Country Mutual Insurance v. Pittman

Citations: 910 F. Supp. 2d 1233; 2012 U.S. Dist. LEXIS 164418; 2012 WL 5830397Docket: No. 03:11-CV-00806-HU

Court: District Court, D. Oregon; November 15, 2012; Federal District Court

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Plaintiffs' motion for summary judgment (Dkt. 18) is denied, while the defendants' motion (Dkt. 21) is granted in part and denied in part. Summary judgment is granted when there is no genuine dispute of material fact, requiring the moving party to demonstrate entitlement to judgment as a matter of law per Fed. R. Civ. P. 56(c)(2). The court does not weigh evidence or determine truth but assesses whether a genuine issue exists for trial. The moving party must initially prove the absence of a genuine issue; if successful, the non-moving party must then identify specific facts that show genuine issues remain. This requires more than a mere scintilla of evidence or metaphysical doubt. The non-moving party must provide evidence that a jury could reasonably use to reach a verdict in their favor, with all justifiable inferences drawn in their favor.

The plaintiff, Country Mutual Insurance Company, is part of a group of insurers offering products to farmers, individuals, and small businesses. Ronald Pittman served as a registered insurance agent for Country from January 1, 1993, until his retirement on September 30, 2005, in McMinnville, Oregon. The case originates from a lawsuit by John Stuart against Country and Pittman, stemming from Stuart's purchase of property in Yamhill County, Oregon, in March 2003, where he intended to build a home. Country had issued a homeowner’s policy to Stuart for his existing residence. During discussions with Pittman about insurance for the new residence, it was clarified that the new coverage would be an amendment or rider to Stuart’s existing policy, rather than a completely new policy, with specific coverage details outlined by Stuart and representations made by Pittman.

Stuart's Complaint in the Stuart case alleges that Pittman provided an oral insurance binder covering all claims related to the construction of his new residence, including "Acts of God." Stuart contends that Country issued a Builder’s Risk policy that lacked the terms he requested, specifically excluding coverage for faulty workmanship, mold, and water damage from sewer backups. Despite numerous requests for the policy's Declarations page and Pittman's assurances in January 2004 of receiving a written binder, Stuart never received the policy. In early 2004, the construction site incurred damage due to exposure to the elements, leading to mold growth. Stuart reported this loss to Country, which allegedly indicated that weather-related damage would be covered. A Country field underwriter inspected the damage and advised Stuart to document repairs and submit a claim after completion. Ultimately, Country denied Stuart's claim based on policy exclusions.

Stuart obtained judgments against the architect/builder for the damage, but the architect was insolvent. He then filed suit against Country and Pittman in Yamhill County Circuit Court, claiming breach of contract, negligent misrepresentation, and attorney’s fees against Country, along with a negligent failure to procure insurance claim against both Country and Pittman. Pittman's motion for summary judgment was granted, and Country also received summary judgment on the negligent misrepresentation claim. In a Second Amended Complaint, Stuart maintained claims for breach of contract and attorney’s fees against Country. A jury trial concluded with the jury finding that Pittman had entered into an oral insurance contract differing from the issued policy, which eliminated certain exclusions. The jury determined that Country's failure to provide consistent coverage and to deliver the policy in a timely manner caused Stuart damages. The jury awarded Stuart $268,417.00, and the trial court subsequently awarded $168,035.91 in attorney’s fees, formalized in a General Judgment on December 4, 2006, and a Supplemental Judgment on May 29, 2007.

Country and Pittman entered into a Tolling Agreement on December 3, 2007, to suspend the statute of limitations for Country Mutual's claims against Pittman until 30 days after the appellate court's final decision. On May 5, 2010, the Oregon Court of Appeals reversed a trial court ruling, stating there was insufficient evidence to support the jury's finding that Pittman had modified or waived standard policy terms. The appellate court referenced ORS 742.043(1), which presumes oral binders include standard policy terms unless explicitly superseded. The evidence was deemed too vague to support a finding of modification regarding exclusions for faulty work, water damage, and mold. The Oregon Supreme Court later reversed the appellate court's decision on June 3, 2011, ruling that sufficient evidence existed for a jury to consider the case, and upheld the trial court's attorney's fee award. The Supreme Court granted Stuart appellate attorney's fees of $201,288.50 and costs of $682.77. Country paid Stuart $819,738.62 on September 15, 2011, which included $180,738.62 in post-judgment interest. Following this, Country filed a new action against Pittman on July 1, 2011, alleging negligence, common-law indemnity, and breach of duty as an agent. Both parties are pursuing summary judgment; Pittman seeks partial summary judgment on the common-law indemnity claim, which Country concedes is not applicable since Pittman was dismissed from the earlier case. The court grants Pittman’s motion for summary judgment on the common-law indemnity claim and will first address Pittman’s procedural arguments against maintaining the current action.

Pittman seeks summary judgment by asserting that Country's claims are precluded by an arbitration clause in their Agent's Agreement, which mandates binding arbitration for any disputes arising from their relationship, to be held in Bloomington, Illinois. The clause stipulates that claims must be initiated within one year of the "events giving rise to the claim," which Pittman interprets as distinct from the "accrual of the claim." He argues that Country was aware of its claims against him by at least November 17, 2006, following a jury verdict in a related case, yet did not request arbitration until November 4, 2011. Pittman contends that the relevant events occurred even earlier, suggesting that arbitration should have been demanded by March 2005 when Country began incurring attorney fees related to the matter. Conversely, Country claims the triggering event for its claim was the Oregon Supreme Court's final judgment in the Stuart case, asserting that it did not sustain damages until December 4, 2006, when judgment was entered against it. Country emphasizes that the legitimacy of Pittman's obligations was contested throughout the legal proceedings, culminating in a jury verdict that favored Stuart, which was later upheld by the Oregon Supreme Court.

Country asserts that the limitations period for claiming damages began on December 4, 2006, when the judgment was entered, which recognized that Pittman orally bound an insurance policy different from what Country issued. Subsequently, a tolling agreement was established, pausing the limitations period until 30 days after the Oregon Supreme Court's final judgment on October 6, 2011. Country contends that its demand for arbitration on November 4, 2011, was timely.

Pittman argues that since Country drafted the arbitration clause, the court must interpret the "events giving rise to the claim" language as solely reflecting Country's view. He claims that if this language is ambiguous, his interpretation should prevail due to Country's role in drafting the contract.

The dispute focuses on the contract clause mandating that claims under the Agent's Agreement must be initiated within one year of the events leading to the claim. The court will interpret this clause according to Oregon contract law principles, which prioritize the parties' intentions. Contract interpretation is a legal question for the court, which follows a three-step process: first, evaluating the text of the disputed provision within the contract context; second, determining if the meaning is clear; and third, assessing whether any ambiguity exists. A term is ambiguous if it allows for multiple reasonable interpretations.

In cases of contractual ambiguity, courts first seek to clarify the parties' intent through extrinsic evidence, as allowed by ORS 41.740. If no such evidence is provided, the court moves to apply maxims of construction. Ambiguous contract language is interpreted against the drafter, following the principle that the burden falls on them to establish their interpretation as the sole plausible one. In this instance, the court finds that the disputed language concerning "events giving rise to" a claim has only one reasonable interpretation. The court notes a scarcity of relevant case law, both in Oregon and other jurisdictions, addressing similar phrasing. Reference is made to McNeil v. United States, which suggests that the events necessary for a claim to accrue align with the start of the statute of limitations period, specifically six years prior to filing. Additionally, similar language in the NASD Code of Arbitration establishes a six-year limitation for claims based on the occurrence of events leading to a dispute.

In Kidder, Peabody Co. v. Brandt, 131 F.3d 1001 (11th Cir. 1997), the court determined that for claims under section 15 of the NASD Code, the relevant "occurrence or event" is the one that makes a claim viable, which must withstand a Federal Rule of Civil Procedure 12(b)(6) motion. The court acknowledged that the timing of this occurrence can vary based on the nature of the claim. For example, a battery claim arises from a specific event, while a negligence claim related to a defective product requires proof of injury from the product before it becomes viable. The distinction is also made between false arrest and malicious prosecution claims: the former can be pled immediately upon arrest, whereas the latter requires the proceedings to conclude favorably for the plaintiff.

The court indicated that prior analyses do not provide clear guidance for determining when the "occurrence or event" arises in Country's claims against Pittman. Pittman argued that the statute of limitations began when the jury delivered a verdict in a related case, referencing Oregon's "discovery rule," which states that the limitations period starts when a plaintiff is aware of the claim elements, without needing to finalize damages. Pittman cited Bollam v. Fireman’s Fund Ins. Co., where the court ruled that a claim against an insurer arose when the insured retained an attorney to protect their interests, thus starting the statute of limitations. Country contended that Bollam is distinguishable from their case.

A cause of action for negligence arises when a defendant's actions cause harm and resulting damages to a plaintiff. However, the statute of limitations begins to run when the injured party discovers the harm, regardless of whether the extent of the injury is known. The Oregon Supreme Court has distinguished between the occurrence of harm and the extent of damages, emphasizing that the start of the statute of limitations is based on when damage first occurred, not when it can be fully assessed. In this case, Country claims it was first "damaged" by Pittman’s conduct on December 4, 2006, when a judgment was entered against it, making it liable for damages or appeal costs. Conversely, Pittman contends that Country was aware of its potential claim as of the jury's verdict date, as indicated in a letter from Country’s attorney acknowledging the claim against Pittman. Pittman argues that the jury's verdict triggered the statute of limitations, asserting that the judgment was merely a consequence of the verdict. However, the court maintains that the judgment is the definitive statement of the court's decision and that Country's liability arose only upon the entry of the judgment.

Pittman contends that Country was aware of its claims against him as early as March 21, 2005, when Stuart's attorney indicated intentions to hold Country liable for not issuing a policy according to Pittman's oral binder. Further, a letter from October 28, 2005, reiterated Stuart's plan to litigate against both Pittman and Country based on Pittman's actions. Stuart's lawsuit included claims against both parties, with those against Country being rooted in Pittman's oral representations. However, Country consistently argued in the Stuart case that Pittman made no oral representations beyond what was in Stuart's construction policy and defended Pittman’s position during the trial, relying on his testimony.

The court concluded that mere notice of Stuart’s claims was insufficient to establish harm to Country that would trigger the one-year arbitration demand period. The "event giving rise to" Country’s claim against Pittman was determined to be the judgment entry in the Stuart case on December 4, 2006. Subsequently, a Tolling Agreement was established to pause the limitation period for Country's claims against Pittman until 30 days post the final appellate decision. Country adhered to this timeline, making its arbitration demand within the allowed period. Thus, Country's claims were deemed timely, and Pittman's motion for summary judgment was denied.

Additionally, Country seeks summary judgment on its negligence claim, asserting that Pittman is bound by the jury's findings and the judgments made by the lower courts under Oregon’s issue preclusion rules. Both parties agree that Oregon law governs the preclusive effect of the Stuart case judgments, referencing the five requirements established in Nelson v. Emerald People’s Utility District for issue preclusion, which include identity of issues, actual litigation, opportunity for the party to be heard, party identity or privity, and the nature of the prior proceeding. The parties also concur regarding the burden of proof for these elements.

Country bears the initial burden of proving elements 1, 2, and 4 of its claim. The court must first determine if the same issue was resolved in a previous case and whether it was essential to the prior judgment. This determination involves legal questions about the identity of the issues and whether they were adjudicated. If the court finds that an identical issue was previously decided, the prior judgment is generally conclusive, shifting the burden to the opposing party to demonstrate any unfairness in applying preclusion. 

Country's claim for summary judgment is based on Pittman’s alleged negligence. Country asserts several key facts to support this claim: Pittman bound Country to nonexistent coverage; miscommunicated the terms of the course-of-construction policy; altered the risk Country was willing to accept; had a duty to protect Country's interests and timely deliver the policy; and caused damages due to these failures. 

In contrast, the jury in the Stuart case found that Pittman entered into an oral insurance contract that differed from the issued policy, eliminated requirements for direct physical loss and certain exclusions, and that Stuart was damaged by Country’s failure to adhere to the oral agreement and timely deliver the policy. Country assumed that the issues in both cases were identical and essential, focusing its argument on privity. However, Pittman contends the issues differ significantly, particularly regarding whether the oral contract was different from the written policy and who failed to provide the policy timely. Thus, the issues as defined in both cases do not align.

Oregon law specifies that only matters explicitly determined by a prior judgment are considered binding. In the case involving Country, the jury found that Pittman had entered into an oral insurance contract with Stuart that differed from the formal policy issued by Country, specifically omitting certain policy requirements and exclusions. However, the jury did not determine whether the type of coverage Pittman described existed or if Pittman accurately represented coverage available from Country. Additionally, the jury did not address Pittman’s timeliness in delivering the policy to Stuart or the contractual obligations between Country and Pittman. These unresolved issues create genuine material facts that prevent the granting of summary judgment. Consequently, Country's motion for summary judgment is denied, while Pittman’s motion is granted for Country’s common-law indemnity claim but denied regarding the timeliness of Country’s claims. The conclusion states that the court rules accordingly on the motions presented.

In Lewis-Williamson, the court ruled that a captive insurance agent is considered an agent of the insurance company rather than the insured, distinguishing them from independent agents who owe a duty of care to the insured. This distinction means that a captive agent does not possess the special relationship necessary for tort liability related to economic loss. In the Stuart case, Pittman was dismissed on summary judgment for lacking this special relationship with Stuart, a position he denied in his answer but was later affirmed in a Tolling Agreement. Following his summary judgment, the parties agreed to dismiss Pittman with prejudice, leading to Stuart excluding claims against him in his Second Amended Complaint. The court also noted that while Pittman acknowledged certain costs awarded by the Oregon Supreme Court, there were disputes regarding the amounts and the applicability of arbitration provisions in the Agent's Agreement. Additionally, the Ninth Circuit's stance on the use of extrinsic evidence in determining ambiguity in contracts was referenced, highlighting that such evidence can only clarify intent after an ambiguity is established from the contract's text.

Country's attorney erroneously asserted that Pittman was obligated to indemnify the insurer; however, the referenced Price and Lynch cases established that an agent's liability pertains to negligence, not indemnity. Country has since acknowledged it holds no indemnity claim against Pittman. The situation is likened to the Stuart case, where the trial court granted Pittman summary judgment but no formal judgment was recorded, leading to a settlement that dismissed Pittman from the case. If a settlement had occurred post-verdict in Stuart but pre-judgment, the jury's verdict would have been rendered moot. The court is unconvinced by Pittman's supplemental authority, which does not alter its conclusion. Moreover, Pittman's motivations for entering a Tolling Agreement are questioned, as his position implies that by the time of the agreement, there was nothing to toll—given the elapsed time since the jury's verdict and the initial claims. The court refrains from addressing privity because it finds that the issues in the two cases are not identical.