Case Title: Farris v. United States Fidelity and Guaranty Co.

Citation: 542 P.2d 1031

Docket Number: 

State: oregon

Court: Oregon Supreme Court

Date: 1975-11-28T00:00:00Z

Document:
542 P.2d 1031 (1975)
Richard FARRIS and Palmer Kellum, Jr., Appellants,
v.
UNITED STATES FIDELITY AND GUARANTY COMPANY, a Foreign Insurance Company, Respondent.

Supreme Court of Oregon, In Banc.
Argued and Submitted September 8, 1975.
Decided November 28, 1975.
*1032 Peter L. Barnhisel, Corvallis, argued the cause for appellants. With him on the briefs were Fenner & Barnhisel, Corvallis.
Edward V. O'Reilly, Eugene, argued the cause and filed a brief for respondent.
DENECKE, Justice.
The plaintiffs brought this action in their capacity as insureds in a liability policy issued by defendant (USF & G). The action is in part to recover plaintiffs' expenses incurred in defending an action brought against them and which USF & G refused to defend. The trial court sustained the demurrer of USF & G and plaintiffs appeal.
The defendant filed a motion to dismiss the appeal contending plaintiffs are attempting to appeal from a nonappealable order. We denied the motion; however, we granted the defendant leave to renew.
The trial court sustained the demurrer upon the ground that the complaint failed to state a cause of action. The trial court granted plaintiffs time to further plead. However, plaintiffs filed a motion for a voluntary nonsuit pursuant to ORS 18.230(1). That statute provides:
A judgment of nonsuit was entered.
ORS 19.010(2)(a) provides that a judgment may be reviewed on appeal if it is, "An order affecting a substantial right, and which in effect determines the action or suit so as to prevent judgment or decree therein." The question was raised whether the judgment of voluntary nonsuit is such an order because it does not determine the action as the plaintiff may refile another complaint upon the same cause of action. That the plaintiff may refile does not mean the order does not determine the action. The plaintiff may refile another lawsuit on the same cause of action when the court has ordered an involuntary nonsuit. ORS 18.250. Oregon practice has been that an appeal lies from an order of involuntary nonsuit. For example, see Steenson v. Robinson, 236 Or. 414, 416, 385 P.2d 738, 389 P.2d 27 (1964).
Defendant contends that in order for the plaintiffs to appeal after the demurrer to their complaint was sustained, the plaintiffs must secure a judgment of dismissal rather than a judgment of nonsuit. Ter Har v. Backus, 256 Or. 288, 290, 473 P.2d 143, 145 (1970), states:
In Ter Har we were considering whether an order quashing service was an appealable order. We held it was not; that an order had to be made terminating the lawsuit. We did not consider whether the order should be in the language of nonsuit or dismissal.
Except in instances of dismissal for lack of prosecution, there is no statutory authorization for judgments or orders of dismissal in law actions. The statutory scheme in Deady's Code and at present indicates that in equity the correct terminology is "dismissal" and in law the correct terminology is "nonsuit," *1033 voluntary and involuntary. ORS 18.210 applies to equity and provides:
ORS 18.250 provides:
In Mulkey v. Day, 49 Or. 312, 314, 89 P. 957 (1907), we examined the statutory scheme in Bellinger & Cotton's Code and stated:
We followed Mulkey in Quick v. Andresen, 238 Or. 433, 435, 395 P.2d 154, 155 (1964):
More important than whether the judgment is labeled one of "dismissal" or "nonsuit" is the question of whether "the nonsuit was not voluntarily requested but was, in effect, forced upon him by the trial court's ruling on plaintiff's demurrer to Prindel's affirmative defenses." Steenson v. Robinson, supra, 236 Or. at 417, 385 P.2d  at 740.
The rationale for the distinction is that if the plaintiff were permitted to appeal from any voluntary nonsuit, plaintiff could harass the defendant by nonsuits and appeals. Plaintiff can only appeal from a judgment of voluntary nonsuit if the trial court has found plaintiff's complaint does not state a cause of action and plaintiff is of the opinion he cannot plead the facts any more favorably.
Steenson v. Robinson, supra, 236 Or. 414, 385 P.2d 738, and the present case illustrate the distinction. In Steenson the plaintiff brought a personal injury action against his driver and the driver of the other car, Prindel. At the close of plaintiff's case the court granted the host driver's motion for an involuntary nonsuit. The plaintiff did not want to proceed against Prindel alone, perhaps for supposed tactical reasons, so he secured a judgment of voluntary nonsuit and then appealed both the voluntary and involuntary nonsuits. We held:
In the present case the plaintiffs had no other alternative but to have the court enter some kind of order ending the lawsuit and appealing from that order. This case presents an obvious illustration of a plaintiff having no other choice. Plaintiffs attached to their complaint against USF & G the complaint filed against them. The trial court found that complaint charged plaintiffs with intentional torts which it held were not covered by USF & G's policy. Plaintiffs could not replead anymore favorable facts than those alleged in the complaint against them.
We hold the judgment of voluntary nonsuit was an appealable order.
Turning to the question of whether USF & G's demurrer was correctly sustained, we will consider the facts as they are alleged in the complaint. Attached to the complaint as exhibits are the insurance policy and the complaint in the damage action against plaintiffs (Farris and Kellum).
The damage action complaint alleged: Plaintiffs (Moe) operate a restaurant in Albany known as "Captain Moe's Submarine Sandwiches." Defendants (Farris and Kellum) operate a restaurant in Corvallis known as "Togo's Submarine Sandwiches." Farris and Kellum, knowing of Moe's trade name, nevertheless, filed a claim of trade name, "Captain Moe's Submarine Sandwiches." Farris and Kellum did this for the sole purpose of destroying Moe's business. Farris and Kellum interfered with Moe's relationship with their customers by inducing them not to do business with Moe's and made fraudulent misrepresentations to Moe's customers about Moe's business.
USF & G contends the damage complaint "did not allege that the alleged wrongful conduct of Farris and Kellum was in connection with partnership activities," and the policy only insured their partnership liability. The trial court held whether Farris and Kellum were sued for partnership conduct was a question of fact and was not a proper basis for sustaining a demurrer.
The insured named in the policy was "Togo's Submarines." The damage complaint alleged Farris and Kellum did business as "Togo's Submarine Sandwiches," and did acts intended to harm Moe's business. This can reasonably be construed to be a claim against the named insureds in connection with their business activities.
We have held the allegations of the damage complaint determine the duty to defend. Macdonald v. United Pacific Ins. Co., 210 Or. 395, 399 and following, 311 P.2d 425 (1957). In Blohm v. Glens Falls Ins. Co., 231 Or. 410, 415-416, 373 P.2d 412, 414 (1962), we adopted this statement of the rule:
The trial court sustained the demurrer because of its opinion that the damage complaint was grounded on charges that *1035 Farris and Kellum committed intentional torts and that insurance against liability for intentional torts is void as against public policy.
The damage complaint alleged some of the claimed tortious acts were committed by "defendants, their servants and agents," and that said actions "were committed with defendants' knowledge and ratification or direction."
Despite this latter allegation, with this complaint the jury could impose liability on Farris and Kellum without proof that Ferris or Kellum directed the acts of their agents or servants. Liability would be imposed on the basis of the doctrine of respondeat superior.
We hold that the policy covers Farris and Kellum for intentional torts committed by their servants but not at the direction of Farris and Kellum. This holding is consistent with the public policy stated in Isenhart v. General Casualty Co., 233 Or. 49, 53, 377 P.2d 26, 28 (1962):
The vicarious liability of a master for the torts of his servants is not based upon any concept that the master has committed a morally wrongful act. Respondeat superior is applied as a policy of risk allocation and the master benefits from the servants' work. The master rather than the innocent injured plaintiff is better able to absorb and distribute the risk. Prosser, Torts (4th ed), p. 459. There is no reason to punish the master by depriving him of his insurance coverage.
The trial court apparently was of the same opinion; however, it held USF & G was not obligated to defend as it would place it in a conflict of interest position; that is, USF & G would best serve its interest by not attempting to disprove Moe's contention that the agents acted at the direction of Farris and Kellum, whereas Farris' and Kellum's interest would be served by a contrary position. The cases relied upon by the trial court, McKee v. Allstate Ins. Co., 246 Or. 517, 426 P.2d 456 (1967), and Williams v. Farmers Mut. of Enumclaw, 245 Or. 557, 423 P.2d 518 (1967), were modified by Ferguson v. Birmingham Fire Ins., supra, 254 Or. at 509-511, 460 P.2d 342.
We hold USF & G had a duty to defend Farris and Kellum and the demurrer was erroneously sustained.[1]
Farris and Kellum assign as error the striking of their allegation that as a result of USF & G's breach of contract they *1036 suffered mental anguish. Some jurisdictions, under evidence of aggravated circumstances, have allowed the insured in a liability policy to recover damages for mental anguish against the insurer. Cases collected in Annotation, 47 A.L.R.3d 314, 335-338 (1973). We conclude as a matter of policy that when there is an unaggravated breach, such as alleged in the complaint, damages are not awardable for mental anguish. We do not decide what the result would be if there was evidence of an aggravated breach; that is, one, for example, made in bad faith or otherwise.
Reversed and remanded.
[1]  The question whether Farris and Kellum are entitled to attorney fees for prosecuting this action has not as yet been before the trial court and, therefore, is not ripe for decision by this court.