Category Archives: Settlements, Assignments and Reasonableness

Oregon Supreme Court Case Provides More Questions Than Answers

This Oregon Supreme Court case, Holloway v. Republic Indemnity, was the talk of Oregon coverage lawyers last week, who found themselves looking slack-jawed at each other and muttering, "what just happened?" 

When the Court of Appeals decision in this case came out in 2005, I thought it was a curious piece of work, chiefly because it beat around the bush about the issue of ORS 31.825, which says that:

 A defendant in a tort action against whom a judgment has been rendered may assign any cause of action that defendant has against the defendant’s insurer as a result of the judgment to the plaintiff in whose favor the judgment has been entered.  That assignment and any release or covenant given for the assignment shall not extinguish the cause of action against the insurer unless the assignment specifically so provides.

Oregon appellate courts have never directly addressed whether this statute overrules the so-called Stubblefield line of cases, which invalidated assignments of rights against breaching insurers when the underlying case had not proceeded to a judgment on the merits.  As a result, there is some confusion about what ORS 31.825 means, and if it doesn’t protect this type of assignment, what the purpose of the statute would be.  

The Court of Appeals reversed a summary judgment by the trial court in favor of the insurer, holding that the insurer breached a duty to defend the insured in an employment discrimination/intentional tort case.  After the insurer failed to defend, the insured settled with the plaintiff for a stipulated judgment of $50,000, with a covenant not to enforce the judgment, in return for assignment of causes of action for the insurer’s alleged breach of the duties to defend and indemnify. 

One might have expected the Court of Appeals either to say the breach of the duty to defend relieved the insured from compliance with the policy’s anti-assignment clause, or that anti-assignment clauses by law apply to pre-loss assignments, not those that are post-loss.  Instead, the Court of Appeals said the clause was ambiguous and therefore interpreted it in favor of the insured.

The Supreme Court reversed and gave the decision to the insurer.  However, the Supreme Court did not address the duty to defend at all, saying it was unnecessary to complete the analysis.  The court found the anti-assignment clause was not ambiguous, and must be enforced as written.  It’s not clear exactly what this means. Did the court intend to invalidate assignments of policy rights unless they occur after a judgment on the merits? If so, what about ORS 31.825?  The court also ignored cases from other jurisdictions, saying without explanation that these jurisdictions follow a different analytical framework in insurance cases than Oregon courts. 

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Court Says Intentional Fires Don’t Become Unintentional When They Burn An Unintended Object

I was raised in North Dakota, and I have also spent a considerable amount of time in Minnesota, and this case about two Minnesota guys who passed the time driving around and setting grass fires for the heck of it reminds me of a lot of people I grew up with.
In Union Pacific Railroad Co. v. State Farm Fire and Casualty Co., 2006 WL 90083 (D.Minn. January 13, 2006), two brothers aged 24 and 20 had been setting grass fires for about nine years using gasoline, lighters and flares. Their venue was open ground in rural areas somewhat west of Minneapolis. In deposition testimony, one brother was asked “Why do you burn grass?” He replied: “Don’t know, just do it.” He did clarify things by saying they never actually intended to “burn anything down,” including a Union Pacific wooden trestle that caught fire in 2000. The railroad sued the brothers, and took an assignment of insurance claims in lieu of seeking payment from the two. Union Pacific then sought to collect under the homeowners’ policy of the brothers’ parents.
The court held that coverage was precluded by the policy’s exclusion for damage that is expected or intended by the insured. Union Pacific echoed the brothers’ position that they did not intend to burn anything down. The court disagreed: “This is a case in which an individual with an extensive history of setting illegal fires, and a clear understanding of the dangers of the fires [one of the brothers had once been severely burned by one of the approximately 60 fires they set], intentionally chose a dry windy day to set a grass fire ten to sixty feet away from the wooden trestle.”

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Filed under Duty to Indemnify, Liability Policies, Settlements, Assignments and Reasonableness

Defendant Cannot Depose Lawyers Of Settling Parties About Reasonableness Of Settlement Amount

A Florida appellate court quashed an insurer’s attempts to depose the attorneys of parties that had entered into a stipulated judgment and assignment of claims against the insurer. In a lawsuit brought against the insurer on the assignment and judgment, the trial court refused to prevent the defendant from deposing the settling parties’ attorneys about the advice they gave to their clients regarding the settlement. The settling parties then petitioned the higher court for relief.
In a lawsuit based on a stipulated judgment and assignment of claims against an insurer who allegedly breached the duty to defend and indemnify, the reasonableness of the settlement amount ordinarily must be proven by the plaintiff. The defendant insurer in this case, Northern Ins. Co. of New York, claimed “reasonableness” implicated the lawyers’ mental state and advice to their clients. The Florida Court of Appeals, District 3, rejected that argument. The court held that the reasonableness of a settlement is judged from the standpoint of an objective person, and an attorney’s subjective thoughts or advice don’t affect whether a settlement is in fact reasonable. The case, Chomat v. Northern Ins. Co. of New York, was decided January 11, 2006. The cite is 2006 WL 47460.

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Filed under Duty to Defend, Settlements, Assignments and Reasonableness