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Industrial Finishes & Systems, Inc. v. American Universal Insurance
Citations: 720 P.2d 382; 79 Or. App. 614Docket: 16-82-09939; CA A34241
Court: Court of Appeals of Oregon; August 20, 1986; Oregon; State Appellate Court
The case involves Industrial Finishes Systems, Inc. (plaintiff) suing American Universal Insurance Company (defendant) for indemnification of defense costs related to a lawsuit arising from an injury caused by a Wagner spray gun, which plaintiff sold. The plaintiff had incurred $35,000 in settlement costs and $10,387.63 in legal expenses after American denied coverage, despite the policy including vendors as additional insureds. The trial court ruled in favor of the plaintiff, ordering American to cover the total expenses. American's appeal centers on the applicability of the Lamb-Weston doctrine, which addresses liability among multiple insurers when their coverage overlaps. Under this doctrine, if two policies contain conflicting "other insurance" clauses, the courts may prorate liability based on policy limits. American argues that the clauses from both policies are conflicting, while the plaintiff disagrees. Both policies have a liability limit of $500,000. The trial court's ruling was upheld upon reconsideration, and the main issue on appeal is whether the Lamb-Weston doctrine applies to this case. American's liability under its policy is not diminished by the existence of other insurance applicable to the same loss on an excess or contingent basis. However, if there is other insurance that applies on the same basis (primary, excess, or contingent), American's liability will be limited to a proportional share based on specific contribution methods outlined in the policy. The policy includes two methods for contribution: 1. **Contribution by Equal Shares**: If all applicable insurance allows for equal sharing, American will contribute equally until each insurer has paid its limit or the total loss is covered. 2. **Contribution by Limits**: If any other insurance does not allow for equal sharing, American's liability will be limited to the ratio of its policy limit to the total limits of all applicable insurance. In contrast, the Transamerica policy states that its liability is extinguished to the extent of any other valid insurance available for the loss. It provides excess insurance only if its limits exceed those of the other insurance. The plaintiff contends that due to American's provision of primary coverage, Transamerica's policy functions solely as excess or contingent coverage, leading to no conflict between the two policies. Primary coverage is defined as liability that arises immediately upon an incident, unlike excess coverage, which only kicks in after primary coverage has been exhausted. The Transamerica policy is characterized as primary since it does not depend on the insured having other primary insurance and will cover the full loss in the absence of other applicable insurance. Its "other insurance" clause aims to limit Transamerica's liability when other insurance is present. The court's decision in Lamb-Weston addressed conflicts between "other insurance" clauses in different policies, which serve to limit insurers' liability. It concluded that when such clauses are irreconcilable, they should be rejected entirely. Specifically, the "other insurance" clause in the American policy allocates liability equally among primary insurers, while Transamerica's clause aims to negate its liability if other insurance is available. Due to their incompatibility, the clauses are deemed repugnant. As a result, American is found liable for only half of the plaintiff's loss, leading to the reinstatement of the plaintiff's claim against Wagner on cross-appeal. The court reversed and remanded the case. Additionally, the court ruled that allowing American to present an affirmative defense during a motion to reconsider was not erroneous, as the plaintiff did not object to the evidence or demonstrate any resulting prejudice.