Opinion
6:21-cv-01754-MK
03-01-2023
MID-CENTURY INSURANCE COMPANY, Plaintiff, v. LUKEUS WEST et al, Defendants.
FINDINGS AND RECOMMENDATION
MUSTAFA T. KASUBHAI, UNITED STATES MAGISTRATE JUDGE
Plaintiff Mid-Century Insurance Company filed this declaratory judgment action to determine whether Defendant Lukeus West is an insured under an insurance policy issued by Plaintiff to Defendant Car Care Specialists, Inc. (“Care Car”). Plaintiff and Defendant Kelsey Beaber and her minor daughter (“A.A.”) have filed cross-motions for summary judgment. Pl.'s Mot. Summ. J., ECF No. 31 (“Pl.'s Mot.”); Defs.' Mot. Summ. J., ECF No. 37 (“Defs.' Mot.”). Defendant Beaber and her minor daughter also move for an order certifying a question to the Oregon Supreme Court. Mot. Certify Question, ECF No. 39 For the reasons that follow, Defendants' motion for summary judgment should be GRANTED; Plaintiff's motion for summary judgment should be DENIED; and Plaintiff's motion to certify a question to the Oregon Supreme Court should be DENIED as moot.
BACKGROUND
The parties stipulated to the following facts in their cross-motions for summary judgment. The case arises out of a motor vehicle collision that occurred in February 2020. Car Care owned a van, which it loaned to one of its customers, Lukeus West, while his vehicle was undergoing repairs. While West was using the van under the loaner agreement, he was involved in a motor vehicle collision with Kelsey Beaber and A.A. They brought claims against West in state court. See Kelsey Beaber v. Lukeus West and Car Care Specialists, Inc., Lincoln County Circuit Court Case No. 21CV20734; A.A. v Car Care Specialists, Inc. v. Lukeus West, Multnomah County Circuit Court Case No. 21CV48543. Beaber's medical expenses were $97,307.10, and A.A.'s medical expenses were $142,476.08. West had his own Progressive auto insurance policy, which provides liability coverage with limits of $25,000.00 per person and $50,000.00 per occurrence.
Pl.'s Mot. Summ. J. 2 n.2 (“The appearing parties have stipulated to the facts contained in the background section of the motion.”), ECF No. 31; Defs.' Mot. Summ. J. (“The parties have stipulated to the underlying facts.”), ECF No. 37.
Car Care has an auto insurance policy with Mid-Century. Car Care's Mid-Century policy provides $2,000,000.00 in liability coverage on the covered automobiles described on the declarations page. Hill Decl., Ex. 1, ECF No. 38; see also Beattie Decl., Ex. 1, ECF No. 32. The van was a covered auto under the Mid-Century policy.
Section II. A. 2. Of the policy provides that Mid-Century will pay all sums an insured legally must pay as damages because of bodily injury caused by accident and resulting from garage operations involving ownership, maintenance, or use of covered autos. Section II. A. 3. of the policy defines the “insureds” to include “anyone . . . while using with your permission a covered ‘auto' you own,” with listed exceptions. The fourth listed exception, in subsection (d) of Section II.A.3, is “your customers.” The terms of that exception that appear in the original policy have been replaced by the “Oregon Changes” endorsement which states as follows:
(d) Your customers. However, if a customer of yours:
(i) Has no other available insurance (whether primary, excess or contingent), they are an “insured” but only up to the following minimum limits specified by the Oregon financial responsibility law:
(A) $60,000 for each “accident”, which is the minimum combined single limit of liability; or
(B) $25,000/50,000/10,000 for each “accident”, which is the minimum split limits of liability.
(ii) Has other available insurance (whether primary, excess or contingent) less than the following minimum limits specified by the Oregon financial responsibility law, they are an “insured” only for the amount by which such limits exceed the limit of their other insurance:
(A) $60,000 for each “accident”, which is the minimum combined single limit of liability; or
(B) $25,000/50,000 for each “accident”, which is the minimum split limits of liability.
Beaber seeks payment of up to $310,000 for her non-economic and economic damages and for costs. Mid-Century filed this action for declaratory judgment in December 2021 requesting that this Court declare that West is not an “insured” under the Mid-Century Policy, and that Mid-Century has no obligation to defend West in Beaber's lawsuit. Compl. ¶ 19, ECF No. 1. Mid-Century argues that the “who is insured” provision of the Mid-Century policy extends insured status to “permissive users,” but excludes customers of the named insured who have their own auto liability insurance policy providing at least the minimum limits required by Oregon law. Id. ¶ 15. Alternatively, the Complaint asserts that, under Safeco, the Court should “reform” the policy to provide West with the minimum coverage required under Oregon's financial responsibility laws (“FRL”), resulting in $25,000 per person/$50,000 per accident for all bodily injuries arising out of the accident alleged in the underlying lawsuit. Id. ¶ 18.
STANDARD OF REVIEW
Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, affidavits, and admissions on file, if any, show “that there is no genuine dispute as to any material fact and the [moving party] is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Substantive law on an issue determines the materiality of a fact. T.W. Elec. Servs., Inc. v. Pac.Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). Whether the evidence is such that a reasonable jury could return a verdict for the nonmoving party determines the authenticity of the dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324. Special rules of construction apply when evaluating a summary judgment motion: (1) all reasonable doubts as to the existence of genuine issues of material fact should be resolved against the moving party; and (2) all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party. T.W. Elec., 809 F.2d at 630.
DISCUSSION
In Safeco Ins. Co. of Am. v. Am. Hardware Mut. Ins. Co., an automobile dealership, insured by American Hardware under a garage liability policy, gave a customer permission to test drive a vehicle. 169 Or.App. 405, 407 (Or. 2000). During the test drive, the customer was involved in an automobile accident with a third party. Id. The third party sued the customer for personal injuries arising out of the accident. Id. The customer was an insured under a policy issued by Safeco, who defended the customer in the litigation and eventually settled with the third party “paying an amount within [the customer's] policy limits and apparently an amount in excess of the minimum payment required by the FRL.” Id. Safeco then sued American Hardware, seeking reimbursement and alleging that the policy's exclusions violated the FRL. Id.
Under the dealership's policy, drivers were not covered in certain circumstances, including if they possessed their own insurance. Id. at 410. Examining the policy in light of the relevant provisions of Oregon law the court concluded that because “American Hardware's policy violate[d] the FRL's requirement to provide minimum coverage to all permissive users of its insured's vehicles, the policy must be construed to cover [the excluded driver].” Id. at 415 (footnote omitted).
ORS § 742.450(2) provided that “[e]very motor vehicle insurance policy issued for delivery in this state shall contain an agreement or indorsement stating that, as respects bodily injury and death or property damage, or both, the insurance provides” the coverage described in ORS § 806.080(1)(b) or other sections. ORS § 806.080(1)(b) required that any policy “must include in its coverage all persons who, with the consent of the named insured, use the motor vehicles insured under the policy ....”
The parties do not dispute that, under Safeco, Mid-Century's policy in this case is unenforceable. The parties disagree, however, about the remedy that must be applied because the insurance policy at issue here runs afoul of Oregon law. Plaintiff maintains Safeco requires that the “[p]olicy must be construed to provide ‘permissive user' coverage for [ ] West in the amounts required by the FRL.” Pl.'s Mot. Summ. J. 9 (emphasis added), ECF No. 31. In other words, Plaintiff contends that when a provision of an automobile liability policy violates Oregon law, courts must rewrite the policy and insert the coverage provisions found in the FRL statute.
Defendants disagree. They contend that when a policy provision is inconsistent with Oregon law, it is unenforceable. And courts may not modify the policy by inserting statutory language where the policy otherwise provides coverage. Def.'s Mot. Summ. J. 5, ECF No. 37 (citing Erickson v. Farmers, 331 Or 681, 687 (Or. 2001) and ORS § 742.038(2)). Put differently, unenforceable policy provisions are not reformed if the policy otherwise provides coverage in the absence of the infringing provision.
The Court first addresses Plaintiff's threshold argument that Safeco requires courts to insert the FRL limits into the policy. Plaintiff reads Safeco too broadly. Nowhere in the decision did the court address the issue of the amount of coverage limits. Rather, Safeco remanded to the trial court to address “the issue of how responsibility between the parties should be allocated,” stating that there were questions of law-specifically the applicability of case law regarding contribution claims and apportionment of damages-and that there also appeared to be “issues of fact that could affect the amount of contribution or indemnity, if any, that could be ordered by the trial Court . . . .” 169 Or.App. at 416-17. As such, Safeco does not control this case nor does it require courts to rewrite insurance policies that fail to comply with Oregon law by inserting the FRL minimums.
The Court next turns to relevant Oregon appellate decisions that find provisions of automobile policies unenforceable. Notably, Oregon appellate courts have taken different approaches on the issue. For example, in Collins v. Farmers Ins. Co. of Oregon, 312 Or. 337 (1991), the Oregon Supreme Court:
addressed the validity of a provision in a motor vehicle liability policy that purported absolutely and unambiguously to exclude liability coverage for injured insureds and their family members. In that case, a family member of a person insured under a policy issued by the insurer was involved in an automobile accident. The policy declaration stated that the policy limit was $100,000. The insurance company refused to pay a claim for bodily injuries, based on the family member exclusion contained in the policy. Nonetheless, acknowledging that Oregon law requires minimum coverage of $25,000 per person per incident, the insurer offered to settle the claim for that amount. This court held that the family member exclusion was not illegal, but that it could not be interpreted to exclude liability coverage that otherwise is required by statute to be included in all motor vehicle liability policies. 312 Or. at 343, 822 P.2d 1146. Thus, although the exclusion provision at issue was ineffective as to the first $25,000 of coverage, which was required under ORS 742.450 and ORS 806.070(2)(a), the court held that it was effective as to any coverage in excess of $25,000.North Pacific v. Hamilton, 332 Or. 20, 26-27, 22 P.3d 739, 742-43 (Or. 2001). Put differently, the court “reformed” the provision in the policy that ran afoul of Oregon law by inserting the FRL's minimum coverage requirements into the policy.
In Farmers Ins. Co. of Oregon v. Mowry, the court declined to overrule Collins on stare decisis grounds, concluding that a “virtually identical” insured-versus-insured exclusion violated the FRL but was enforceable above the FRL minimum limits. 350 Or. 686, 690, 699-704 (Or. 2011).
Justice Durham, specially concurring observed that:
This court has declined to extend the rationale of Collins in later cases that also involved broad policy exclusions and the minimum coverage requirement of the [FRL], ORS 806.060, and ORS 806.070.Id. at 709 (Durham, J. specially concurring). Justice Durham went on to discuss the Oregon Supreme Court's “markedly different analysis than that used in Collins” in two other cases discussed below: North Pacific, 332 Or. at 23, and Wright v. State Farm, 332 Or. 1, 6 (Or. 2001). Id. at 709.
In North Pacific, the policy excluded “bodily injury or property damage to you or any family member to the extent that the limits of liability for this coverage exceed the limits of liability required by the Oregon financial responsibility law.” 332 Or. at 23. The court found that wording too obscure to accomplish its purported purpose of informing the insured that, under the circumstances there, the coverage fell below the amount that appears on the declarations page. Id. at 27. As a result, the court construed the policy against the insurer, did not “reform” the policy by inserting the FRL language, and held that the insureds were “entitled to liability coverage in the amount of $60,000, the amount provided on the declarations page of the policy.” Id. at 29.
Similarly, in Wright, the policy purported to exclude from coverage any injury to an insured or family member “to the extent the limits of liability of the policy exceed the limits of liability required by law.” 332 Or. at 6. The court found the exclusion “inherently ambiguous, if not incomprehensible,” and held that the exclusion in the automobile policy was unenforceable and required the insurer to “pay the amount stated on its declarations page[.]” Id. at 8.
In Erickson, the Oregon Supreme Court held that provisions of a policy were “unenforceable, because those provisions den[ied] plaintiff coverage when the UM statutes mandate some coverage.” 331 Or. 681, 687 (Or. 2001). The Court of Appeals reached the same conclusion in the intermediate appellate opinion. Id. at 686-87. That court, however, reformed the insurance policy by replacing the unenforceable exclusions with statutory language from ORS § 742.504. Id. at 687. In reversing the Court of Appeals, the Oregon Supreme Court explained that the insurer's decision to limit coverage in ways not contemplated under ORS § 742.504(1) to (12) rendered the policy exclusion “unenforceable” in its entirety and “there [was] no reason to replace the unenforceable provisions that denied plaintiff coverage with the statutory provisions” that may also be used to deny plaintiff coverage. Id.
Thus, the Oregon Supreme Court has taken strikingly different approaches after concluding that a provision of an automobile insurance policy is unenforceable. In two cases, the court reformed the policies by inserting statutory language from the FRL statute. In other circumstances, the court removed the offending language altogether and enforced the remaining policy provisions.
“The task of a federal court in a diversity action is to approximate state law as closely as possible in order to make sure that the vindication of the state right is without discrimination because of the federal forum.” Ticknor v. Choice Hotels Intern., Inc., 265 F.3d 931, 939 (9th Cir.2001) (quoting Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir. 1980)). If the state's highest appellate court has not decided the question presented, then federal courts must predict how the state's highest court would decide the question. Id.
The Court concludes that if presented with this question, the Oregon Supreme Court would decline to extend Collins beyond the narrow holding that Mowry upheld on stare decisis grounds-i.e., allowing an insurance company to enforce a “virtually identical” insured-versus-insured exclusion that the court had already permitted. Critical to Mowry's reasoning was the observation that “[i]n the area of commercial transactions, we have noted that stability and predictability strongly support adherence to precedent.” 350 Or. at 700. As Mowry also noted in its discussion of stare decisis principles, “individuals and institutions act in reliance on this court's decisions, and to frustrate reasonable expectations based on prior decisions creates the potential for uncertainty and unfairness.” Id. at 698; see also id. at 715 (“In my view, this is a circumstance in which the need for stability and predictability in the automobile insurance industry, as well as the evidence of plaintiff's reliance on the ruling, support adherence to Collins under the stare decisis doctrine, even though Collins was wrongly decided.”) (Durham, J. specially concurring).
The exclusion at issue here is distinguishable from the “virtually identical” insured-versus-insured exclusion in Collins and Mowry. Here, the exclusion eliminates an entire category of permissive users from all required coverages-both personal injury protection and uninsured/underinsured motorist coverage-by excluding them from the definition of an insured. As a result, Mid-Century cannot assert the same type of reliance interests that the insurance company in Mowry demonstrated. Thus, the Court concludes that the Oregon Supreme Court, if faced with this case, would “decline[] to extend the rationale of Collins” as it did in North Pacific and Wright. Mowry, 350 Or. at 709 (Durham, J. specially concurring).
As noted, the parties agree that the Mid-Century's policy in this case is unenforceable under Safeco. Following the reasoning of North Pacific, Wright, and Erikson, because removing the unenforceable provision results in coverage, the Court declines to rewrite the policy by inserting the minimum coverage required under the FRL statute. As a result, the Court concludes that West, as a permissive user of the insured van, is entitled to the amount of coverage listed on the declarations page for the policy. See North Pacific, 332 Or. at 29 (holding a provision of an automobile policy was unenforceable and the insured was “entitled to liability coverage in the amount of $60,000, the amount provided on the declarations page of the policy”); Wright, 332 Or. at 8 (holding a provision of an automobile policy was unenforceable and requiring the insurer to “pay the amount stated on its declarations page”); cf. Erickson, 331 Or. at 687 (reversing the Oregon Court of Appeals for erroneously inserting statutory language into a policy and observing that “there [was] no reason to replace the unenforceable provisions that denied plaintiff coverage with the statutory provisions” that may also be used to deny plaintiff coverage”).
RECOMMENDATION
For the reasons explained above, Plaintiff's motion for summary judgment (ECF No. 31) should be DENIED; Defendants' motion for summary judgment (ECF No. 37) should be GRANTED; and Defendants' motion to certify a question to the Oregon Supreme Court (ECF No. 39) should be DENIED as moot.
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Federal Rule of Appellate Procedure 4(a)(1) should not be filed until entry of the district court's judgment or appealable order. The Findings and Recommendation will be referred to a district judge. Objections to this Findings and Recommendation, if any, are due fourteen (14) days from today's date. See Fed.R.Civ.P. 72. Failure to file objections within the specified time may waive the right to appeal the District Court's order. Martinez v. Ylst, 951 F.2d 1153, 1157 (9th Cir. 1991).