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.