Carrier v. Hicks

851 P.2d 581, 851 P.2d 851, 316 Or. 341, 1993 Ore. LEXIS 59

• Court: Oregon Supreme Court
• Decided: May 21, 1993
• Docket: CC 87-2112; CA A60563; SC S37366
• Status: Published

Opinions

PETERSON, J.

This is an appeal from a summary judgment in favor of defendant tavern operators, in a civil action to recover for personal injuries resulting from an automobile accident. Defendants allegedly served alcoholic beverages to Morgan, the driver of a car that struck plaintiffs vehicle, injuring him. Defendants’ insurer became insolvent, and the Oregon Insurance Guaranty Association (OIGA) defended defendants against plaintiff s claim. The trial court granted defendants’ motion for summary judgment. The Court of Appeals reversed. Carrier v. Hicks, 102 Or App 13, 793 P2d 329 (1990). We reverse the decision of the Court of Appeals and affirm the judgment of the trial court.

Plaintiff was injured when the car in which he was a passenger was struck by a vehicle driven by Morgan, after Morgan left defendants’ tavern. Morgan had $50,000 in liability coverage, which was divided among the injured parties. Plaintiff received $23,000 from that settlement. In August 1987, plaintiff filed a complaint in circuit court against defendants, alleging negligence and statutory tort liability for serving a visibly intoxicated patron.¹ At some point, defendants’ insurance carrier became insolvent, and OIGA assumed its responsibilities to defend defendants, pursuant to ORS 734.510 et seq.

Plaintiff then filed an uninsured motorist claim against his own insurance company, Farmers Insurance Company (Farmers). As provided in plaintiffs insurance policy and ORS 742.504(10), the claim went to arbitration. The three-person arbitration panel awarded plaintiff $100,000 in special and general damages. That amount was less than the $250,000 limit of plaintiffs uninsured and underinsured motorist coverage. Plaintiff acknowledged satisfaction of his claim against Farmers, but expressly reserved his right to continue his action against defendants.

Plaintiff pressed this action. The trial court granted defendants’ motion for summary judgment, apparently on the grounds that plaintiff had not exhausted his remedies as required by ORS 734.640(1)² and that the arbitration award constituted a full recovery of damages due to the harm caused by defendants and Morgan.

On plaintiffs appeal, the Court of Appeals, relying on its decision in Mazorol v. Coats, 102 Or App 8, 793 P2d 326 (1990), held that ORS 734.640(1) is not a defense to an action against a tortfeasor and reversed and remanded. Carrier v. Hicks, supra. In Mazorol, the court did not reach the issue of whether the plaintiff had exhausted his remedies pursuant to ORS 734.640(1). The Mazorol court stated:

“As a consequence of plaintiffs mistaken belief that he had to proceed first against his own uninsured motorist coverage, he arbitrated his damages and was awarded less than the $100,000 limits of his uninsured motorist coverage. Defendant argues that because the policy limits were not exhausted, plaintiff has not exhausted his remedies, as required by ORS 734.640(1). Again, defendant is mistaken. Whether or when plaintiff pursues his uninsured motorist claim has nothing to do with plaintiffs right to bring an action against defendant. The existence or nonexistence of insurance or the financial status of insurers, indeed the whole OIGA scheme, has nothing to do with how a plaintiff may proceed against a tortfeasor.” 102 Or App at 11.

The Mazorol court also concluded that allowing defendants, who were not parties to the arbitration, to assert the preclusive effect of the arbitrator’s award would fail the fairness prong of the test for issue preclusion in that it would not be fair to plaintiff because plaintiff would be deprived of his right to jury trial. 102 Or App at 12. The court further noted that giving the arbitration award preclusive effect in a plaintiffs’ action against an inadequately insured tortfeasor is not contemplated by the uninsured/underinsured motorist statutes. Ibid.

The threshold issue is whether ORS 734.640 requires a claimant to exhaust the limits of all other insurance coverage before a claimant can recover from either a tortfeasor whose liability insurer is insolvent or from OIGA. The answer turns on an analysis of the OIGA statutes, ORS 734.510 to 734.710.

The OIGA statutes operate when an insured’s liability insurer becomes insolvent. OIGA is an association of insurers created by the Oregon legislature to accumulate and administer funds to pay for the defense of insureds whose insurer becomes insolvent and to pay claims of injured claimants whose claims would have been within the coverage of the insolvent insurer’s policy. ORS 734.510(4). The law was passed, among other reasons, to protect claimants and policyholders from loss arising from the insolvency of a liability insurer. ORS 734.520 states:

“The purpose of ORS 734.510 to 734.710 is to provide for the payment of covered claims under certain insurance policies to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer, to assist in the detection and prevention of insurer insolvencies, to provide an association to assess the cost of such protection among insurers and to assist in the liquidation of insurers as provided in this chapter.”

The OIGA statutes outline how those goals are to be achieved. OIGA is obligated to pay “covered claims” against insolvent insurers, up to the limits of the insolvent insurer’s limits, or $299,999.99, whichever is less. ORS 734.570(1).³ “Covered claim” does not include “[a]ny amount due any reinsurer, insurer, insurance pool or underwriting association as subrogated recoveries or otherwise.” ORS 734.510-(4)(b)(B). As will be discussed below, that is a significant exclusion from the coverage that would have been provided by the insolvent insurer.

The “functions” of OIGA are set forth in ORS 734.570 and include these:

— “to the extent of the association’s obligation,” to perform “the rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent,” ORS 734.570(2);

— to assess members on a pro rata basis so that the association can meet its obligations, ORS 734.570(3);

— to investigate, “adjust, compromise, settle and pay covered claims to the extent of the association’s obligation,” ORS 734.570(4); and

— to pay covered claims, ORS 734.570(1).

Although the funds to operate OIGA come from assessments against member insurers — and all insurers that write insurance to which the law applies are members, ORS 734.510(7) — contributing members receive tax credits equal to their contributions, ORS 734.575(1). Surplus OIGA funds are deposited in the “General Fund of this state.” ORS 734.575(2). Thus, in a real sense, state tax credits fund the OIGA program.

As pointed out above, a “covered claim” does not include amounts due other insurers “as subrogated recoveries or otherwise.” ORS 734.510(4)(b)(B). Another OIGA statute, ORS 734.695, provides:

“The insured of an insolvent insurer shall not be personally liable for amounts due any reinsurer, insurer, insurance pool or underwriting association as subrogation recoveries or otherwise up to the applicable limits of liability provided by the insurance policy issued by the insolvent insurer.”

Those two statutes are significant, because they appear to negate provisions of the uninsured motorist (UM) and under-insured motorist (UIM) laws found in ORS 742.504, provisions that give UM and UIM carriers rights against the proceeds of any recovery against a tortfeasor.⁴

The aim. and effect of the OIGA statutes is to make OIGA the carrier of last resort. It is not liable on or for subrogated claims of insurers, ORS 734.510(4)(b)(B). Its “insured” has a similar immunity, “up to the applicable limits of liability provided by the insurance policy issued by the insolvent insurer,” ORS 734.695. Claimants must “exhaust [their] remedies” against all other insurers before they can claim OIGA funds, ORS 734.640(1).

That brings us to the dispositive statute, ORS 734.640, which in part reads as follows:

“(1) Any person who has a claim under an insurance policy against an insurer other than an insolvent insurer which would also be a covered claim against an insolvent insurer must first exhaust the remedies under such policy.

“(2) Any person who has a claim that may also be recovered from one or more insurance guaranty agencies that perform functions similar to that of the association shall first seek recovery from whichever organization serves the place of residence of the insured * * *:

“(3) Any recovery under ORS 734.510 to 734.710 from the association shall be reduced by the amount of any recovery pursuant to subsections (1) and (2) of this section.” (Emphasis added.)

One manifest purpose of the OIGA law is to protect claimants and insureds. It provides protection that is similar but not identical to the protection claimants and insureds would have had if the liability insurer had not become insolvent. Insureds are defended by OIGA and protected up to the limits of their policy with the insolvent insurer or $299,999.99, whichever is less. Claimants are protected by those same provisions. But all of those protections have significant restrictions, some of which are discussed above.

The pivotal question in this case is the meaning of the phrase in ORS 734.640(1) that “[a]ny person who has a claim under an insurance policy [in this case, the claimant] which would also be a covered claim against an insolvent insurer must first exhaust the remedies under such policy.” Plaintiffs UIM claim against Farmers was a “claim under an insurance policy,” an insurance policy with limits of $250,000. Plaintiff was awarded $100,000 on that claim under- the UIM policy. The specific question is whether the words “must first exhaust the remedies under the [Farmers] policy” mean (1) that the Farmers policy limits must be “exhausted” before plaintiff can proceed against defendants or OIGA; or (2) that the claim against the policy, whatever its outcome, must be “exhausted” by completion; or (3) that claimant simply cannot collect from OIGA until the other claim is in process. The construction of this provision that is most consistent with the OIGA law is the first one — that the other insurance policy limits be exhausted before plaintiff can proceed against the insured of an insolvent insurer or against OIGA to recover damages covered by the OIGA plan.

The various parts of the OIGA law make several things clear. First and foremost is that the OIGA funds be available for the protection of claimants and insureds of insolvent insurers. Also important in the total OIGA scheme is that OIGA funds, generated by Oregon income tax credits, not be accessible or used until all other available insurance sources of payment have been used up. That is the underlying premise for ORS 734.510(4)(b)(B) (which excludes amounts due other insurers from the definition of “covered claim” in the OIGA law) and ORS 734.695 (which immunizes the insured of an insolvent insurer from personal liability for amounts due any insurer up to the applicable limits of liability of the insolvent insurer, but not to exceed $299,999.99).

Taken together, the OIGA law in ORS chapter 734 and the UM/TJIM law in ORS chapter 742 suggest that, if an injured claimant can receive all damages to which he or she is legally entitled from existing other UM or UIM insurance, the claimant would have no claim against either the insured of the insolvent insurer or against OIGA for the amounts within the OIGA coverage. The reason: The claimant has been compensated for the injuries sustained pursuant to a statutory procedure for determining fair compensation, a procedure designed to award the same amount that claimant would be legally entitled to receive from the insured in a civil action for damages. In this case, that statutory procedure is found in ORS 742.504(10), which provides that, if the UM or UIM carrier and the claimant do not agree as to the amount of damages that the claimant is “legally entitled” to recover from the uninsured or underinsured driver, the damages will be determined in an arbitration proceeding “under the arbitration laws of the State of Oregon and any judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.”

Insurance companies are pervasively regulated in Oregon in ORS chapter 731 to 752. The OIGA laws and UM and UIM laws are interrelated. The UM and UIM statutes provide a method for determining the amount of compensation to which a claimant may be “legally entitled to recover [as] damages * * * because of bodily injury.” ORS 742.504(10). This protects the right of an injured person who has UM or UIM coverage to receive fair compensation, up to the limits of the UM or UIM coverage. The UM/UIM statutes also provide that the paying UM or UIM insurer has a claim against the uninsured motorist or other tortfeasor, a claim that may be asserted by the injured person, who holds any amounts so recovered “in trust.” ORS 742.504(11). The OIGA laws, on the other hand, expressly immunize OIGA and partially immunize the insured of the insolvent insurer from the collection of any amounts due other insurers, including UM and UIM insurers, up to the OIGA limits of coverage. ORS 734.690; ORS 734.510(4)(b)(B). This immunity extends to claims of injured persons held “in trust” for their UM or UIM carriers under ORS 752.504(11).

The arbitration procedures contained in ORS 742.504(10) protect the claimant, who may recover from the UM or UIM insurer the amount to which he or she is legally entitled to recover as damages for the injury (up to the limits of the UM or UIM coverage). The statutes contained in ORS chapter 734 protect the insured of the insolvent insurer, and OIGA, from all such claims, up to the limits of the insolvent insurer’s policy or the OIGA policy (whichever is less), consistent with the legislative plan.⁵ In short, a claimant who received an award under ORS 742.504(10) for the bodily injury damages to which he or she is legally entitled, and is paid those amounts, is not entitled to proceed against OIGA or its insured for amounts within OIGA’s coverage limits.

It follows from the foregoing that, in order to give effect to the legislative plan and to provide the protection that the legislature intended that claimants, OIGA, and the insured of the insolvent insurer have, the requirement in ORS 734.640(1) that the claimant “must first exhaust the remedies under such policy” means that the limits of any other applicable policy or policies must be exhausted before the claimant can assert a claim to recover damages covered by the OIGA plan against the insured of the insolvent insurer, or against OIGA. This is true because, if the recovery under the UM or UIM coverage is less than the UM/UIM policy limits, the recovery was less because the lesser amount was all that was necessary to make the claimant whole, i.e., that claimant receive, as provided by ORS 742.504(10), the damages to which he was “legally entitled.”⁶ Here, because plaintiff received the award of damages to which he was legally entitled, and that award did not exhaust the limits of the Farmers UM and UIM coverage, he is foreclosed from further pursuing his claim against defendants or OIGA to recover damages covered by the OIGA plan.

In Mazorol v. Coats, supra, 102 Or App at 11, the Court of Appeals stated: “The existence or nonexistence of insurance or the financial status of insurers, indeed the whole OIGA scheme, has nothing to do with how a plaintiff may proceed against a tortfeasor. ’ ’ That is not correct. The ‘ ‘whole OIGA scheme” is part of an extensive regulatory plan that is premised on the proposition that a claimant who would seek damages that otherwise are recoverable under other insurance coverage must exhaust that remedy before he or she is entitled to recover damages covered by the OIGA plan from the insured tortfeasor whose insurer is insolvent or from OIGA. The legislature aimed to make OIGA funds the funds of last resort.

In using the phrase ‘ ‘must first exhaust the remedies under such policy,” the legislature did not have in mind the claim procedures of such policies. That would make the phrase an empty one, requiring only going through the procedures required by the other insurance policies. Instead, the legislature had in mind a complete plan, one that maximizes protection to the insured of an insolvent insurer, up to the OIGA limits, without intruding on the right of the injured person to recover the damages to which he or she legally is entitled, and yet protects OIGA funds so that they are limited to cases in which no other insurance is available to pay the claim.

That brings us to plaintiffs final contention, that the arbitration proceedings referred to in ORS 742.504(10) impinge on plaintiffs right to a jury trial under Article I, section 17, of the Oregon Constitution. It provides:

“In all civil cases the right of Trial by Jury shall remain inviolate.”

In Molodyh v. Truck Insurance Exchange, 304 Or 290, 744 P2d 992 (1987), the plaintiff challenged a provision of the fire insurance code, ORS 743.648, which set forth an appraisal procedure required to be included in all fire insurance policies, and followed if the insurer and insured did not agree as to the amount of loss. The statute stated that the appraisers’ award would “determine the amount of * * * loss.” This court held that the statute could not deprive a nondemanding party of the right to jury trial. 304 Or at 299. The appraisal statute was held to be permissive as regards the demanding party and thus did not offend that party’s jury trial rights. Ibid.

In the present case, the arbitration was conducted by agreement of the parties, not under statutory compulsion. That being so, the state has not deprived plaintiff of a jury trial; he voluntarily has agreed to forego one. Notwithstanding the arbitration provisions of ORS 742.504(10), under Molodyh, an unwilling UM or UIM claimant or insurer cannot be required to arbitrate the claim; any party can demand a jury trial of the UM or UIM claim. Our construction of the OIGA law and the UM/UIM law does not violate a claimant’s Article I, section 17, right to a jury trial.

The decision of the Court of Appeals is reversed. The judgment of the circuit court is affirmed.

1 ORS 471.410(1) provides:

“No person shall sell, give or otherwise make available any alcoholic liquor to any person who is visibly intoxicated.”

2 ORS 734.640(1) provides:

“Any person who has a claim under an insurance policy against an insurer other than an insolvent insurer which would also be a covered claim against an insolvent insurer must first exhaust the remedies under such policy.”

3 ORS 734.510(4)(a) defines “covered claim” as

“an unpaid claim, including a claim for unearned premiums, that arises out of and is within the coverage and limits of an insurance policy to which ORS 734.510 to 734.710 apply and which is in force at the time of the occurrence giving rise to the unpaid claim, made by a person insured under such policy or by a person suffering injury or damage for which a person insured under such policy is legally liable * *

4 ORS 742.504(11) is a UM/UIM statute and provides:

“In the event of payment to any person under this coverage:

“(a) The insurer shall be entitled to the extent of [payment under the coverage] to the proceeds of any settlement orjudgment that may result from the exercise of any rights of recovery of such person against any uninsured motorist legally responsible for the bodily injury because of which such payment is made;

“(b) Such person shall hold in trust for the benefit of the insurer all rights of recovery which the person shall have against such other uninsured person or organization because of the damages which are the subject of claim made under this coverage, but only to the extent that such claim is made or paid herein;

“(c) If the insured is injured by the joint or concurrent act or acts of two or more persons, one or more of whom is uninsured, the insured shall have the election to receive from the insurer any payment to which the insured would be entitled under this coverage by reason of the act or acts of the uninsured motorist, or the insured may, with the written consent of the insurer, proceed with legal action against any or all persons claimed to be liable to the insured for such injuries. If the insured elects to receive payment from the insurer under this coverage, then the insured shall hold in trust for the benefit of the insurer all rights of recovery the insured shall have against any other person, firm or organization because of the damages which are the subject of claim under this coverage, but only to the extent of the actual payment made by the insurer;

“(d) Such person shall do whatever is proper to secure and shall do nothing after loss to prejudice such rights;

“(e) If requested in writing by the insurer, such person shall take, through any representative not in conflict in interest with such person, designated by the insurer, such action as may be necessary or appropriate to recover such payment as damages from such other uninsured person or organization, such action to be taken in the name of such person, but only to the extent of the payment made hereunder. In the event of a recovery, the insurer shall be reimbursed out of such recovery for expenses, costs and attorney fees incurred by it in connection therewith; and

“(f) Such person shall execute and deliver to the insurer such instruments and papers as may be appropriate to secure the rights and obligations of such person and the insurer established by this provision.” (Emphasis added.)

5 In this opinion, we have repeatedly stated that the immunity of OIGA and the insured of the insolvent insurer from claims of claimant and other insurers exists up to the limits of the OIGA coverage. ORS 734.700; ORS 734.510(4)(b). Nowherein the record do we find what was the limit of the insurance provided by the insolvent insurance company. If the OIGA coverage is less than the amount of the UIM award, the insureds-defendants would not be entitled to immunity for amounts beyond the OIGA coverage. No party has raised this point. We therefore assume that the OIGA coverage is equal to or greater than the arbitration award.

6 An injured plaintiff has but one claim for damages, a claim that can be asserted against all joint tortfeasors or against any one tortfeasor. Claimant can have only one recovery of the damages to which he is “legally entitled.”