Title: Erickson v. Farmers Ins. Co.

State: oregon

Issuer: Oregon Supreme Court

Document:

Filed:  March 22, 2001
IN THE SUPREME COURT OF THE STATE OF OREGON

OLIVIA ERICKSON,
	Petitioner on Review,
	v.
FARMERS INSURANCE COMPANY OF OREGON,an Oregon corporation,
	Respondent on Review.
(CC 97C-12315; CA A103338; SC S47182)

	En Banc
	On review from the Court of Appeals.*
	Argued and submitted January 18, 2001.
	J. Michael Alexander, of Swanson, Lathen, Alexander &
McCann, PC, Salem, argued the cause and filed the briefs for
petitioner on review.
	L.E. Ashcroft, of Ashcroft, Wiles, LLP, Salem, argued the
cause and filed the brief for respondent on review.
	DE MUNIZ, J.
	The decision of the Court of Appeals is reversed, and the
case is remanded to the Court of Appeals for further proceedings.
	*Appeal from Marion County Circuit Court, Albin Norblad, Judge. 163 Or App 426, 989 P2d 481 (1999).
		DE MUNIZ, J.
Plaintiff was a passenger in a vehicle owned and driven
by her ex-husband.  That vehicle was involved in a collision with
a vehicle operated by Mixon.  Plaintiff was injured and was
awarded damages of $150,028.23 in an arbitration proceeding. 
Mixon had no automobile liability insurance.  Plaintiff and her
ex-husband each had uninsured motorist (UM) coverage in the
amount of $100,000 under separate but identical policies issued
by defendant.  Plaintiff made a claim for UM coverage under both
policies.  Without specifying under which policy it was paying
benefits, defendant paid $100,000 in UM benefits toward
satisfaction of the arbitration award.  Plaintiff brought this
action against defendant to recover the balance of her damages
under the UM coverage of each policy.  The trial court held that
plaintiff could "stack" the UM coverages of the two policies so
that she could recover the full amount of her damages. (1)  The
Court of Appeals reversed.  Erickson v. Farmers Insurance
Company, 163 Or App 426, 989 P2d 481 (1999).  We allowed review
and hold that plaintiff is permitted to stack the UM coverages. 
Accordingly, we reverse the decision of the Court of Appeals.   
		Three provisions of the policies are relevant. 
Exclusion 3d provides:
		"Exclusions
		"* * * * *
		"3.  This coverage does not apply to bodily injury
sustained by a person:
		"* * * * *
		"d.  If the injured person was occupying a vehicle
you do not own which is insured for this coverage under
another policy."
(Boldface type in original.)
		Under the "Other Insurance" section of the UM coverage, 
paragraph 3 provides, in part:
		"3. * * * if any other collectible insurance
applies to a loss covered by this part, we will pay
only our share.  Our share is the proportion that our
limits of liability bear to the total of all applicable
limits."
Paragraph 4 of that section provides:
"4.  We will not provide insurance for a vehicle
other than your insured car, unless the owner of that
vehicle has no other insurance applicable to this
part." (2)
(Boldface type in original.)
On review, plaintiff argues that, for a number of
related reasons, the policies permit her to stack the UM
coverage.  Plaintiff first asserts that paragraph 3 of the "other
insurance" section unambiguously permits stacking of the UM
coverage.  She next argues that Exclusion 3d and paragraph 4 are
"escape clauses" (3) that deny plaintiff coverage, and that those
provisions are unenforceable and must be excluded from the
policy. (4)  Finally, plaintiff argues that, once the court excludes
Exclusion 3d and paragraph 4 from plaintiff's policy, the only
applicable provision remaining is paragraph 3, which permits
plaintiff to stack the UM coverages.
		Defendant does not dispute plaintiff's interpretation
of paragraph 3 of the "other insurance" section of the UM
coverage.  Nor does defendant dispute that Exclusion 3d and
paragraph 4 deny coverage to a named insured, such as plaintiff. 
Rather, defendant asserts that Exclusion 3d and paragraph 4 are
permissible "other insurance" clauses that, by their wording
"establish that plaintiff is entitled only to the highest limits
issued by and between the two policies."  According to defendant,
the limit of plaintiff's UM coverage is $100,000, and she has
received that amount. 
		We begin with the statutory requirements.  ORS
742.504(1) to (12) sets out a comprehensive model UM/UIM policy
of insurance.  Vega v. Farmers Insurance, 323 Or 291, 302, 918
P2d 95 (1996).  Any UM provisions that are less favorable to an
insured than those required under ORS 742.504(1) to (12) are
unenforceable against an insured in Oregon.  However, an insurer
may add terms to an Oregon policy that are neutral or more
favorable to the insured than those required by the statutes. 
Id.  This court must measure so called "escape clauses" that deny
or limit the amount of UM/UIM coverage available to an insured
for compliance with the relevant provisions of ORS 742.504(1) to
(12).  Id. 
		ORS 742.504(9)(a) and (b) are permissible "other
insurance" provisions for insurance contracts that provide UM 
coverage in Oregon.  Paragraphs (9)(a) and (b) provide: 
		"(a) Except as provided in paragraph (c) of this
subsection, with respect to bodily injury to an insured
while occupying a vehicle not owned by a named insured
under this coverage, the insurance under this coverage
shall apply only as excess insurance over any other
insurance available to such occupant which is similar
to this coverage, and this insurance shall then apply
only in the amount by which the applicable limit of
liability of this coverage exceeds the sum of the
applicable limits of liability of all such other
insurance.
		"(b) With respect to bodily injury to an insured
while occupying or through being struck by an uninsured
vehicle, if such insured is an insured under other
insurance available to the insured which is similar to
this coverage, then the damages shall be deemed not to
exceed the higher of the applicable limits of liability
of this insurance or such other insurance, and the
insurer shall not be liable under this coverage for a
greater proportion of the damages than the applicable
limit of liability of this coverage bears to the sum of
the applicable limits of liability of this insurance
and such other insurance."
Paragraph (9)(a) permits the insurer to limit its UM
coverage, when other insurance is available, to "excess coverage"
calculated as the amount by which the applicable limit of
liability exceeds the applicable limit of other available
insurance.  Similarly, when other insurance is available,
paragraph (9)(b) permits an insurer to limit its UM coverage to
an amount of damages deemed not to exceed the higher of the
applicable limits of the policies. (5)  Insurers need not use the
exact statutory wording in their policies so long as the
provisions provide the limited coverage required by the statutory
terms.  Vega, 232 Or at 301-02.  
		Exclusion 3d and paragraph 4 deny plaintiff coverage
under her own policy in circumstances in which paragraphs 9(a)
and (b) mandate some coverage.  Thus, Exclusion 3d and paragraph
4 are less favorable to an insured than ORS 742.504(9)(a) and (b)
permit.  Consequently, those provisions of the policy are
unenforceable.  See Thurman v. Signal Insurance Co., 260 Or 524,
530, 491 P2d 1002 (1971) (similarly worded exclusion deemed
unenforceable because less favorable than permitted by applicable
version of UM statutes).
		The Court of Appeals held that Exclusion 3d and
paragraph 4 were unenforceable.  However, the Court of Appeals
concluded that the "conditions" section of the policy required
the court to amend the policy by replacing Exclusion 3d and
paragraph 4 with the coverage terms contained in ORS
742.504(9)(a) and (b).  The "conditions" section provides that
"policy terms which conflict with laws of Oregon are hereby
amended to conform to such laws."  Replacing Exclusion 3d and
paragraph 4 with ORS 742.504 (9)(a) and (b) created what the
Court of Appeals concluded was a repugnancy between those
statutory terms and paragraph 3 of the policies.  The repugnancy
existed, according to the Court of Appeals, because there is no
excess coverage or higher policy limit as those concepts appear
in paragraphs (9)(a) and (b) when the policy limits are identical
as is the case here.  Consequently, coverages under the policies
cannot be stacked.  Erickson, 163 Or App at 434-35.  However,
under the calculation that paragraph 3 requires, stacking is
permitted, because the policy limits are combined and an equal
amount from each policy is contributed toward satisfaction of an
insured's loss. 
		Having found that the statutory terms and paragraph 3
were repugnant, the Court of Appeals applied ORS 742.506:
		"Notwithstanding the contrary provisions of any
policy, the provisions of ORS 742.504(9)(a) to (c)
shall control allocation of responsibility between
insurers, except that if all policies potentially
involved expressly allocate responsibility between
insurers, * * * without repugnancy, then the terms of
the polices shall control."
As noted above, ORS 742.504(9)(a) and (b) limit plaintiff's
recovery to $100,000, because the policy limits are identical.
		Plaintiff argues that the Court of Appeals incorrectly 
replaced Exclusion 3d and paragraph 4 with the provisions of ORS
742.504(9)(a) and (b), and that the court compounded its error by
applying ORS 742.506 when neither party had cited nor relied on
that statute at any stage of the proceedings.  We need not
address plaintiff's latter argument, because we agree with
plaintiff that the Court of Appeals should not have replaced
Exclusion 3d and paragraph 4 with the provisions of ORS
742.504(9)(a) and (b).
		Exclusion 3d and paragraph 4 are unenforceable, because
those provisions deny plaintiff coverage when the UM statutes
mandate some coverage.  However, the remaining policy terms
provide coverage.  Nothing more is required to conform the policy
to Oregon law.  Thus, there is no reason to replace the
unenforceable provisions that denied plaintiff coverage with the
statutory provisions.  Absent the insertion of the statutory
terms, there is no repugnancy between the policies and,
consequently, there is no reason to apply ORS 742.506.  The Court
of Appeals erred when it replaced Exclusion 3d and paragraph 4
with the limited coverage provisions of paragraphs 9(a) and (b)
of ORS 742.504.  
		Insurers are free to provide in their policies "other
insurance" clauses more favorable to the insured than the limited
coverage required in ORS 742.504(9)(a) and (b).  See Vega, 323 Or
at 302 (so stating).  Defendant did precisely that in paragraph 3
of its "other insurance" section.  Defendant does not deny that
paragraph 3 requires it to pay, as its share of an insured's
loss, "the proportion that our limits of liability bear to the
total of all applicable limits."  The total of all applicable
limits under the two policies is $200,000.  Plaintiff's total
loss under the arbitration award was $150,028.23.  Therefore,
defendant is obligated to pay $75,014.12 in UM benefits under
each policy.  Defendant has paid only $100,000.  Accordingly, the
trial court correctly entered judgment in favor of plaintiff in
the amount of $50,028.23. 
		Because of its disposition on the merits, the Court of
Appeals did not address defendant's contention regarding the
reasonableness of the attorney fees that the trial court awarded
to plaintiff.  That issue is revived by our decision today. 
Accordingly, we remand the case to the Court of Appeals to
consider that issue.
		The decision of the Court of Appeals is reversed, and
the case is remanded to the Court of Appeals for further
proceedings.



1. 	"Stacking" coverages generally becomes an issue when
multiple policies cover the same claim and same loss and the
amount available under one policy is inadequate to satisfy the
damages alleged or awarded.  Lee R. Russ and Thomas F. Segalla,
3D Couch on Insurance § 169.4 (1998).

2. 	The Court of Appeals found paragraph 5 of the "Other
Insurance" section of the policy inapplicable.  Erickson, 163 Or
App at 432-33.  Neither party contends otherwise in this court.

3. 	A clause in an insurance policy that declares that the
insurer is not liable if there is other valid insurance
applicable to a claim or loss commonly is referred to as an
escape clause.  Lamb-Weston et al v. Oregon Automobile Insurance
Co., 219 Or 110, 129, 341 P2d 110 (1959).

4. 	Plaintiff also makes an alternative argument that
Exclusion 3d and paragraph 4 do not apply to a named insured and,
thus, do not prevent plaintiff from stacking the UM coverages of
the policies under paragraph 3.  In light of our holding, we need
not address that argument.

5. 	Paragraph (9)(b) seemingly is broader in the scope of
its application in that it includes coverage when an insured is
injured "while occupying or through being struck by an uninsured
vehicle" and contains a proportionality clause that paragraph
9(a) does not.