Atl. Specialty Ins. Co. v. Or. Sch. Bds. Ass'n Prop. & Cas. Coverage for Educ. Tr.

649 F.Supp.3d 998

ATLANTIC SPECIALTY INSURANCE COMPANYand State Farm Fire and Casualty Company, Plaintiffs, v. OREGON SCHOOL BOARDS ASSOCIATION PROPERTYAND CASUALTY COVERAGE FOR EDUCATION TRUST, Defendant.

Case No. 3:21-cv-00059-JR

United States District Court, D. Oregon

Signed December 29, 2022

Emmitt DuBose III and Sara Lindsey Menton, Intact Insurance Specialty Solutions, 188 Inverness Dr. W, Suite 600, Englewood, CO 80112. Kelly Frances Huedepohl, Gordon Rees Scully Mansukhani LLP, 1300 SW Fifth Avenue, Suite 2000, Portland, OR 97201. Attorneys for Plaintiff Atlantic Specialty Insurance Company.

Michael J. Walker and Jeremy C. Rice, Parks, Bauer, Sime, Winkler & Walker, 570 Liberty St SE, Suite 200, Salem, OR 97302. Attorneys for Plaintiff State Farm Fire and Casualty Company.

Laurie R. Hager, Snell & Wilmer LLP, 1455 SW Broadway, Suite 1750, Portland, OR 97201. Attorney for Defendant.

ORDER

IMMERGUT, District Judge.

On June 15, 2022, Magistrate Judge Jolie Russo issued her Findings and Recommendation ("F & R"), ECF 76, recommending that this Court grant Plaintiff State Farm Fire and Casualty Company's ("State Farm") Motion for Summary Judgment, ECF 52, in part, and grant Defendant Oregon School Boards Association Property and Casualty Coverage for Education Trust's ("PACE") Partial Motion for Summary Judgment, ECF 54, in part. All parties timely filed objections, ECF 78, ECF 79, ECF 80, and responses, ECF 81, ECF 82. This Court has reviewed de novo the portion of the F & R to which Plaintiffs and Defendant objected. For the following reasons, the Court ADOPTS Judge Russo's F & R as supplemented in this order.

STANDARDS

Under the Federal Magistrates Act ("Act"), as amended, the court may "accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C). If a party objects to a magistrate judge's F & R, "the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." Id. But the court is not required to review, de novo or under any other standard, the factual or legal conclusions of the F & R to which no objections are addressed. See Thomas v. Arn, 474 U.S. 140, 149-50, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985); United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc). Nevertheless, the Act "does not preclude further review by the district judge, sua sponte" whether de novo or under another standard. Thomas, 474 U.S. at 154, 106 S.Ct. 466.

DISCUSSION

The present case concerns an insurance dispute among several insurers arising out of a 2017 skiing accident involving Quency Fahlgren ("Fahlgren"), a certified volunteer ski coach for Sam Barlow High School ("School") located within the Gresham-Barlow School District ("District"), and minor DV. ECF 76 at 2, 5. The School and Fahlgren are both members of the Oregon Interscholastic Ski Racing Association ("OISRA"), which operates as the School's agent in relation to mountain events. Id. at 3. At the time of the accident, Plaintiff State Farm insured Fahlgren, Plaintiff Atlantic Specialty Insurance Company ("ASIC") insured OISRA, and Defendant PACE insured the District. Id. at 6.

DV and his father sued Fahlgren, alleging negligence. Id. at 5. Plaintiffs defended Fahlgren against the underlying lawsuit and eventually settled the claims for $5,500,000. Id. at 7. Plaintiffs then sued Defendant, arguing that Defendant had a duty to defend and indemnify Fahlgren. Id. In her F & R, Judge Russo found that Plaintiff State Farm's Motion for Summary Judgment, ECF 52, should be granted as to the breach of Defendant's duty to defend and indemnify. ECF 76. at 31. The F & R also found that Defendant's Motion for Partial Summary Judgment should be granted to the extent that it asserts the District's liability cannot exceed the Oregon Tort Claims Act ("OTCA") statutory limit on liability for public bodies. Id.

Both Plaintiffs and Defendant object to Judge Russo's F & R. Plaintiff State Farm objects to Judge Russo's ruling that the OTCA's liability cap applies to both indemnity and defense costs. ECF 78 at 2. Plaintiff ASIC joins State Farm's objections and separately seeks clarification on the applicability of the limits of liability under the PACE Policy to Fahlgren and the District. ECF 79 at 2-3.

Defendant raises two objections to Judge Russo's F & R. First, Defendant objects to the finding that when a single individual possesses dual agency status for a public and non-public body, damages may exceed the OTCA's limits. ECF 80 at 2. Second, Defendant objects to Judge Russo's ruling that the OTCA limits of liability would not collectively apply to all three insurers in the underlying case. Id.

The Court considers the issued raised by the parties in turn. For the reasons discussed below, this Court agrees with Judge Russo's analysis and adopts the F & R with the following supplemental analysis.

A. Indemnity and Defense Costs

Plaintiffs State Farm and AISC both contend that Judge Russo erred in holding that Defendant's indemnification responsibility is capped at $1,382,300, inclusive of defense costs. ECF 78 at 2; ECF 79 at 3. To the extent that the OTCA caps Defendant's indemnification responsibility, Plaintiffs argue that this cap applies only to Defendant's indemnity obligation and not defense costs. ECF 78 at 2; ECF 79 at 3.

In her F & R, Judge Russo found that while Defendant "breached its duty to defend and indemnify the District against the underlying negligence actions," Defendant's overall liability—including defense costs—was capped by the OTCA. ECF 76 at 30.¹ The OTCA imposes limits on liability for public bodies. For causes of action occurring on or after July 1, 2016, and before July 1, 2017, a school district's damages are capped at $1,382,300 for multiple claimants. Id. at 20; O.R.S. 30.272. Judge Russo recommends—and the parties do not challenge—a finding that the OTCA cap applies to Defendant's liability under the applicable coverage provision. ECF 76 at 20.²

To support her finding that the OTCA's cap on liability includes defense costs, Judge Russo relied on two Oregon Court of Appeals cases: Nw. Pump & Equip. Co. v. Am. States Ins. Co., 144 Or. App. 222, 925 P.2d 1241 (1996) and Burley v. Clackamas Cnty., 313 Or App. 287, 496 P.3d 652 (2021). Nw. Pump & Equip. Co. announced the general rule that the duty to defend is different from the duty to indemnify, 144 Or. App. at 227, 925 P.2d 1241, but noted that "settlement costs . . . include[ ] both the cost of providing the defense and the cost of the liability itself," id. at 230, 925 P.2d 1241. In Burley, the Oregon Court of Appeals held that the OTCA's limits on liability for public bodies applied to attorney's fees. Burley, 313 Or. App. at 292, 496 P.3d 652. Additionally, though not directly cited by Judge Russo, the Oregon Supreme Court has held that "liability" as defined in the OTCA "must refer to the duty or legal responsibility to pay money on a tort claim." Griffin By and Through Stanley v. Tri-County Metro. Transp. Dist. of Or., 318 Or. 500, 508, 870 P.2d 808 (1994). In rejecting the notion that "liability" only included "tort damages," and not costs like attorney's fees, the court noted that the OTCA "contains no such qualification" and "[h]ad the legislature intended the limit on 'liability' to apply only to liability for tort damages, it could have said so." Id. at 508-09, 870 P.2d 808.

Plaintiffs contend that while defense costs include attorney's fees, Burley does not stand for the proposition that all defense costs are capped by the OTCA. ECF 79 at 5. This Court is not convinced. The court in Burley based its conclusion on the policy underlying the OTCA, which is to "protect the financial stability of public bodies and to enable them to obtain insurance." Burley, 313 Or. App. at 292, 496 P.3d 652. Though Burley dealt only with the issue of attorney's fees, this Court sees no reason why the limits of liability meant to protect the financial stability of public bodies should extend narrowly to attorney's fees and not the broader issue of defense costs.

Plaintiffs finally argue that Defendant's policy expressly provides that PACE has an obligation to pay covered damages and a separate duty to defend its insured. ECF 78 at 2. As noted above, the duty to defend is separate from the duty to indemnify. Nw. Pump & Equip. Co., 144 Or. App. at 227, 925 P.2d 1241. And while the PACE policy states that "Defense Costs are in addition to the Per Occurrence and Annual Aggregate Total Limits of Liability shown in the Declarations," ECF 78 at 3, this Court does not read this to exempt defense costs from the applicable liability limit under the OTCA. See Griffin, 318 Or. at 508-09, 870 P.2d 808. Accordingly, this Court adopts this portion of the F & R's analysis. ECF 76 at 30.

B. Dual Agency and Limits of Liability under the OTCA

In her F & R, Judge Russo found that Fahlgren was operating as an agent of both OISRA and the District at the time of the accident. ECF 76 at 25. Following that finding, Judge Russo concluded that "[w]here . . . a single individual possesses dual agency status for a public and non-public body, damages may exceed the OTCA's limits, although the public body's liability would be capped as set forth in [O.R.S.] 30.272." Id. To support this conclusion, Judge Russo cites to Berry v. State, Dept. of Gen. Servs., in which the Oregon Court of Appeals held that a public employee who acts outside of the scope of their employment is not subject to the liability limits of the OTCA. 141 Or. App. 225, 229 n.4, 917 P.2d 1070 (1996) ("If plaintiff can show that [the defendant] acted outside the scope of his employment, he would be able to recover against [the defendant] as against any other individual, without regard to the Act's limitations on compensatory damages or its prohibition against punitive damages.").

Defendant argues that...