Case Title: North Pacific Ins. Co. v. Hamilton

Citation: 

Docket Number: S45393

State: oregon

Court: Oregon Supreme Court

Date: 2001-04-19T00:00:00Z

Document:
Filed:  April 19, 2001
IN THE SUPREME COURT OF THE STATE OF OREGON

NORTH PACIFIC INSURANCE CO.,
	Respondent on Review/Petitioner on Review,
	v.
DONALD J. HAMILTONand BONNIE J. HAMILTON,husband and wife,

	Petitioners on Review/Respondents on Review.
(CC 95-CV-0461-AB; CA A94301; SC S45393, S45493)

(Cases consolidated for argument and opinion)

	On review from the Court of Appeals.*
	Argued and submitted November 5, 1999.
	Bruce J. Brothers, of Brothers & Ash, Bend, argued the cause
and filed the brief for petitioners on review/respondents on review.
	Stephen E. Lawrence, Portland, argued the cause and filed
the brief for respondent on review/petitioner on review.
	Phil Goldsmith, Portland, and David Nathan Allen, of
MacPherson, Gintner, Gordon & Diaz, Newport, filed the brief for
amicus curiae Oregon Trial Lawyers Association.
	Before Carson, Chief Justice, and Gillette, Durham,
Kulongoski, Leeson, and Riggs, Justices.**
	GILLETTE, J.
	The decision of the Court of Appeals is reversed in part and
affirmed in part; the order of the Court of Appeals awarding
attorney fees is affirmed.  The judgment of the circuit court is
reversed, and the case is remanded to the circuit court for
further proceedings. 
	*Appeal from Deschutes County Circuit Court, Alta J. Brady, Judge. 153 Or App 332, 957 P2d 165 (1998).
    **Van Hoomissen, J., retired December 31, 2000, and did not
participate in the decision of this case.  De Muniz, J., did not
participate in the consideration or decision of this case.
		GILLETTE, J.
		The issue in this insurance coverage case is whether a
provision in the exclusions section of a motor vehicle liability
policy operates to reduce liability coverage for an injured
insured below the limit provided on the declarations page of the
policy.  The trial court ruled that the insurance company was
liable only for the reduced coverage limits, and the Court of
Appeals affirmed that ruling.  North Pacific Ins. Co. v.
Hamilton, 153 Or App 332, 957 P2d 165 (1998).  For the reasons
that follow, we conclude that the provision at issue is
ambiguous, that the ambiguity cannot be resolved and, therefore,
that the provision is unenforceable.  Accordingly, we reverse in
part the decision of the Court of Appeals.  
		The facts are not in dispute.  In 1994, defendant
Donald Hamilton (Hamilton) was injured seriously in a single car
collision.  Hamilton's wife, defendant Bonnie Hamilton, was the
driver of the car.  At the time of the accident, Hamilton and his
wife were covered as named insureds on a motor vehicle insurance
policy issued by plaintiff North Pacific Insurance Company (North
Pacific).  The policy contained a declaration providing $60,000
in liability coverage for each accident for bodily injury and
property damage, and $25,000 for personal injury protection (PIP)
coverage.  Hamilton's economic damages exceeded $60,000. He made
a claim under the policy.
North Pacific paid Hamilton $25,000 in PIP benefits,
but refused to make any payment under the liability coverage. 
North Pacific relied on "Exclusion 10" in the policy, which,
according to North Pacific, limits the amount payable to an
injured insured or to an injured member of the family of an
insured to the minimum liability coverage required by ORS
806.070(2)(a) for bodily injury to one person in any one
accident, viz., $25,000.  Moreover, as North Pacific interpreted
the policy, it was entitled to offset the $25,000 already paid
under the PIP provisions against the $25,000 that it conceded
that it owed under the liability provisions of the policy.  When
the parties could not resolve their dispute, North Pacific
brought the present declaratory judgment proceeding, (1) seeking to
validate its construction of the contract.  The trial court ruled
in North Pacific's favor on both points.  
The Hamiltons appealed.  The Court of Appeals summarily
affirmed the trial court's ruling with respect to North Pacific's
obligations under the liability provisions of the policy,
Hamilton, 153 Or App at 336, but reversed the ruling regarding
the PIP offset.  Id. at 341.  We allowed the Hamiltons' petition
for review respecting the liability provisions of the policy. (2)
		Before this court, the only issue is whether the
exclusion provision on which North Pacific relies limits bodily
injury liability coverage to $25,000, rather than the $60,000
limit set out in the declaration.  That exclusion provides:  
	"EXCLUSIONS
	"A.  We do not provide Liability Coverage for any
person:
	"* * * * *
	"10.  For bodily injury or property damage to you or
any family member to the extent that the limits of
liability for this coverage exceed the limits of
liability required by the Oregon financial
responsibility law."  
(Boldface type in original.)  
		North Pacific has contended from the outset that the
foregoing wording clearly and unambiguously limits coverage to
injured insureds (and their family members) to the minimum
liability coverage required for compliance with the Oregon
Financial Responsibility Law, ORS 806.060 and ORS 806.070.  ORS
806.060 provides that, to meet the financial responsibility
requirements of this state, a person must be able to respond in
damages for liability arising out of the ownership, operation,
maintenance, or use of an automobile according to a payment
schedule set out in ORS 806.070.  ORS 806.070, in turn, sets the
minimum required level of coverage, whether by insurance, bond,
or otherwise, for property damage, bodily injury, or death under
various circumstances.  Under ORS 806.070(2)(a), the minimum
required payment of a judgment for "bodily injury to or death of
one person in any one accident" is $25,000.  As noted, the Court
of Appeals agreed with North Pacific that Exclusion 10 in the
Hamilton's policy limited bodily injury liability coverage to
$25,000.  
		On review, the Hamiltons assert that the wording of
Exclusion 10 is not direct or clear enough to accomplish the
result for which North Pacific argues.  They claim that the
wording is (at best) ambiguous and, accordingly, must be
construed against the drafter of the policy and in favor of
extending coverage.  
		The interpretation of an insurance policy is a question
of law.  Hoffman Construction Co. v. Fred S. James & Co., 313 Or
464, 469, 836 P2d 703 (1992).  A court's goal in interpreting a
policy is to determine the intent of the parties.  Id., citing
Totten v. New York Life Ins. Co., 298 Or 765, 770, 696 P2d 1082
(1985).  Intent is determined by looking to the terms and
conditions of the policy.  ORS 742.016; Hoffman, 313 Or at 469. 
The policy "must be viewed by its four corners and considered as
a whole."  Denton v. International Health & Life, 270 Or 444,
449-50, 528 P2d 546 (1974).  All parts and clauses of the policy
"must be construed to determine if and how far one clause is
modified, limited or controlled by others."  Id. at 450.  
		If a term of the policy is ambiguous, then the court
employs a rule of construction by which the question of the
meaning of the term is resolved by construing the term against
the drafter of the policy, here, North Pacific.  Hoffman, 313 Or
at 470.  We do not resort to that rule of construction upon a
mere showing that a term in a policy is capable of more than one
construction, however.  As the court explained in Hoffman, 
	"a term is ambiguous in a sense that justifies
application of the rule of construction against the
insurer only if two or more plausible interpretations
of that term withstand scrutiny, i.e., continue[] to be
reasonable, after the interpretations are examined in
the light of, among other things, the particular
context in which the term is used in the policy and the
broader context of the policy as a whole." 
Id.  If the ambiguity remains after the court has engaged in
those analytical exercises, then "any reasonable doubt as to the
intended meaning of such [a] term[] will be resolved against the
insurance company and in favor of extending coverage to the
insured."  Shadbolt v. Farmers Insur. Exch., 275 Or 407, 411, 551
P2d 478 (1976); Hoffman, 313 Or at 470; cf. Joseph v. Utah Home
Fire Ins. Co., 313 Or 323, 328, 835 P2d 885 (1992) (when term in
insurance policy is ambiguous, court will interpret it according
to perceived understanding of ordinary purchaser of insurance).  
		We note that the decision in Hoffman dealt with
circumstances in which it could be argued that a term is
ambiguous because it is capable of more than one plausible
interpretation.  In the present case, however, the Hamiltons do
not offer their own, competing explanation of the meaning of the
term at issue, Exclusion 10.  Rather, they argue that Exclusion
10 is not capable of even one plausible interpretation.  In
support of that position, they contend that the interpretation of
Exclusion 10 offered by North Pacific does not withstand scrutiny
in isolation, in the context of the section in which it is found
or in the context of the policy as a whole.  
This court never before has confronted a case in which
a party contends that the term or phrase under review simply is
not comprehensible.  In Hoffman, for example, the dispute focused
on the meaning of an undefined term in the policy for which the
insured and the insurer both offered competing, seemingly
plausible, interpretations. (3)  Nonetheless, we agree that a term
also can be considered "ambiguous" if its meaning is not
comprehensible for some reason, such as indefiniteness, erroneous
usage, or form of expression. (4)  In such a case, as when a term is
ambiguous because it has multiple plausible meanings, the court
does not permit the party who drafted the term or phrase to
benefit from the obscurity.  Hoffman, 313 Or at 470-71. 
Accordingly, if the court cannot clarify the obscurity by
undertaking the analytical steps set out in Hoffman, then the
court will construe the provision against the drafter.  Id.  We
turn to an examination of Exclusion 10 in light of the foregoing
principles.
		As noted, Exclusion 10 excludes coverage for bodily
injury or property damage to insureds and their family members
"to the extent that the limits of liability for this coverage
exceed the limits of liability required by the Oregon financial
responsibility law."  North Pacific claims that Exclusion 10 is a
valid "family household exclusion" that is intended to avoid
friendly or collusive lawsuits between family members.  North
Pacific claims that this court expressly held such provisions to
be enforceable in Collins v. Farmers Ins. Co., 312 Or 337, 822
P2d 1146 (1991).  
		In Collins, the court addressed the validity of a
provision in a motor vehicle liability policy that purported
absolutely and unambiguously to exclude liability coverage for
injured insureds and their family members.  In that case, a
family member of a person insured under a policy issued by the
insurer was involved in an automobile accident.  The policy
declaration stated that the policy limit was $100,000.  The
insurance company refused to pay a claim for bodily injuries,
based on the family member exclusion contained in the policy. 
Nonetheless, acknowledging that Oregon law requires minimum
coverage of $25,000 per person per incident, the insurer offered
to settle the claim for that amount.  This court held that the
family member exclusion was not illegal, but that it could not be
interpreted to exclude liability coverage that otherwise is
required by statute to be included in all motor vehicle liability
policies.  312 Or at 343.  Thus, although the exclusion provision
at issue was ineffective as to the first $25,000 of coverage,
which was required under ORS 742.450 and ORS 806.070(2)(a), the
court held that it was effective as to any coverage in excess of
$25,000.  Id.   
		Unlike the provision at issue in Collins, which was
worded as a simple, absolute exclusion from coverage, Exclusion
10 operates only under certain circumstances, viz., "to the
extent that the limits of liability for this coverage exceed the
limits of liability required by the Oregon financial
responsibility law."  North Pacific claims that the foregoing
wording is merely an embodiment of this court's holding in
Collins, i.e., it limits the liability for coverage to injured
insureds and their family members to the minimum coverage
required by statute -- something that the insurer believes
Collins expressly permits.  The Hamiltons respond that the
wording of Exclusion 10 is too obscure to accomplish the result
that North Pacific seeks.  For the reasons that follow, we agree
with the Hamiltons.  
		We begin by noting that the phrase, "limits of
liability required by the Oregon financial responsibility law,"
does not describe any actual limit for injured insureds or their
family members.  Exclusion 10 directs the insured to an extrinsic
source -- the "Oregon financial responsibility law" -- to
determine the applicable limit.  However, even if a policyholder
were sufficiently sophisticated to consult the Oregon Revised
Statutes in an effort to find the "limits of liability required
by the Oregon financial responsibility law," the search would
prove exceedingly difficult, if not impossible.  If one looks up
"Financial Responsibility" in the index, one is directed to the
heading "Motor Vehicles."  Under "Motor Vehicles," one finds
"financial responsibility" but, under that subheading, there is
no listing for "limits of liability" or either the word "limit"
or "liability" alone.
		In fact, if one were to read ORS chapter 806 (the
chapter that commonly is referred to as the "financial
responsibility law") in its entirety, one still would be hard
pressed to be certain what is meant by the phrase "limits of
liability required by the Oregon financial responsibility law." 
The $25,000 limit of liability to which North Pacific claims the
policy unambiguously refers is derived from ORS 806.060(2)(a),
taken together with ORS 806.070.  ORS 806.060(2)(a) requires that
all drivers obtain the "ability to respond in damages" by, among
other things, purchasing a motor vehicle liability policy that
provides "at least minimum limits necessary to pay amounts
established under the payment schedule under ORS 806.070."  ORS
806.070, in turn, "establishes a schedule of payments" for the
purposes of "provid[ing] for payment of at least amounts
necessary to cover the minimum required payments" under that
section.  ORS 806.070(1)(a).  It further defines the "payment
schedule" as the "minimum required payment of a judgment," ORS
806.070(1)(e), and provides that the "schedule of payments"
includes "$25,000 because of bodily injury or death of one person
in any one accident."  ORS 806.070 (2)(a).  Nowhere in any of
those statutes can one find the phrase "limits of liability."  
		Viewing the exclusion in the context of the policy as a
whole does nothing to clarify the meaning of that phrase. 
Virtually every time the phrase "limits of liability" is used in
the policy, it refers to a maximum amount that an insurer will
pay in a given situation.  The phrase is used in that same sense
in each instance on the declarations page of the policy that
North Pacific issued to the Hamiltons.  The phrase is used in
that way in the body of the liability policy as well, in the
sections entitled "Insuring Agreement" and "Supplemental
Payments."  Additionally, in the section entitled "Limit of
Liability," that usage is defined explicitly:
	"The limit of liability shown in the Declarations for
this coverage is our maximum limit of liability for all
damages resulting from any one auto accident.  It is
the most we will pay * * *."  
(Emphasis added.)  
		In Exclusion 10, the phrase "limits of liability"
appears twice:  coverage for bodily injury or property damage to
insureds and their family members is excluded "to the extent that
the limits of liability for this coverage exceed the limits of
liability required by the Oregon financial responsibility law." 
(Emphasis added.)  In light of the way that the phrase is used
elsewhere in the policy, an ordinary purchaser of insurance can
be expected to understand the phrase "limits of liability" in
Exclusion 10 to refer to a maximum limit in both instances.
The Oregon financial responsibility law, however, sets
no maximum limits for liability. (5)  It follows that, in the
context of the policy as a whole and in the context of the
financial responsibility law, Exclusion 10 is obscure to the
point of being incomprehensible.  
		To summarize, Exclusion 10, on its face, is not an
absolute exclusion from coverage.  Indeed, North Pacific concedes
that that provision actually is intended not to exclude insureds
and their family members, but to set a lower limit of liability
with respect to them than that provided on the declarations page. 
This court's decision in Collins establishes that an insurance
company may write an insurance policy that limits coverage in
that manner, but the policy in the present case does not do so. 
		It is the insurer's burden to draft exclusions and
limitations that are clear.  In this case, the ordinary purchaser
of insurance would not be able to determine what Exclusion 10
means and, more particularly, would not be able to determine that
it is meant to reduce the limits of liability for certain
claimants below the amount that appears on the declarations page. 
Under such circumstances, and having used all the methods for
resolving the dispute in this case, Hoffman, 313 Or at 470, we
construe the policy against North Pacific, the party that drafted
it.  Under that construction, defendants are entitled to
liability coverage in the amount of $60,000, the amount provided
on the declarations page of the policy.  The Court of Appeals
erred in concluding otherwise.
		The decision of the Court of Appeals is reversed in
part and affirmed in part; the order of the Court of Appeals
awarding attorney fees is affirmed.  The judgment of the circuit
court is reversed, and the case is remanded to the circuit court
for further proceedings. 



1. Although Hamilton made the claim against the policy,
both he and his wife are named insureds on the policy and were
named as defendants in this action.  We hereafter refer to them
collectively as "the Hamiltons."

2. After the Hamiltons filed the petition for review in
this case concerning the proper interpretation of the insurance
contract, North Pacific also filed a petition for review, asking
this court to review the Court of Appeals' award of attorney fees
to the Hamiltons.  North Pacific claimed that, before trial, it
had tendered a settlement offer to the Hamiltons on the disputed
liability coverage issue exactly equal to the amount obtained on
appeal and, therefore, that the Court of Appeals erred in
awarding them attorney fees.  We consolidated the two petitions
for review for purposes of oral argument and opinion.  In light
of our holding that the Hamiltons are entitled to liability
insurance coverage in the amount provided on the declarations
page of the policy, the Hamiltons' recovery will exceed the
amount tendered by North Pacific.  Accordingly, the position
advanced by North Pacific's petition for review is not well
taken.  The order of the Court of Appeals awarding attorney fees
is affirmed.     

3. In Hoffman, this court held that, although each
interpretation was plausible in isolation, the interpretation
offered by the insured was implausible when viewed in the context
of the insurance contract as a whole.  Accordingly, the court
concluded that the term was not ambiguous.  Hoffman, 313 Or at
474-75. 

4. That approach is consistent with the standards set out
in ORS 742.005 as grounds for disapproval by the Director of the
Department of Consumer and Business Services of insurance forms
that require approval.  That section requires the Director to
disapprove any form that "contains any provision * * * which is
unintelligible, uncertain, ambiguous or abstruse, or likely to
mislead a person to whom the policy is offered, delivered or
issued."  ORS 742.005(2).  

5. Indeed, North Pacific does not claim to the contrary. 
It contends that, the second time the phrase is used in Exclusion
10, it refers to the minimum coverage required under the
financial responsibility law.