Title: ABCD... Vision, Inc. v. Fireman's Fund Ins.
Citation: 304 Or. 301, 744 P.2d 998
Docket Number: N/A
State: Oregon
Issuer: Oregon Supreme Court
Date: November 3, 1987

744 P.2d 998 (1987)
304 Or. 301
ABCD ... VISION, Inc., As General Partner of Williamette Subscription Television, Limited, an Oregon Limited Partnership, of Greater Williamette Vision, Limited, an Oregon Limited Partnership, and of Vision Stv Leasing, a California Limited Partnership, Petitioner/Respondent On Review,
v.
FIREMAN'S FUND INSURANCE COMPANIES, Respondent/Petitioner On Review.
CC A8305-03055/CA A34760/SC S33950; S34004.

Supreme Court of Oregon.
Argued and Submitted July 7, 1987.
Decided November 3, 1987.
*999 Susan P. Graber, Portland, argued the cause for petitioner/respondent on review. With her on the petition were Barnes H. Ellis and Stoel, Rives, Boley, Fraser &amp; Wyse, Portland.
I. Franklin Hunsaker, Portland, argued the cause for respondent/petitioner on review. With him on the petition were Douglas G. Houser, Dianne K. Ericsson and Bullivant, Houser, Bailey, Pendergrass &amp; Hoffman, Portland.
Before PETERSON, C.J., and LINDE, CAMPBELL, CARSON and JONES, JJ.
JONES, Justice.
Defendant insurer, Fireman's Fund Insurance Companies, petitioned this court to review the decision of the Court of Appeals, which affirmed a declaratory judgment of the trial court holding that insurer was liable under an insurance policy for damages sustained to the property of the insured plaintiff, ABCD... Vision, Inc. ABCD ... Vision, Inc. v. Fireman's Fund Ins. Companies, 84 Or. App. 645, 734 P.2d 1376 (1987). We allowed review to decide the issue whether the insurer was estopped from asserting two policy exclusions as defenses to the claimed damages of the insured because insurer had failed to assert those policy exclusions as the basis of its denial of the claim in its original denial letter to the insured.
The parties agree to the facts set out in the Court of Appeals opinion.
The trial court ruled, among other things, that the insurer was estopped to assert defenses based on exclusion clauses (a) and (g). Insurer first pleaded those defenses in its answer to the insured's fourth amended complaint. In a special verdict, the jury found that arcing, fire, smoke or soot caused the damage to the insured property on both May 22 and June 3 and was "a cause external to the property insured." The jury did not consider application of the exclusion clauses. The court then granted declaratory judgment for the insured and denied insurer's motion for judgment n.o.v.
The Court of Appeals held that the trial court did not err in ruling that the insurer was estopped from asserting defenses based on exclusions (a) and (g). The Court of Appeals also held that the trial court correctly interpreted Condition 14 to require the insured, in case a loss occurred, to safeguard only the damaged property and not all the insured property.
As mentioned, the insurer had denied coverage on other grounds after conducting an investigation of the losses. The insurer argued that it was not estopped because estoppel cannot expand coverage beyond the limits of the original policy. The Court of Appeals rejected the assertion, citing Ward v. Queen City Ins. Co., 69 Or. 347, 138 P. 1067 (1914). In that case, the insured claimed that the insurer was estopped from asserting a defense of false swearing in the proof of loss, because the insurer, with full knowledge of the facts surrounding the fire loss, notified the insured that it was denying liability because the insured had stored gasoline in the insured building. The insured, relying on the insurer's statement, employed attorneys and filed the action. The Ward court stated:
The Court of Appeals misapplied this court's decision in Ward because, in doing so, it ignored the distinction between the applicability of estoppel to conditions of forfeiture and its applicability to exclusions relating to the scope of coverage.
In Ward the insurance company's defenses at trial were: "(1) That the fire was incendiary in its origin; (2) false swearing with respect to making of the proof of loss; (3) that defendant's liability, if at all, is modified by reason of concurrent insurance," 69 Or. at 349, 128 P. 1067, whereas the insurance company's denial of responsibility was because the insured stored gasoline on the premises. Ward was correct as far as defense (2) was concerned, for the act of false swearing with respect to making the proof of loss was an act of forfeiture by the insured. The insured in Ward claimed that the insurance company should be estopped from asserting that the insured made a false statement with respect to the proof of loss, because after investigation the insurance company denied coverage solely because of an increased hazard. For the reasons previously quoted, the court held that the insurer was estopped from claiming the insured forfeited coverage by making false statements. In Ward the insured never claimed estoppel as to the scope of coverage under defenses (1) that the fire was incendiary in its origin or (3) that the insurer's liability, if at all, was modified by reason of concurrent insurance.
The Court of Appeals applied Ward beyond its holding. Ward governs part of the present case, but not the perils excluded in clauses (a) and (g) of the policy. In this case, the perils excluded under clauses (a) and (g) of the policy are not exclusions of forfeiture, but are exclusions of coverage. When an insurer's assertion of policy defenses is challenged by claiming that policy exclusions have been lost through estoppel, the correct procedure is to determine first whether the provisions upon which the insurer relies are conditions of forfeiture that are subject to estoppel or, instead, are matters relating to the scope of coverage. Estoppel cannot be invoked to expand insurance coverage or the scope of an insurance contract. See statements in Schaffer v. Mill Owners Ins. Co., 242 Or. 150, 156, 407 P2d 614 (1965); see also Reserve Life Ins. Co. v. Howell, 225 Or. 71, 357 P.2d 400 (1960); Ins. Co. of North America v. Atlantic Nat'l Ins. Co., 329 *1002 F.2d 769 (4th Cir 1964); Simmons v. Civil Service Employees Ins. Co., 57 Cal. 2d 381, 19 Cal. Rptr. 662, 369 P.2d 262 (1962); Seaford v. Nationwide Mut. Ins. Co., 253 N.C. 719, 177 S.E.2d 733, 85 A.L.R.2d 496 (1961).
When there is forfeiture of coverage being effected, there is insurance coverage for the loss in the first place, but acts of the insured nullify the coverage, such as the filing of a false statement of loss in Ward. Here, there never was coverage under provision (a) of the policy for "mechanical or electrical breakdown or failure" of the insured property. Under provision (a) these perils were outside the scope of the coverage. Further, under provision (g) there never was coverage for "[l]oss, damage * * * resulting from repairing, adjusting, servicing or maintenance operation" of the insured. Nothing in the estoppel doctrine of Ward prevents the insurer from adding these additional defenses against coverage of this loss.
On the other hand, Condition 14 appears to be a condition of forfeiture. In essence, that condition provides that if the insured fails to preserve and protect the property, the cost of any loss caused by such failure of the insured to act will not be reimbursed. As mentioned, estoppel cannot be used by the insured to increase the insurer's risk beyond the terms of the policy, but timely disclosure of the reasons for denying a claim can estop the insurer from subsequently denying a claim on other grounds.
In this case, the trial court should have allowed the insurer the opportunity to prove that there never was coverage for the insured's loss under provisions (a) and (g). For the reasons set out by the court in Ward, the trial court correctly ruled that the insurer was estopped to assert a violation of Condition 14.
We reverse the decision of the Court of Appeals in part and remand the case to the trial court for further proceedings consistent with this opinion.