Title: Abrams v. General Star Indemnity Co.
Citation: N/A
Docket Number: S49593
State: Oregon
Issuer: Oregon Supreme Court
Date: May 1, 2003

Filed: May 1, 2003
IN THE SUPREME COURT OF THE STATE OF OREGON
STUART ABRAMS
and ABRAMS, INC.,
Plaintiffs,
	v.
GENERAL STAR INDEMNITY COMPANY,
Defendant.
(CV 99-00769-DCA; SC S49593)
	On certified question from United States Court of Appeals
for the Ninth Circuit Order dated July 8, 2002; certification
accepted July 23, 2002.
	Honorable Stephen Trott and Honorable T.G. Nelson, United
States Circuit Court Judges; and Honorable John S. Rhoades,
Senior United States District Court Judge.
	Argued and submitted March 10, 2003.
	Michael H. Bloom, of Bloom &amp; Schuckman, P.C., Portland,
argued the cause and filed the brief for plaintiffs. 
	Lisa E. Lear, of Bullivant Houser Bailey, P.C., Portland,
argued the cause and filed the brief for defendant.  With her on
the brief were Douglas G. Houser and Margaret M. Van Valkenburg.
	Thomas M. Christ, of Cosgrave Vergeer Kester, LLP, Portland,
filed the brief for amici curiae Mutual of Enumclaw Insurance
Company, Farmers Insurance Company, Safeco Insurance Company, and
Liberty Northwest Insurance Company.
	Before Carson, Chief Justice, and Gillette, Durham, Riggs,
De Muniz, and Balmer, Justices.
	BALMER, J.
	Certified question answered.
		BALMER, J.
		This court accepted certification of the following
question of law from the United States Court of Appeals for the
Ninth Circuit (Ninth Circuit):
	"Does an insurer have a duty to defend an insured under an insurance policy with an 'intentional acts'
exclusion if the complaint against the insured alleges a subjective intent to harm but the claim could be proven through unintentional conduct?"
See ORS 28.200 to 28.255 (describing certified question process);
ORAP 12.20 (prescribing procedures for consideration of certified
questions).  We answer that question in the affirmative, for the
reasons that follow.
		We begin with the information that the Ninth Circuit
provided about the underlying federal civil action.  Southern
Pacific Railway (Southern Pacific) possessed a number of rail van
trailers that it leased to third parties on behalf of the owners
of the trailers.  An individual who worked for Southern Pacific,
but who did not have authority to sell the trailers, sold some
rail van trailers to Stuart Abrams and Abrams, Inc. (Abrams), the
plaintiffs in this case, and kept the money.  Abrams then sold
many of the trailers to Beall Transport Equipment Company
(Beall).  
	Once Southern Pacific discovered the theft of the
trailers, it seized most of them from Beall.  Beall then brought
an action in state court against Southern Pacific, alleging
conversion.  Southern Pacific filed a third-party complaint
against Abrams, alleging conversion.  Abrams also brought an
action in state court against Southern Pacific, alleging
conversion, and Southern Pacific counterclaimed in that action
for conversion.  The two actions were consolidated for trial, and
the trial court entered judgment against Abrams. (1)  
		At the time of the alleged conversion, Abrams was
insured by General Star Indemnity Company (General Star). 
According to the Ninth Circuit, the insurance policy required
General Star "to defend Abrams in any suit alleging property
damage caused by Abrams" and "excluded coverage for any damage
that the insured intended to cause."  Abrams had tendered
Southern Pacific's third-party complaint and counterclaim (the
complaints) to General Star, but General Star had refused to
defend.  After General Star rejected Abrams's tender, Abrams
brought an action in state court against General Star for failing
to defend and indemnify.  General Star removed the action to
federal district court, invoking that court's diversity
jurisdiction.  
		General Star moved for summary judgment, arguing that
it did not have a duty to defend Abrams because the complaints
alleged that Abrams had acted with the subjective intent to cause
harm and, thus, Abrams's conduct fell under the intentional-acts
exclusion of the insurance policy.  See, e.g., Allstate Ins. Co.
v. Stone, 319 Or 275, 278, 876 P2d 313 (1994) (exclusion for
intentionally caused injury applies when insured intended to
cause not just event that resulted in injury, but injury or harm
itself).  The district court agreed and entered judgment in
General Star's favor.  Abrams appealed, and the Ninth Circuit
reversed in an unpublished memorandum opinion.  On General Star's
petition for rehearing, the Ninth Circuit withdrew its memorandum
disposition and certified the duty-to-defend question to this
court.  
		In its order certifying the question, the Ninth Circuit
stated that Southern Pacific's complaints against Abrams stated
claims for conversion and that conversion was a covered claim
under the General Star insurance policy.  In addition, the Ninth
Circuit noted that the factual allegations of the complaints also
included allegations that Abrams had acted with the subjective
intent to cause harm.  We have reviewed the complaints against
Abrams and the relevant provisions of the insurance policy, and
agree with the Ninth Circuit's conclusions.  As noted above,
under this court's cases, an insurance policy with an
intentional-acts exclusion does not provide coverage for acts
done with the subjective intent to cause harm.  Abrams argues
that, because the complaints state claims for conversion, General
Star has a duty to defend, regardless of the allegations that, in
committing the conversion, Abrams had acted intentionally. 
General Star responds that, because the complaints allege that
Abrams had acted with the subjective intent to cause harm,
General Star does not have a duty to defend.   		
Before answering the certified question, we address a
threshold issue raised by amici curiae. (2)  Amici argue that this
court cannot answer the question as phrased because the question
is so abstract that any answer that we offer will not be
meaningful.  The answer to any duty-to-defend question, they
point out, depends on the specific wording of the insurance
policy at issue.  For that reason, they ask this court to
rephrase the certified question to refer specifically to the
wording of the duty-to-defend provision and to the "intended
acts" exclusion of the General Star insurance policy. (3) 
		We agree with amici that whether a duty to defend
exists in a particular case first depends on the specific wording
of the specific insurance policy involved.  As this court
explained in Marleau v. Truck Insurance Exchange, 333 Or 82, 89,
37 P3d 148 (2001) (citing Ledford v. Gutoski, 319 Or 397, 399,
877 P2d 80 (1994)), in answering a duty-to-defend question, "we
must examine two documents:  the insurance policy and [the]
complaint."  In certifying to this court the question set out at
the beginning of this opinion, the Ninth Circuit stated its
conclusions that the Southern Pacific complaints against Abrams
stated claims that were covered by the policy that General Star
had issued to Abrams and that the complaints also included
allegations of intentional conduct that were excluded by that
policy.  Indeed, the Ninth Circuit's conclusion that the
complaints against Abrams stated a claim for conduct that was
covered by the General Star policy provided the foundation on
which that court posed the legal question to this court regarding
the duty to defend under Oregon law.  As noted, our review of the
specific complaints and the policy provisions leads us to the
same conclusion.  Understood in context, therefore, the certified
question is sufficiently concrete to be answered:  Given that the
complaints state a claim for covered conduct, does the fact that
the complaints also include allegations of excluded conduct
defeat the duty to defend?    
		We begin, as the parties do, with this court's decision
in Marleau.  In that case, the insurance policy covered "personal
injury liability" and imposed on the insurer the duty to defend
any action against the insured seeking damages for personal
injury.  The personal injury coverage included coverage for
defamation, libel, and invasion of privacy, but excluded coverage
for "personal injury * * * arising out of oral or written
publication of material, if done by or at the direction of the
insured with knowledge of its falsity."  333 Or at 86.  When a
third party brought an action against the insured, alleging,
among other claims, intentional infliction of emotional distress
based on statements made by the insured, the insured tendered
defense of the action to the insurer.  One year after the tender,
the insurer accepted the defense under a reservation of right to
deny coverage.  After settling the personal injury action, the
insured brought an action against the insurer to recover costs
associated with the first year of the litigation. 
On review, the insured made the same argument that
Abrams makes in this case, namely, that an insurer has a duty to
defend if the allegations in the complaint, without amendment,
state facts sufficient to constitute a claim for conduct that the
policy covers, even if the complaint does not state those facts
separately from facts that constitute a claim for excluded
conduct.  The insurer accepted that proposition but argued that,
if the complaint required any amendment, even an amendment as to
form, then the complaint did not, "without amendment," impose
liability for a covered offense and no duty to defend existed. 
This court rejected the insurer's argument, emphasizing that a
complaint need not plead a claim in perfect form to provide
notice to the insurer and that that notice to the insurer
provided the rationale undergirding the "without amendment"
standard.  Id. at 90-91.  This court explained that an insurer
has a duty to defend if allegations in a complaint, even if
identified as a single claim for relief, in fact state more than
one claim for relief, at least one of which is for conduct
covered by the policy. (4)  Id. at 91.    
		Despite this court's explanation in Marleau that an
insurer has a duty to defend if the complaint against the insured
states a claim for covered conduct, General Star argues that it
nevertheless has no duty to defend in this case because the
complaint, although stating a claim for conversion, includes
allegations that Abrams had converted the property with the
intent to cause harm to Southern Pacific.  As authority for that
argument, General Star relies on the following passage from this
court's opinion in Ledford:
	"Because the complaint alleged only that [the insured]
subjectively intended to harm or injure [the
plaintiff], it is irrelevant whether or not a claim for
malicious prosecution could, in theory, be sustained
where the [insured] did not have a subjective intent to
cause harm * * *.  The * * * complaint alleged only
conduct that clearly falls outside the coverage of the
policy.  Therefore, [the insurer] had no duty to defend
the malicious prosecution action."
319 Or at 402-03.  Although that passage, standing alone, appears
to provide support for General Star's argument, it does not lend
the same support when read in the context of the complaint that
was then before the court, as explained below.  
		The insured in Ledford had been sued for malicious
prosecution.  The complaint specifically alleged that the insured
"willfully and maliciously" had instituted a prosecution with the
intent to "harass, annoy, harm and cause expense to" the
plaintiff in that action.  The insurer had refused the tender of
the defense, citing the insurance policy's intended-acts
exclusion.  319 Or at 401.  After settling the malicious
prosecution action, the insured brought an action against his
insurer for defense costs and indemnity.  This court affirmed the
trial court's summary judgment in favor of the insurer, relying
on Ferguson v. Birmingham Fire Ins., 254 Or 496, 460 P2d 342
(1969).  In Ferguson, this court held that the insurer had the
duty to defend the insured against a complaint of willful
trespass because the plaintiff could have recovered for "innocent
trespass" without amending the complaint.  254 Or at 507.  The
court in Ferguson used the analogy to criminal law and explained
that, in such circumstances, the insurer has a duty to defend
because the allegations of intentional conduct contain a "lesser
included" tort that is covered under the insurance policy.  In
Ledford, this court applied the Ferguson standard and concluded
that the complaint then before it, unlike the complaint in
Ferguson, would not, without amendment, have permitted proof of
any covered offense.  Accordingly, the court concluded that the
insurer did not have a duty to defend.  Ledford, 319 Or at 403.
		That is the context in which this court offered the
statement, set out above, on which General Star relies here. 
Therefore, read in conjunction with this court's holding in
Ferguson, the court's statement in Ledford that there is no duty
to defend if the complaint "alleges only that [the insured]
subjectively intended to cause harm" does not mean that the
inclusion of such allegations always defeats the duty to defend. 
Instead, it means that, when the allegations in the complaint
state a claim for excluded conduct only, as was true of the
complaint for malicious prosecution then before the court, there
is no duty to defend.  Indeed, Ledford made that distinction
clear at a later point in the opinion:
	"The subjective intent of the defendant is an element
of malicious prosecution.  That is not the case with
respect to some other intentional torts * * * as to
which this court has concluded that the inference of an
intent to cause harm does not apply.  Those other
intentional torts have 'lesser included torts,' such as
negligence, under which liability may be imposed for
similar conduct without any subjective intent to cause
harm." 
319 Or at 405.  
		Read together, therefore, Ferguson and Ledford  suggest the following approach for answering any duty-to-defend
question when the complaint contains allegations of conduct that
are excluded under the insurance policy.  First, the court must
determine whether the complaint contains allegations of covered
conduct.  If it does, as the trespass complaint did in Ferguson,
then the insurer has a duty to defend, even if the complaint also
includes allegations of excluded conduct.  If the complaint does
not contain allegations of covered conduct, as was the case with
the malicious prosecution complaint before the court in Ledford,
then the insurer has no duty to defend.  Accordingly, in this
case, because the allegations of intentional conversion include
allegations of ordinary conversion, a tortious act that is
covered under the policy, General Star had a duty to defend.
		Although we have answered the certified question, we
offer the following additional clarification in response to
another argument that amici make in this case.  They argue that
the rule of Ferguson is at odds with a long line of authorities
from this court.  They contend that that line of authority, which
includes Isenhart v. General Casualty Co., 233 Or 49, 377 P2d 26
(1962), McKee v. Allstate Ins. Co., 246 Or 517, 426 P2d 456
(1967), and City of Burns v. Northwestern Mutual, 248 Or 364, 434
P2d 465 (1967), stands for the proposition that an insurer has no
duty to defend under a policy with an intentional-acts provision
if the complaint against the insured alleges intentional conduct,
regardless of whether the complaint also states a claim for
covered conduct.  In the context of that line of authority, they
argue, this court must interpret Ferguson's "without amendment"
standard strictly to require that, if the complaint must be
amended in any way -- for example, to state separately an
alternative allegation of unintentional conduct and an allegation
of intentional conduct -- then there is no duty to defend.  For
the reasons that follow, we disagree.  
First, this court specifically rejected that strict
interpretation of the "without amendment" standard in Marleau, as
described above.  As this court noted in that case, "neither the
failure to identify correctly the claims nor the failure to state
them separately defeats the duty to defend."  333 Or at 91. 
Second, Isenhart and McKee are inapposite to this discussion,
because the complaints at issue in those cases did not state
claims for covered conduct or claims that would support both
covered and excluded conduct; rather, they stated claims for
excluded conduct only.  Isenhart, 233 Or at 54; see also
Ferguson, 254 Or at 508 (distinguishing complaint in Isenhart,
because that complaint, unless amended, would not have permitted
recovery for unintended injury); (5) McKee, 246 Or at 518-19.  In
other words, in those cases, this court was not presented with
the problem of a complaint that, despite allegations of excluded
conduct, also stated a claim for conduct covered under the
insurance policy.   
		Finally, although amici correctly note that this
court's holding in City of Burns is contrary to the duty-to-defend analysis offered here, this court, in Ferguson, explicitly
disavowed City of Burns.  The complaint at issue in City of Burns
included a punitive damages provision alleging that the insured
had acted "willfully, wantonly, and maliciously" when it moved
the plaintiff's husband's body from one grave to another.  This
court held that the insurer did not have a duty to defend because
the complaint alleged that the insured acted with the intent to
cause the plaintiff harm, and intentional acts were excluded from
coverage.  248 Or at 371.  However, in Ferguson, this court
stated that its conclusion in City of Burns
	"was erroneous because the complaint, although alleging
a malicious injury would, without amendment, permit a
recovery for an unintended injury since it could be
analogized to a 'lesser included offense.'  Since the
unintended injury fell within the policy coverage the
insurer on that issue had a duty to defend." 
Ferguson, 254 Or at 508.  For the foregoing reasons, we reject
the argument of amici curiae.
		Certified question answered. 



1. 	The Oregon Court of Appeals affirmed the trial court's
judgment on appeal.  Beall Transport Equipment Co. v. Southern
Pacific, 170 Or App 336, 13 P3d 130 (2000).  On review, this
court affirmed in part and reversed in part the decision of the
Court of Appeals, and remanded the case to that court for further
proceedings.  Beall Transport Equipment Co. v. Southern Pacific,
335 Or 130, 60 P3d 530 (2002).  

2. 	The amici curiae, who joined in one brief, are Mutual
of Enumclaw Insurance Company, Farmers Insurance Company, Safeco
Insurance Company, and Liberty Northwest Insurance Company. 

3. 	Amici are correct to point out that this court has the
discretion to rephrase a question certified to it.  See Western
Helicopter Services v. Rogerson Aircraft, 311 Or 361, 370-71, 811
P2d 627 (1991) (so stating).  Rephrasing the certified question
primarily is for the purpose of facilitating a resolution of the
actual question of law posed by the case.  Id.  However, we
perceive no reason to do so here. 

4. 	In Marleau, however, this court concluded that the
insurer did not have a duty to defend because the complaint did
not state a claim for any covered claim.  333 Or at 96.

5. 	It is not clear that this court today would reach the
conclusion that it did in Isenhart that the complaint at issue
there did not state a claim for unintentional conduct.
		The complaint at issue in that case was one for assault
and battery, and that intentional tort often includes the
"lesser," unintentional offense of battery.  See, e.g., Snyder v.
Nelson/Leatherby Ins., 278 Or 409, 415-16, 564 P2d 681 (1977)
(complaint for assault and battery permits inference of
unintentional conduct).  However, in Isenhart, whether the
complaint included a lesser, covered offense was not the issue. 
In that case, the parties appear to have agreed that the
complaint alleged only intentional conduct.  Isenhart, 233 Or at
54.