Collins v. Farmers Insurance

PETERSON, J.

This declaratory judgment proceeding concerns the amount of liability insurance available under the defendant’s motor vehicle liability insurance policy. The plaintiff asserts that because an exclusion in the defendant’s policy is “illegal,” the exclusion must be disregarded, as a result of which $100,000 of insurance coverage is available. The defendant asserts that the exclusion is unenforceable only to the extent of the $25,000 mandated by the Financial Responsibility Law. We agree with the defendant.

Ernest and Irene Gali had a motor vehicle liability policy with the defendant, with liability limits of $100,000 per person and $300,000 per occurrence. Their nephew, the plaintiff, lived with them.

The defendant’s policy contained these provisions, among others:

“Throughout this policy, ‘you’ and ‘your’ mean the ‘named insured’ shown in the Declarations and spouse if a resident of the same household. ‘We,’ ‘us’ and ‘our’ mean the Company named in the Declarations which provides this insurance.”

“Family member means a person related to you by blood, marriage or adoption who is a resident of your household.”

“Insured person means * * * you or any family member.”

“We will pay damages for which any insured person is legally hable because of bodily injury to any person and property damage arising out of the ownership, maintenance or use of a private passenger car, a utility car, or a utility trailer.” (Bold in original.)

The policy also contained exclusion 11(a):

“This coverage does not apply to * * * [ljiability for bodily injury to an insured person.”

The plaintiff agrees that he was a “family member” who therefore comes within the definition of “insured person.”

The policy also contained this sentence:

“Policy terms which conflict with laws of Oregon are hereby amended to conform to such laws.”

In 1987, the plaintiff was injured while riding as a passenger in the Galis’ car. At the time of the accident, the car was being operated by the plaintiffs cousin, Stacey Gali, the daughter of Ernest and Irene Gali. The plaintiff made a claim for damages for bodily injuries. The defendant responded with this offer:

“This letter is to communicate our offer of settlement of $25,000.00.

“Our insured’s policy limits are $100,000.00, but that limit does not apply because of exclusion #11 (a) of the policy, which reads ‘This coverage does not apply to Liability for bodily injuxy to an insured person.’

‘ ‘The policy defines ‘Insured Person’ as ‘you or any family member.’ ‘Family Member’ is defined as ‘a person related to you by blood, marriage or adoption who is a resident of your household.’

“We understand that this exclusion does not apply to the 25/50 limits required by the financial responsibility statutes, and that is what our offer is based upon.”

The plaintiff disagreed with the defendant that only $25,000 of coverage was available and filed a complaint for declaratory judgment, asserting that the exclusion quoted above is unenforceable and that, therefore, the full liability limit ($100,000) was available.

Both sides moved for summary judgment. The trial court granted the plaintiffs motion, denied the defendant’s, and entered a judgment declaring that the insurance policy provides $100,000 liability coverage on the plaintiffs bodily injury claims. The Court of Appeals affirmed. Collins v. Farmers Ins. Co., 101 Or App 463, 791 P2d 498 (1990).

Under Oregon law, every motor vehicle liability insurance policy issued for delivery in Oregon must, at the least, provide coverage in the amounts required by statute. ORS 742.450.¹ See Viking Ins. Co. v. Petersen, 308 Or 616, 621, 784 P2d 437 (1989) (because statute listing mandatory contents of motor vehicle liability policy refers to statute stating minimum coverage requirements, every such policy must contain that coverage as a minimum). The minimum coverage for bodily injury to or death of one person in any one accident is $25,000. ORS 806.070(2)(a).

The only question before us concerns the effect of exclusion 11(a). Is the exclusion to be disregarded only as to the amount of the minimum liability coverage required by ORS 742.450 (and ORS 806.080)? Or is the exclusion to be disregarded totally? ORS 742.464 answers the question. It contains two sentences and three clauses:

“Any policy which grants the coverage required for a motor vehicle liability insurance policy under ORS 742.450, 806.080 and 806.270 may also grant any lawful coverage in excess of or in addition to the required coverage, and such excess or additional coverage shall not be subject to the provisions of ORS 742.031, 742.400 and 742.450 to 742.464. With respect to a policy which grants such excess or additional coverage only that part of the coverage which is required by ORS 806.080 and 806.270 is subject to the requirements of those sections.”

Each sentence and clause of ORS 742.464 has an unambiguous meaning. The first clause — “Any policy which grants the coverage required for a motor vehicle liability insurance policy under ORS 742.450, 806.080 and 806.270 may also grant any lawful coverage in excess of or in addition to the required coverage” — means that liability insurers can write motor vehicle liability insurance policies with higher limits and coverage than that required by ORS 742.450, 806.080, and 806.270.

The second clause of the first sentence of ORS 742.464 — “and such excess or additional coverage shall not be subject to the provisions of ORS 742.031, 742.400 and 742.450 to 742.464” — means that the mandatory requirements of three statutes referred to in ORS 742.450 (ORS 806.070, 806.080, and 806.270) are inapplicable to the additional coverage. To make it absolutely clear, the legislature said it again, in a slightly different way, in the last sentence of ORS 742.464 — “With respect to a policy which grants such excess or additional coverage only that part of the coverage which is required by ORS 806.080 and 806.270 is subject to the requirements of those sections.”

The manifest purpose of ORS 742.464 is to permit an insurer to write any other lawful coverage that the insurer wishes to write, in addition to the required coverage. Such coverage may include higher limits than those required by ORS 742.450 and 806.080. But as to such higher limits, the mandatory requirements of ORS 742.450 and 806.080 do not apply. The insurer may limit such additional coverage by any exclusion not otherwise prohibited by law.

To summarize, the law implies a provision in every motor vehicle liability insurance policy along these lines:

THIS POLICY PROVIDES ALL THE COVERAGE REQUIRED BY OREGON LAW, INCLUDING ORS 742.450, 806.080 AND 806.270.

Coverage other than that required by law may be limited by any lawful exclusion.

The next question is whether the defendant’s policy limited the liability coverage to $25,000 as to the plaintiffs claim. Exclusion 11(a) of the plaintiffs policy (set forth above) is unambiguous; claims for bodily injury to family members are excluded from the liability coverage. The provision in the “Conditions” section that “[p]olicy terms which conflict with laws of Oregon are hereby amended to conform to such laws” is merely a statement of a rule of law that would be implied into the policy even if the statement were not contained therein.²

Because the import of ORS 742.464 is that coverage other than that required by law may be limited by any lawful exclusion, exclusion 11(a), although ineffective as to the first $25,000 of coverage, is effective as to any coverage in addition to $25,000.³ Previous decisions of this court support this result.

In Oregon Automobile Ins. Co. v. Thorbeck, 283 Or 271, 583 P2d 543 (1978), a liability insurer issued a motor vehicle liability policy to the insured with limits of $100,000. A financial responsibility filing was made with the Motor Vehicles Division. The insured subsequently failed to make the premium payments, and the policy was canceled by notice to the insured. However, the company failed to file a notice of cancellation with the Motor Vehicles Division as required by former ORS 486.506(2). At that time, the minimum financial responsibility policy limit was $10,000. The opinion stated the issue this way:

“The issue in this case is whether, given the failure to file the notice of cancellation, the limit of the company’s responsibility is $10,000, the amount required by the [Financial Responsibility] Law, or $100,000, the original amount of the policy. The company appeals from a judgment of the trial court that the limit of the company’s liability is $100,000.” 283 Or at 273.

As here, the case turned on former ORS 486.541 {current ORS 742.450) and former ORS 486.566 {current ORS 742.464):

“The company contends that ORS 486.566 [current ORS 742.464] exempts it from responsibility under the policy except for the amount of $10,000 required by the Law. Defendants, on the other hand, contend that ORS 486.566 [current ORS 742.464] has nothing to do with the issue of policy ‘limits’ but by its terms has only to do with the separate issue of policy ‘coverage.’ They argue that ‘coverage’ refers only to the risks insured against while ‘limits of liability’ refers to the monetary amount of insurance. To show that the legislature distinguished between the two, they point to ORS 486.541 [current ORS 742.450], which separately mentions ‘the coverage afforded’ and ‘the limits of liability.’

“To decide this case it is our duty to divine the legislature’s intent in using the word ‘coverage’ in ORS 486.566 [current ORS 742.464]. No cases cited by the parties or found by the court are of help to us because none involves a statute with similar wording. In common usage ‘coverage’ is frequently employed in a general way to include both the risks insured against and the monetary amount of insurance, as in the question, ‘How much is your coverage?’ Being mindful of the distinction made in ORS 486.541 [current ORS 742.450], we could bring ourselves to agree with defendants that ‘coverage’ has a more limited statutory meaning were it not for the particular wording of ORS 486.566 [current ORS 742.464] , which speaks of‘coverage in excess of or in addition to’ the coverage required by the provisions of the Law. It is our observation that the word ‘excess’ is used in connection with monetary limits of insurance and not in connection with types of risks insured against. It is therefore our opinion that the legislature, by its use of such word, intended the provisions of the statute to encompass not only the risk insured against but also the monetary amount of insurance.” 283 Or at 274-75.

The court held that only $10,000, the limit required by the Financial Responsibility Law, was available.

Granted, Thorbeck does not involve the precise issue presented here. Its holding is significant, however, because the opinion makes it clear that the word “excess” as used in ORS 742.464 refers to the monetary amount of insurance above the amount required by the Financial Responsibility Law and that, even though the cancellation notice did not comply with the Financial Responsibility Law, the notice was otherwise lawful between the insurer and the insured as to the “excess” coverage. Similarly, the exclusion involved here, as between the insured and the insurer, is valid and enforceable as to any amount exceeding the minimum required by the Financial Responsibility Law.

Hartford Acc. and Indem. v. Kaiser, 242 Or 123, 407 P2d 899 (1965), also confirms this result. In that case, the insurer had issued a motor vehicle liability insurance policy to Jacob Kaiser, Sr., with limits of $25,000 for each injured person and $100,000 for each accident. The amounts then required by the Financial Responsibility Law were $5,000 and $10,000, respectively. The policy, however, contained two specific endorsements. One was to exclude any coverage for Jacob Kaiser, Jr. A second provided that the insurer agreed to provide the supplemental coverage necessary to satisfy Oregon’s financial responsibility statutes.

The issue presented was whether the larger limits of the policy or the statutory minimum limits applied to injuries that occurred when Jacob Kaiser, Jr., was driving. The court stated:

“We find no basis in the Oregon statutes for denying insurance companies the right to exclude certain named individuals from the full-face-value coverage of a policy so long as they cover the same individuals to a limited degree as ‘omnibus insureds’ when they choose to write the minimum coverage required by the financial-responsibility statutes.

“A fair reading of the entire contract confines Hartford’s exposure to the statutory minimum under ORS 486.021 whenever Jacob Kaiser, Jr., is operating an insured automobile. The main policy excluded coverage for accidents caused by Jacob Kaiser, Jr. This it may do. See Schaffer v. Mill Owners Mut. Ins. Co., 242 Or 150, 407 P2d 614 (1965).” 242 Or at 126.

Although the Kaiser opinion does not make specific reference to current ORS 742.464 {former ORS 486.566 (1965)), the holding is clear. An insurance company can exclude some persons from the higher coverage limits of a policy, so long as it provides the minimum coverage required by the financial responsibility statutes.

Finally, our recent decision in State Farm Fire and Casualty Co. v. Jones, 306 Or 415, 759 P2d 271 (1988), is relevant. In Jones, the insured was injured while riding as a passenger in her own automobile. She sued the driver, who was an additional insured under her automobile liability policy. As here, the policy excluded liability coverage for bodily injury to “any insured.” The insured claimed that the exclusion violated the Financial Responsibility Law, specifically ORS 806.080(1).

This court agreed that the policy violated the Financial Responsibility Law. 306 Or at 420-21. Concerning the limits of liability, the court stated in a footnote:

“We also note that the limit of liability for each person’s bodily injury under defendant’s policy apparently amounts to $50,000. This exceeds that required by statute at the time of defendant’s injury. Former ORS 486.011(7)(a) (1981) ($15,000 for bodily injury to or death of one person). We do not express an opinion as to the extent of plaintiffs liability to defendant or the driver on this score. But cf. Hartford Acc. and Indem. v. Kaiser, 242 Or 123, 407 P2d 899 (1965).” 306 Or at 421 n 5.

The footnote is significant. The case was remanded to the trial court “for proceedings consistent with this opinion.” On remand, the same issue now presented here likely would arise. (The trial court had not reached the issue, because it held that no coverage existed.) The Jones footnote suggested that the answer to the issue may lie in Hartford Acc. and Indem. v. Kaiser, supra, and suggested approval of the Kaiser opinion in the context of the issue presented in the case at bar.

The Financial Responsibility Law requires specified coverage. As to amounts and other coverage apart from that minimum, it is lawful to restrict that additional coverage by an exclusion. Under ORS 742.464 and the decisions cited above, the exclusion is enforceable as to coverage other than that required by the Financial Responsibility Law. This exclusion was not illegal. The defendant’s motion for summary judgment should have been granted.

The decision of the Court of Appeals is reversed. The judgment of the circuit court is reversed, and the case is remanded to the circuit court with instructions to grant the defendant’s motion for summary judgment.

1 ORS 742.450 provides in part:

“ (1) Every motor vehicle liability insurance policy issued for delivery in this state shall state the name and address of the named insured, the coverage afforded by the policy, the premium charged therefor, the policy period and the limits of liability.

“(2) Every motor vehicle liability insurance policy issued for delivery in this state shall contain an agreement or indorsement stating that, as respects bodily injuiy and death or property damage, or both the insurance provides either:

“(a) The coverage described in ORS 806.070 and 806.080; or

“(b) The coverage described in ORS 806.270.

“(3) The agreement or indorsement required by subsection (2) of this section shall also state that the insurance provided is subject to all the provisions of the Oregon Vehicle Code relating to financial responsibility requirements as defined in ORS 801.280 or future responsibility filings as defined in ORS 801.290, as appropriate.

‘ ‘ (4) Every motor vehicle liability insurance policy issued for delivery in this state shall provide liability coverage to at least the limits specified in ORS 806.070.”

ORS 742.450(2) refers to ORS 806.080, which in part requires:

“ (1) A motor vehicle liability insurance policy used to comply with financial responsibility requirements under ORS 806.060 must meet all of the following requirements:

“(a) It must be a policy or part of a policy designating, by explicit description or by appropriate reference, all motor vehicles for which coverage is provided by the policy.

“(b) It must insure the named insured and all other persons insured under the terms of the policy against loss from the liabilities imposed by law for damages arising out of the ownership, operation, use or maintenance of those motor vehicles by persons insured under the policy. The policy must include in its coverage all persons who, with the consent of the named insured, use the motor vehicles insured under the policy * * *. ■

“(c) It must provide the minimum limits of coverage required under ORS 806.070 [$25,000 because of bodily injury to or death of one person in any one accident; $50,000 because of bodily injury to or death of two or more persons in any one accident; and $10,000 for property damage].”

Some statutes cited in this opinion have been renumbered or altered in ways not relevant to this case since the issuance of the policy. Therefore, for ease of reference, we have used the current versions.

2 In this connection, note ORS 742.038(2), which states:

“Any insurance policy issued and otherwise valid which contains any condition, omission or provision not in compliance with the Insurance Code, shall not he thereby rendered invalid but shall be construed and applied in accordance with such conditions and provisions as would have applied had such policy been in full compliance with the Insurance Code.”

3 The dissent asserts, 312 Or at 350-52, that ORS 742.464 requires that the policy ‘ ‘grant’ ’ the minimum coverage of the Financial Responsibility Law before the policy can lawfully exclude family-household members from the other coverage. The dissent claims that the defendant’s “policy did not grant liability coverage to the insured for claims made by family members”; therefore, the exclusion is to be disregarded. Id. at 352 (emphasis in original).

Accepting the dissent’s point that ORS 742.464 requires the policy to grant the coverage required by law, the policy states: “Policy terms which conflict with laws of Oregon are hereby amended to conform to such laws.” That is one way of granting coverage. Not the best way, perhaps, but the meaning of the sentence is clear.