Nelson v. Liberty Ins. Corp.

314 Or.App. 350

498 P.3d 861

Gregory NELSON and Ronda Nelson, Plaintiffs-Respondents,

v.LIBERTY INSURANCE CORPORATION, Defendant-Appellant.

A171345

Court of Appeals of Oregon.

Argued and submitted May 7, 2021.

September 9, 2021

R. Daniel Lindahl, Portland, argued the cause for appellant. Also on the briefs were John A. Bennett and Bullivant Houser Bailey PC.

Nadia Dahab, Portland, argued the cause for respondents. Also on the brief were Nadia Dahab LLC; Robert E.L. Bonaparte and Bonaparte & Bonaparte, LLP; Randall Vogt and Vogt & Long PC.

Before Armstrong, Presiding Judge, and Aoyagi, Judge, and Sercombe, Senior Judge.

AOYAGI, J.

After their property was damaged in a fire that started at a nearby lumber mill, plaintiffs pursued contract claims against their homeowner's insurer, defendant Liberty Mutual Insurance Company, and negligence and other claims against the owner of the lumber mill, Rough & Ready Lumber Company (R&R). Plaintiffs reached a settlement with R&R and released R&R from all claims. After learning of the settlement, defendant asserted an affirmative defense to plaintiffs’ contract claims based on plaintiffs’ interference with defendant's subrogation rights. Plaintiffs moved for summary judgment on the affirmative defense, arguing that defendant was equitably estopped from asserting its subrogation rights, and the court granted summary judgment on that basis. The case proceeded to trial and resulted in a $10,000 verdict for plaintiffs. Defendant appeals the resulting general judgment, assigning error to the summary judgment ruling on the subrogation defense, as well as a supplemental judgment for attorney fees, costs, and prejudgment interest. For the following reasons, we reverse both judgments and remand.

FACTS

We state the facts from the summary judgment record in the light most favorable to defendant as the nonmoving party. See Wirth v. Sierra Cascade, LLC , 234 Or. App. 740, 745, 230 P.3d 29, rev. den. , 348 Or. 669, 237 P.3d 825 (2010).

In August 2015, a fire broke out at a lumber mill near plaintiffs’ property in Cave Junction. The fire spread onto plaintiffs’ property, damaging plaintiffs’ home, personal property, and business property.

Plaintiffs had a homeowner's insurance policy issued by defendant, which provided coverage for their home and their personal property but not their business property. That policy included a subrogation provision, which stated:

"8. Subrogation. An ‘insured’ may waive in writing before a loss all rights of recovery against any person. If not waived, we may require an assignment of rights of recovery for a loss to the extent that payment is made by us.

"If an assignment is sought, an ‘insured’ must sign and deliver all related papers and cooperate with us."

Plaintiffs notified defendant of the fire and started the claims process. An adjuster visited the property to inspect the damage, and, in September 2015, defendant made an initial payment of $2,743, which it considered a partial payment on the claim. A week later, plaintiffs rejected the payment and withdrew their claim. They told defendant that R&R would be accepting responsibility for the damage. Defendant sent a letter to plaintiffs confirming that their claim had been "closed without payment" at their request.

Nearly a year and a half later, in February 2017, plaintiffs filed this action against defendant, asserting claims for breach of contract and breach of the implied covenant of good faith and fair dealing. Plaintiffs alleged that they had sought payment from defendant for their covered losses from the fire, but that defendant had "refused to pay all of plaintiffs’ losses to real and personal property," thus breaching the insurance contract and causing $55,000 in damages to plaintiffs. On the same day, plaintiffs filed a separate action against R&R, alleging that its negligence caused the fire.

On March 23, 2017, defendant's attorney sent a letter to plaintiffs’ attorney. The gist of the letter was that plaintiffs had told defendant in 2015 that they did not want to pursue an insurance claim for the fire damage, that plaintiffs had not given any notice to defendant that they wanted to revive their withdrawn claim, and that plaintiffs should dismiss the suit without prejudice and go through the claims process. Meanwhile, defendant would "consider the lawsuit notice that [plaintiffs] intend to revive their claim" and would reopen the file, assign an adjuster, and adjust the claim.

The letter continued that plaintiffs would need to comply with their duties under the policy. It quoted sections of the policy regarding the insured's duties after a loss, suits against the insurer, and subrogation. Relevant to subrogation, the letter said that defendant would need copies of any payments made by R&R "and any resolution documents, including possible releases," and pointed to the subrogation condition:

"It seems evident that there cannot be a breach of the contract of insurance if the insureds have told the insurance company that they do not want to make a claim. Liberty understands that the Nelsons chose to collect their loss from the lumber company responsible for the fire. That entity appears to be named Rough and Ready Mill. Of course, if the Nelsons have received a recovery from the lumber company, Liberty will need copies of all documents provided to the lumber company or its representative, any payments made by the lumber company, and any resolution documents, including possible releases of the lumber company.

"Other provisions in the policy may be at issue. For convenience, we quote the Suit Against Us condition of Section I (as amended by the SPECIAL PROVISIONS—OREGON endorsement), and the Subrogation condition . Other terms and conditions of the policy may be applicable, and Liberty does not waive any term or condition of the policy by quoting only certain terms."

(Italics added.)

Defendant quoted the subrogation condition in full. It then continued that it was "fine" if plaintiffs wanted to reopen their claim, but that defendant was "entitled to investigate and adjust the claim, including having the insureds comply with the duties set forth in the contract of insurance." Defendant concluded by saying that the loss did not look complicated and that it anticipated a successful adjustment.

By mutual agreement, this action was stayed while defendant adjusted plaintiffs’ insurance claim. During the stay, in May 2017, plaintiffs filed an amended complaint, asserting the same claims but greater damages of $125,000. Defendant answered on August 23, 2017, denying that it had breached the insurance contract. The answer also contained a "reservation of defenses" section, in which defendant reserved "all rights, defenses, limitations and conditions under the terms of the insurance policy."

On September 6, 2017, plaintiffs’ attorney sent a letter jointly to defendant's and R&R's attorneys, proposing a global mediation. The letter said in full:

"I propose a global mediation in Portland to resolve these cases, using [names of three suggested mediators].

"The Nelson v. Rough & Ready case is set for trial on November 7, 2017. The Nelson v. Liberty Mutual case will likely be set for trial in spring 2018."

A week later, plaintiffs’ attorney told plaintiffs that defendant had "declined the invitation" and that plaintiffs’ action against defendant remained stayed and did not have a trial date. Plaintiffs’ attorney later attested that he had invited defendant to participate in a global mediation "to resolve all outstanding issues, including defendant's assertion of its right to subrogation."

No mediation occurred in the R&R case. However, plaintiffs reached a settlement with R&R in December 2017 and signed a settlement agreement in January 2018. R&R paid $140,000 to plaintiffs, and plaintiffs released all claims against R&R.

On July 26, 2018, defendant sent a letter to plaintiffs that its claim investigation was complete. After recapping the claim history, defendant said that it had determined that plaintiffs’ total covered losses from the fire were $25,870.83, noting that the "majority of the damage involved property not insured by the homeowner's policy." Defendant then told plaintiffs that, during its claim investigation process, it had learned of plaintiffs’ settlement with R&R, including plaintiffs’ release of all claims against R&R, the party responsible for the fire. After quoting the subrogation condition in full, defendant said that it was asserting its subrogation rights in conjunction with making payment on the claim, that plaintiffs had prejudiced those rights by releasing R&R, and that plaintiffs had breached the subrogation condition:

"As Liberty was still assessing the loss when the insureds settled with [R&R], it could not assert its subrogation rights at that time. But it was apparent to the insureds that coverage would be provided. Liberty now asserts its subrogation rights. Liberty recognizes that the insureds have released [R&R], thus prejudicing Liberty's subrogation rights and breaching the subrogation provision of the policy."

Rather than void coverage, defendant explained how it intended to address the situation, which, in the end, involved defendant paying plaintiffs $13,676.27—which included covered personal property losses and some attorney fees—and not paying $18,200.83 of covered losses for which defendant asserted subrogation rights.

Shortly thereafter, defendant amended its answer to add an affirmative defense based on its subrogation rights. Defendant alleged that plaintiffs were required to assign rights of recovery for a loss to the extent that defendant made payment; that plaintiffs knew that defendant had sought to provide coverage for the loss prior to plaintiffs withdrawing their insurance claim; that plaintiffs knew that defendant was examining the renewed claim and would provide a scope of coverage; that plaintiffs released their rights of recovery against R&R without obtaining a recovery from R&R...