Title: Holloway v. Republic Indemnity Co. of America

State: oregon

Issuer: Oregon Supreme Court

Document:

FILED: November 16, 2006
IN THE SUPREME COURT OF THE STATE OF OREGON
KRYSTAL HOLLOWAY,
Respondent on Review,
v.
REPUBLIC INDEMNITY COMPANY OF AMERICA,
Petitioner on Review.
(CC02-02323-CV; CA A123072; SC S52951)
On review from the Court of Appeals.*
Argued and submitted September 7, 2006.
I. Franklin Hunsaker, Beaverton, argued the cause for
petitioner on review.  With him on the briefs were Paul J.
Killion and Michael J. Dickman, Duane Morris LLP, San Francisco,
and Bernard S. Moore, Frohnmayer, Deatherage, Pratt, Jamieson,
Clarke & Moore PC, Medford.
Karen E. Duncan and Donald E. Oliver, Oliver & Duncan,
Redmond, argued the cause and filed the briefs for respondent on
review.
Before De Muniz, Chief Justice, and Carson, Gillette,
Durham, Balmer, and Kistler, Justices.**
CARSON, J.
The decision of the Court of Appeals is reversed.  The
judgment of the circuit court is affirmed.
*On appeal from Klamath County Circuit Court, Cameron F. Wogan, Judge. 201 Or App 376, 119 P3d 239 (2005).
**Riggs, J., retired September 30, 2006, and did not
participate in the consideration or decision of this case. 
Walters, J., did not participate in the consideration or decision
of this case.
CARSON, J.
The central issue in this insurance contract case is
whether an anti-assignment clause providing that "[y]our rights
or duties under this policy may not be transferred without our
written consent[]" is ambiguous and thus should be construed
against its drafter.  A trial court held that the clause was not
ambiguous.  The Court of Appeals reversed.  Holloway v. Republic
Indemnity Co. of America, 201 Or App 376, 382, 119 P3d 239
(2005).  For the reasons that follow, we reverse the decision of
the Court of Appeals and affirm the judgment of the trial court.  
 Fields (insured) owned and operated a restaurant as a
sole proprietorship under the name "Loree's Chalet."  During
1997, Republic Indemnity Company of America (Republic) undertook
to insure the insured and issued her a "Workers' Compensation and
Employers' Liability Policy."  That insurance policy contained
the following provisions:
"GENERAL SECTION 
"A.  The Policy
"[This policy] is a contract of insurance between
you (the employer named in Item 1 of the Information
Page) and us (the insurer named on the Information
Page). * * *[ (1)]
"B.  Who Is Insured 
"You are insured if you are an employer named in
Item 1 of the Information Page. * * *
"* * * * *
"PART TWO-
EMPLOYERS LIABILITY INSURANCE
"* * * * *
"B.  We Will Pay
"We will pay all sums you legally must pay as
damages because of bodily injury to your employees,
provided the bodily injury is covered by this Employers
Liability Insurance.
"* * * * *
"C.  Exclusions
"This insurance does not cover:
"* * * * *
"5.  bodily injury intentionally caused or
aggravated by you; [or]
"* * * * *
"7.  damages arising out of * * * harassment,
* * * discrimination against or termination of any
employee * * *[.]
"* * * * *
"D.  We Will Defend
"We have the right and duty to defend, at our
expense, any claim, proceeding or suit against you for
damages payable by this insurance. * * *
"We have no duty to defend a claim, proceeding or
suit that is not covered by this insurance. * * *
"* * * * *
"PART SIX-CONDITIONS
"* * * * *
"C.  Transfer of Your Rights and Duties
"Your rights or duties under this policy may not
be transferred without our written consent."
While Republic's insurance policy was in effect,
plaintiff below (Holloway) began working as a waitress for the
insured's restaurant.  The insured also employed Zullig as a
manager and bartender for the restaurant.  According to
Holloway, (2) immediately after Zullig began working at the
restaurant, he "approached [Holloway], made lewd and vulgar
comments, physically interfered with [Holloway's] normal
movements within her work environment, stated his intentions to
engage in sexual activities with [Holloway], and subjected
[Holloway] to unwelcome sexual advances and physical contact." 
Also, "Zullig engaged in a pattern of verbal sexual comments and
innuendos designed to annoy, harass, intimidate and demean
[Holloway], including explicit sexual and abusive language." 
Additionally, "Zullig obtained [Holloway's] home telephone number
from her employment files * * * and began harassing her at home." 
"Zullig came into [Holloway's] house in a drunken state on more
than one occasion, refused to leave when asked, kissed her
against her will and told her he intended to have sexual
intercourse with her whether she wanted to or not."  Finally,
"Zullig gave [Holloway], over her objection, gifts of jewelry
that * * * were stolen from [the insured's] jewelry display and
sales case located in the restaurant.  This made [Holloway]
anxious and fearful that * * * Zullig intended to gain control
over her by threatening to report that [Holloway] had stolen the
items from the display case."  
Holloway reported Zullig's conduct to the insured on
several occasions, but the insured took no action to investigate
or correct Zullig's harassing conduct.  According to Holloway,
Zullig's conduct was "known to, authorized and ratified by" the
insured, and the insured "deliberately created, maintained and
permitted the harassment with the specific intention that it
would force [Holloway] to resign."  In fact, Holloway eventually
did resign, allegedly due to Zullig's harassment.  
Holloway subsequently brought an action against the
insured, alleging employment discrimination by means of sexual
harassment, constructive discharge, and intentional infliction of
emotional distress.  The insured notified Republic of the action
and tendered her defense to Republic.  Republic, however refused
to defend the insured. 
Following that refusal, the insured and Holloway
reached a settlement agreement.  Under that agreement, the
insured and Holloway stipulated to the entry of a $50,000
judgment against the insured, and Holloway entered into a
covenant not to execute on the judgment against the insured for
more than $6,000.  The insured paid Holloway the agreed-upon
$6,000, and Holloway entered a satisfaction of the judgment as to
the insured.  Also under that settlement agreement, the insured
purported to assign to Holloway all the insured's rights to any
claim that she might have against Republic for breach of the
insurance contract or for indemnity.
Upon receiving that purported assignment, Holloway
brought the present breach of contract action against Republic,
asserting that Republic had breached its duty to defend the
insured and its duty to indemnify the insured.  Through that
action, Holloway sought to recover from Republic the insured's
attorney fees and costs incurred while defending against
Holloway's tort action, Holloway's attorney fees and costs
incurred in her tort action against the insured, the remaining
unsatisfied part of the judgment that she had received against
the insured ($44,000), and Holloway's attorney fees and costs
incurred in the contract action against Republic.
Holloway and Republic filed cross-motions for summary
judgment.  In support of its motion, Republic presented two
arguments.  First, Republic claimed that it had no duty to defend
or indemnify the insured because, under two exclusions in the
insurance policy, the tortious conduct that Holloway had alleged
in her action against the insured was not covered by Republic's
policy.  Specifically, Republic asserted that the conduct alleged
in Holloway's action against the insured fell within both the
intentional acts exclusion and the harassment, discrimination,
and termination exclusion of the insurance policy.  According to
Republic, because the alleged conduct was not covered under the
terms of the insurance policy, Republic had no duty to defend or
indemnify.  Second, Republic maintained that, in any event,
Holloway had acquired no rights from the insured under the
purported assignment that was part of the settlement agreement
between Holloway and the insured.  
In its letter opinion, the trial court agreed with
Republic's first argument and held that Republic had no duty to
defend or indemnify.  Accordingly, the trial court granted
Republic's motion and denied Holloway's motion.  The trial court
did not address Republic's second argument, apparently because it
found Republic's first argument to be persuasive and dispositive. 

Holloway appealed the trial court's judgment, arguing
that the trial court had erred in granting Republic's motion and
in denying Holloway's motion.  The Court of Appeals agreed with
Holloway, holding that Holloway's complaint against the insured
alleged conduct that did not fall within the insurance policy's
exclusions and that the purported assignment to Holloway was
valid.  Holloway, 201 Or App at 382, 391.  
As to the Court of Appeals' first conclusion, that
court examined the text of the insurance policy's exclusions and
the nature of the factual allegations that Holloway had made in
her complaint against the insured.  Id. at 384-91.  Ultimately,
the Court of Appeals reasoned that Holloway's complaint alleged
an unpleaded battery claim that did not fall within the insurance
policy's exclusions.  Id. at 390-91.  
Regarding its second conclusion, the Court of Appeals
explained:
"[T]he insurance policy at issue in this case provides
that the 'rights or duties under this policy may not be
transferred without [Republic's] written consent.' 
Nothing in the policy states what 'rights or duties'
may not be 'transferred.'  The 'rights or duties' could
refer to pre-loss rights or duties, post-loss rights or
duties, or both.  We must choose among those
understandings.
"If the provision prohibits the assignment of
pre-loss rights or duties, then it would 'protect the
insurer against increased risks of loss resulting from
an assignment of coverage to a new insured.'  Conrad
Brothers v. John Deere Ins. Co., 640 NW2d 231, 237
(Iowa 2001).  The insurer has bargained to accept the
risk presented by the particular insured with whom it
has contracted, and it makes sense for the insurer to
seek to protect itself from the unknown risks to which
an assignee insured might expose it.  However, it would
also be reasonable for the policy to insulate the
insured from exposure to claims for indemnification
from third-party claimants after a loss has occurred. 
The context of the policy provides little guidance,
and, on the whole, it would be reasonable to read the
provision to apply to either pre-loss or post-loss
rights and duties, or both.  In short, the provision is
ambiguous.
"Because the provision is ambiguous, we construe
it against its drafter and conclude that it prohibits
only the assignment of pre-loss rights and duties.  Our
conclusion is consistent with what appears to be the
majority rule.  See, e.g., Conrad Brothers, 640 NW2d at
236-38 (citing cases); Insurance, 44 Am Jur 2d 102 §
801 (2003) ('In the absence of an express provision to
the contrary, provisions relating to the consent of the
insurer to an assignment do not relate to assignments
after loss or to assignments as collateral security.' 
(Footnotes omitted.)).  But see High-Tech-Enterprises,
Inc. v. Gen. Accident Ins. Co., 430 Pa Super 605, 635
A2d 639 (1993) (holding that assignment of insured's
rights to coverage for property damage under automobile
insurance policy to automobile repairer was invalid
because of anti-assignment provision).  Consequently,
nothing in the policy affects the validity or
effectiveness of the assignment, and we reject
[Republic's] argument on that point."
Id. at 381-82.  Based upon those two conclusions, the Court of
Appeals held that the trial court had erred in granting
Republic's motion for summary judgment and in denying Holloway's
motion for summary judgment. (3)  Id. at 391.  We allowed
review. 
On review, the issues before us are whether Holloway
alleged facts in her complaint against the insured sufficient to
trigger Republic's duty to defend or duty to indemnify and
whether the purported assignment from the insured to Holloway was
valid.  However, our analysis begins, and ends, with our decision
respecting whether the purported assignment from the insured to
Holloway was valid.  Because we hold that it was not, we need not
decide the issue respecting the allegations in Holloway's
complaint.
Deciding the validity of the purported assignment in
this case turns on the proper interpretation of the anti-assignment clause contained in the insurance policy between
Republic and the insured.  Interpretation of an insurance policy
is a question of law, and our task is to ascertain the intention
of the parties to the insurance policy.  Hoffman Construction Co.
v. Fred S. James & Co., 313 Or 464, 469, 836 P2d 703 (1992).  "We
determine the intention of the parties based on the terms and
conditions of the insurance policy."  Id. (citing ORS 742.016).  
If an insurance policy explicitly defines the phrase in
question, we apply that definition.  See Groshong v. Mutual of
Enumclaw Ins. Co., 329 Or 303, 307-08, 985 P2d 1284 (1999) (so
indicating).  If the policy does not define the phrase in
question, "we resort to various aids of interpretation to discern
the parties' intended meaning."  Id.  Under that interpretive
framework, we first consider whether the phrase in question has a
plain meaning, i.e., whether it "is susceptible to only one
plausible interpretation."  Id. at 308.  If the phrase in
question has a plain meaning, we will apply that meaning and
conduct no further analysis.  Id.  If the phrase in question has
more than one plausible interpretation, we will proceed to the
second interpretive aid.  Id. at 312.  "That is, we examine the
phrase in light of 'the particular context in which that [phrase]
is used in the policy and the broader context of the policy as a
whole.'"  Id. (quoting Hoffman, 313 Or at 470 (altered text in
original)).  "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 * * *.'"  North Pacific Ins. Co. v.
Hamilton, 332 Or 20, 25, 22 P3d 739 (2001) (quoting, among other
cases, Hoffman, 313 Or at 470 (altered text in original)). 
However, as this court has stated consistently, "a term is
ambiguous * * * only if two or more plausible interpretations of
that term withstand scrutiny, i.e., continue[] to be reasonable,"
despite our resort to the interpretive aids outlined above. 
Hoffman, 313 Or at 470 (emphasis in original).    
The phrase in question here -- the text of the
insurance policy's anti-assignment clause -- provides that
"[y]our rights or duties under this policy may not be transferred
without our written consent."  The policy does not provide an
explicit definition for the phrase "rights or duties"; therefore,
we must decide whether that phrase has a plain meaning.  
As discussed above, the Court of Appeals concluded that
"[n]othing in the policy states what 'rights or duties' may not
be 'transferred.'  The 'rights or duties' could refer to pre-loss
rights or duties, post-loss rights or duties, or both." 
Holloway, 201 Or App at 381.  The Court of Appeals further
concluded that the "context of the policy provide[d] little
guidance, and, on the whole, it would be reasonable to read the
provision to apply to either pre-loss or post-loss rights and
duties, or both."  Id. at 382.  Republic argues that the Court of
Appeals erred in reaching those conclusions, and we agree. 
Contrary to the Court of Appeals' assertion, the policy makes
perfectly clear which "rights or duties" may not be assigned.  
The anti-assignment clause specifically states that
"[y]our rights or duties" may not be assigned.  (Emphasis added.) 
The only plausible interpretation of the word "your" is that it
refers to the insured.  That conclusion is supported by the text
of the policy.  Specifically, the policy provides that "[i]t is a
contract of insurance between you (the employer named in Item 1
of the Information Page) and us (the insurer named on the
Information Page)."  The policy further provides that "[y]ou are
insured if you are an employer named in Item 1 of the Information
Page."  The policy consistently uses the words "you" and "your"
to refer to the insured.  Thus, the anti-assignment clause
restricts the assignment of the insured's "rights or duties."  
Reaching that conclusion does not end our analysis,
however, because we have not addressed the Court of Appeals'
"pre-loss" and "post-loss" dichotomy.  Nevertheless, as we shall
see, we conclude that that court's interpretation is not
reasonable on the face of the contractual text or in the broader
context of the policy as a whole.  
The anti-assignment clause here is worded broadly; it
contains no exceptions or qualifications.  It explicitly
prohibits, without Republic's written consent, the assignment of
"[y]our [the insured's] rights or duties under this policy[.]" 
According to those terms, the clause applies to whatever rights
or duties the insured may have under the policy.  Nothing in the
clause suggests a limitation to pre-loss rights or duties or
provides an exception for post-loss rights or duties.  Reading
such an exception into the policy would not be reasonable and
would "insert what has been omitted."  See ORS 42.230 (providing
that "[i]n the construction of an instrument, the office of the
judge is simply to ascertain and declare what is, in terms or in
substance, contained therein, not to insert what has been omitted
* * *").   
Pacific First Bank v. New Morgan Park Corp., 319 Or
342, 876 P2d 761 (1994), illustrates our point.  In that case,
this court considered the proper interpretation of a lease anti-assignment clause.  Id. at 345.  The anti-assignment clause, in
part, provided that "Tenant shall not assign, sell, mortgage,
pledge, or in any manner transfer the Lease or any interest
herein whether voluntary or involuntary or by operation of law
* * * without the prior written consent of Landlord."  Id.
(ellipses in original).  On review, the tenant argued that it had
not violated the anti-assignment clause's prohibition when it
merged with and became a different corporate entity because the
anti-assignment clause did not refer expressly to mergers.  Id.
at 349.  This court rejected that argument, explaining that the
anti-assignment clause, "which [was] worded in a broad and all-encompassing manner, [did] not exclude mergers."  Id. at 349. 
Therefore, according to Pacific First Bank, reading an exclusion
into a broadly worded anti-assignment clause based upon the
clause's silence regarding its application to a particular
situation would be an unreasonable interpretation.
In sum, the only reasonable interpretation of the anti-assignment clause at issue in this case is that it prohibits the
assignment of the insured's rights or duties without regard to
whether they arose pre-loss or post-loss.  In other words, none
of the insured's rights or duties could be assigned without
Republic's written consent.      
In reaching its conclusion that the anti-assignment
clause was ambiguous as to whether it referred to pre-loss or
post-loss rights or duties, the Court of Appeals cited a number
of authorities that the court asserted supported its
interpretation.  See Holloway, 201 Or App at 382 (citing Conrad
Brothers, 640 NW2d at 237, and Insurance, 44 Am Jur 2d 102 § 801
(2003)).  According to the Court of Appeals, the majority rule
for interpreting insurance policy anti-assignment clauses is that
those clauses prohibit the assignment of only pre-loss rights or
duties.  Id. at 382.  In her brief, Holloway extensively relies
upon those same authorities to support her claim that the anti-assignment clause is ambiguous.  Holloway also directs our
attention to National Memorial Serv. v. Metropolitan Life Ins.
Co., 159 Pa Super 292, 48 A2d 143 (1946), and Egger v. Gulf Ins.
Co., 864 A2d 1234 (Pa Super 2004).  Although those authorities
may support Holloway's argument, the courts in Conrad Brothers,
National Memorial, and Egger did not follow this court's
analytical approach to insurance contract construction, set out
above.  For that reason, we find those decisions unpersuasive. 
See Hoffman, 313 Or at 475-77 (rejecting use of cases from other
jurisdictions, because analyses in those cases differed from this
court's established case law). (4)   
When considered in context, the anti-assignment clause
in question is not ambiguous.  The Court of Appeals therefore
erred in declaring that the clause was ambiguous and in
construing the anti-assignment clause against its drafter,
Republic.  Applying the proper interpretation of the anti-assignment clause, we conclude that that clause prohibited the
assignment of rights from the insured to Holloway because the
insured had not obtained Republic's written consent.  Because the
assignment was not valid, Holloway obtained no rights against
Republic.  The trial court did not err in granting Republic's
motion for summary judgment and in denying Holloway's motion for
summary judgment.  The contrary conclusion of the Court of
Appeals was erroneous.
The decision of the Court of Appeals is reversed.  The
judgment of the circuit court is affirmed.
1. The policy's information page listed the insured as the employer and Republic as the insurer. 

2. Holloway made the allegations set out in the text in the complaint by which she initiated the
action against the insured.  
3. Ultimately, the Court of Appeals reversed the trial court's judgment on Republic's duty to
defend and reversed and remanded the trial court's judgment on Republic's duty to indemnify. 
Holloway v. Republic Indemnity Co. of America, 201 Or App 376,
392, 119 P3d 239 (2005).   
4. We recognize, of course, that even unambiguous contract
provisions may be held invalid when they are inconsistent with
statutes or with certain overriding public policies.  See ORS
72.2100(2), (4) (Uniform Commercial Code provisions limiting
certain anti-assignment clauses in contracts for the sale of
goods).  Holloway, however, identifies no statute that would
invalidate the anti-assignment provisions of the insurance
contract here, and our prior cases provide no basis for arguing
that an anti-assignment provision in a commercial insurance
contract is unenforceable.