).

The United States Supreme Court has held that in an action by an insurance company to determine its liability under a liability insurance policy, third parties asserting claims against the insured are proper parties. Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273-74, 61 S.Ct. 510, 512-513, 85 L.Ed. 826 (1941).

In the case before us the insurance company joined Bullen in its complaint for declaratory judgment against Reuter. It seeks a declaration of its rights, obligations and responsibilities pursuant to the policy. The Court of Appeals takes the position that the plaintiff's complaint does not allege a present controversy between plaintiff and Bullen. We disagree.

Bullen has claims which may, and probably will, be vitally affected by the declaration in this case, for if she recovers judgment against Reuter, she will have the right ⁵ to compel the plaintiff to pay the judgment unless in some proceeding binding on Bullen the plaintiff establishes its nonliability as insurer at the time of the rape. Were Bullen not made a party herein, the declaration sought by plaintiff could not be asserted to the prejudice of Bullen's rights. ⁶ Consequently, third party damage claimants, such as the victim in this case, are proper parties. ⁷ A frequently cited case to this effect is Trinity Universal Ins. Co. v. Willrich, 13 Wash.2d 263, 124 P.2d 950, 142 A.L.R. 1 (1942). In Trinity, plaintiff insurance company instituted an action under Washington's Uniform Declaratory Judgment Act seeking adjudication of its rights and liabilities arising out of an automobile liability insurance policy. The insurance company joined as additional defendants certain other persons who at the time were claiming damages from insured. The court held that the third party claimants were proper parties.

The Court of Appeals misplaces its confidence in Hale v. Fireman's Fund Ins. Co. et al, 209 Or. 99, 302 P.2d 1010 (1956). In Hale, the plaintiff was an injured person who had sued the defendants' insureds. The lawsuit was pending. The plaintiff sought a declaratory judgment that the defendants' policy extended coverage to the plaintiff's claim against the defendants' insureds. The insureds were not parties. In holding that jurisdiction did not exist, we stated:

"It must be apparent that the rights which the plaintiff says he possesses against the two defendant insurance companies are contingent. He may never win a judgment in the tort action. The defendant insurance companies are not required to do anything concerning the plaintiff until a judgment is entered in his favor against the Smiths and remains unsatisfied for thirty days. The situation does not reveal a controversy 'of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.' The quoted words are taken from Maryland Casualty Co. v. Pacific Coal & Oil Co., supra.

"The authorities above reviewed demand that, under the circumstances averred in the complaint, we must hold that the pleading submits no actual controversy. ...