Strader v. Grange Mut. Ins. Co.

CourtCourt of Appeals of Oregon
Citation39 P.3d 903,179 Or. App. 329
PartiesDavid STRADER and Kathy Strader, Appellants-Cross-Respondents, v. GRANGE MUTUAL INSURANCE COMPANY, an Oregon Mutual Insurance Company, Respondent-Cross-Appellant.
Decision Date30 January 2002

Linda K. Williams, Portland, argued the cause and filed the opening brief for appellants-cross-respondents. With her on the reply and cross-answering brief was Mark McDougal, West Linn.

R. Daniel Lindahl, Portland, argued the cause for respondent-cross-appellant. With him on the brief were John A. Bennett and Bullivant Houser Bailey, P.C.

Before LANDAU, Presiding Judge, and BREWER and SCHUMAN, Judges.


Plaintiffs brought this action against their insurer, Grange Mutual Insurance Company (defendant), for breach of contract and for personal injury. The trial court granted defendant's motion for partial summary judgment on the personal injury claim. The breach of contract claim went to trial, where plaintiffs prevailed and were awarded damages plus prejudgment interest but not attorney fees. Plaintiffs appeal the adverse rulings on their personal injury claim and their claim for attorney fees. Defendant cross-appeals the award of prejudgment interest. The three issues are whether plaintiffs could base a personal injury claim on conduct that was a breach of contract; whether defendant is immune from liability for attorney fees because it is a "patrons of husbandry" organization; and whether plaintiffs' damages were readily ascertainable at an identifiable time and could therefore support an award of prejudgment interest. Reviewing for errors of law, we affirm on the appeal and cross-appeal.

Defendant, recognizing that, on appeal from a grant of summary judgment, we view the record in the light most favorable to the nonmoving party, Jones v. General Motors Corp., 325 Or. 404, 420, 939 P.2d 608 (1997); ORCP 47 C, accepts the following facts derived from plaintiffs' account of events.

Plaintiffs bought a home in Milwaukie in September 1995 and insured it under a homeowners' policy issued by defendant. Three months later, a windstorm stripped shingles off the roof, causing extensive water damage to the house and its contents. Defendant arranged for temporary repairs, which did not succeed in preventing further water damage or in allowing the existing moisture to evaporate. Permanent repairs to the roof were finished a year after the storm, in December 1996, but defendant and plaintiffs could not agree on the amount due under the policy.

During the winter after the roof was sealed, plaintiff Kathy Strader began having health problems. Her physician told her that the cause was asthma aggravated by an allergy to mold spores and advised her to reduce exposure to her home. Plaintiffs informed defendant of this diagnosis and showed one of defendant's executives the still-moist areas of the house where mold flourished. Defendant continued its refusal to pay plaintiffs the amount requested to rectify the water damage, including the mold. This litigation ensued.

In their complaint, plaintiffs alleged breach of the insurance contract, maintaining that defendant had not met its obligation under the policy to pay compensation sufficient to cover repair of the roof and water damage. As a separate claim, they alleged that defendant's "unreasonable delays in repairing the roof and its failure to correct the moisture problem and provide funds to adequately remove the mold or replace items contaminated with mold" foreseeably caused Kathy Strader's personal injury. The trial court granted summary judgment to defendant on the personal injury claim. The case went to trial on the breach of contract claim, and the jury awarded plaintiffs $195,500 in damages. After verdict, the parties disputed whether plaintiffs were entitled to prejudgment interest and attorney fees. Defendant maintained that it could not be taxed for attorney fees because, as a "patrons of husbandry association," it was exempt under ORS 731.032(4), and that prejudgment interest was inappropriate because the exact amount of damages was not easily ascertainable. Tifft v. Stevens, 162 Or.App. 62, 82, 987 P.2d 1 (1999), rev. den. 330 Or. 332, 6 P.3d 1101 (2000). The trial court awarded plaintiffs $43,672.50 in prejudgment interest but disallowed attorney fees.


Plaintiffs argue that, by delaying repair of the roof and refusing to pay for mold abatement, defendant breached two duties: first, an actor's duty to exercise reasonable care to prevent further harm to a person whom the actor has already harmed and rendered helpless and, second, an actor's duty, once the actor has undertaken efforts to aid a person, to exercise reasonable care in completing the rescue effort.

The allegedly tortious conduct that plaintiffs identify as the cause of the personal injury—underpayment and nonpayment—are precisely the same conduct that they identify as the breach of contract.1 Whether plaintiffs can bring a tort claim here is therefore governed by Georgetown Realty v. The Home Ins. Co., 313 Or. 97, 831 P.2d 7 (1992), and its progeny. In Georgetown Realty, the plaintiff sued its liability insurer for negligent performance of its duty to defend the plaintiff in another tort claim. In allowing the action to go forward, the court held:

"When the relationship involved is between contracting parties, and the gravamen of the complaint is that one party caused damage to the other by negligently performing its obligations under the contract, then, and even though the relationship between the parties arises out of the contract, the injured party may bring a claim for negligence if the other party is subject to a standard of care independent of the terms of the contract." Id. at 106, 831 P.2d 7.

The court explained that "the standard of care independent of the terms of the contract" would derive from the dynamics of the relationship between the contracting parties:

"When a liability insurer undertakes to `defend,' it agrees to provide legal representation and to stand in the shoes of the party that has been sued. The insured relinquishes control over the defense of the claim asserted. Its potential monetary liability is in the hands of the insurer. That kind of relationship carries with it a standard of care that exists independent of the contract and without reference to the specific terms of the contract." Id. at 110-11, 831 P.2d 7 (footnote omitted).

Thus, to bring a tort claim based on conduct that is also breach of a contract, a plaintiff must allege, first, that the defendant's conduct violated some standard of care that is not part of the defendant's explicit or implied contractual obligations; and, second, that the independent standard of care stems from a particular special relationship between the parties. Id.

Subsequent cases have elaborated on the kinds of relationships between contracting parties that can create a standard of care beyond anything in the contract itself. The classic description is from Conway v. Pacific University, 324 Or. 231, 240-41, 924 P.2d 818 (1996):

"This special responsibility exists * * * in the type of situation described in Georgetown Realty, in which one party has relinquished control over the subject matter of the relationship to the other party and has placed its potential monetary liability in the other's hands. In all those relationships, one party has authorized the other to exercise independent judgment in his or her behalf and, consequently, the party who owes the duty has a special responsibility to administer, oversee, or otherwise take care of certain affairs belonging to the other party."

Accord Bennett v. Farmers Ins. Co., 332 Or. 138, 161-62, 26 P.3d 785 (2001)

(key factor is "whether the nature of the parties' relationship itself allowed one party to exercise control in the first party's best interests * * * [and] to exercise judgment on the other party's behalf") (emphasis in original).

Further, the cases establish a functional as opposed to a formal analysis in determining whether the special relationship exists; in other words, the crucial aspect of the relationship is not its name, but the roles that the parties assume in the particular interaction where the alleged tort and breach of contract occur. Thus, for example, a relationship between a manufacturer and a dealer may give rise to the former's special responsibility to the latter, or it may not, depending on the nature of the parties' dealings. See Hampton Tree Farms, Inc. v. Jewett, 320 Or. 599, 617, 892 P.2d 683 (1995)

(parties to a contract may or may not have special relationship depending on circumstances). More to the point, the relationship between an insurer and its insured is special with respect to the insurer's performance of its duty to defend, so that negligent performance of that duty gives rise to a tort claim, but the same relationship is not special with respect to the insurer's refusal to settle within policy limits, which sounds only in contract; in the former context, the insurer is in something resembling a fiduciary role, whereas in the latter it and the insured are adversaries. Warren v. Farmers Ins. Co. of Oregon, 115 Or.App. 319, 838 P.2d 620 (1992),

rev. den. 316 Or. 529, 854 P.2d 940 (1993).

Applying these precepts to this case, we readily conclude that the trial court correctly rejected plaintiffs' personal injury claim. As we have noted, plaintiffs alleged that defendant's delayed payment and nonpayment were breaches of the insurance contract and also violations of independent standards of care, thus squarely putting this claim within the ambit of Georgetown Realty and subsequent cases. And although it is true that plaintiffs and defendant were in a relationship bearing the label "insured and insurer," and that in some cases, including Georgetown Realty itself, we have found that a relationship...

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