Warm Springs Forest Products Industries v. Employee Benefits Insurance

703 P.2d 1008, 74 Or. App. 422

• Court: Court of Appeals of Oregon
• Decided: July 17, 1985
• Docket: A8010-05866; CA A24017
• Status: Published

Opinions

BUTTLER, J.

This case comes to us on remand from the Supreme Court with instructions to consider principles of federal Indian law, which, because of our original disposition of the case, we did not reach. Plaintiff is an industry wholly owned and operated by Confederated Tribes of the Warm Springs Reservation of Oregon, a federally recognized Indian tribe.¹ Defendant, a foreign insurance company authorized to do business in Oregon, agreed to provide workers’ compensation coverage for the tribe’s wood products business, part of which is on the reservation and part of which is not. Plaintiff brought this action, alleging that defendant agreed to rebate a percentage of the insurance premiums, and sought damages for breach of that agreement, damages for fraud and misrepresentation, and reformation of the insurance contract. Defendant moved to strike the material allegations in each count, contending that the alleged rebate agreement is illegal under ORS 746.035 and 746.045, part of Oregon’s Insurance Code. The motion was granted, and plaintiff appealed from the judgment dismissing its complaint.

We reversed, 64 Or App 856, 669 P2d 389 (1983), relying on our opinion in Mountain Fir Lbr Co. v. EBI Co., 64 Or App 312, 667 P2d 567 (1983), in which we had held such an agreement enforceable. The Supreme Court granted review in both Mountain Fir and this case and concluded that, because rebate agreements are prohibited by statute for the purpose of protecting the solvency of workers’ compensation insurance, such agreements are not enforceable. Mountain Fir Lbr Co. v. EBI Co., 296 Or 639, 644, 679 P2d 296 (1984). On the basis of that holding, the court remanded this case as indicated at the outset of this opinion. Warm Springs Forest Products Ind. v. EBI Co., 296 Or 708, 678 P2d 266 (1984). We have considered Indian law, as well as other principles, and affirm.

The stricken allegations were material to each of plaintiffs claims for relief. It is not necessary for the disposition of this case to quote all of them; one is representative:

“In connection with the sales proposal to induce plaintiff to purchase insurance from defendant, defendant, by letter dated January 22, 1976 and delivered to plaintiff at Warm Springs, Oregon, within the exterior boundaries of the Warm Springs Indian Reservation, and by written proposal dated May 30, 1976 and presented to plaintiff at Warm Springs, Oregon, within the exterior boundaries of the Warm Springs Indian Reservation, represented that for an enterprise with the same risk and premium level as plaintiff defendant would retain 22% of the gross annual premiums, when, in fact, the percentage of plaintiffs gross annual premium retained by defendant for a period of July 1, 1976, to June 30, 1977 was 32.4% and for the period July 1, 1977, to June 30, 1978 was 39.7%.”

In addition to claims for damages based on misrepresentation, fraud and breach of contract, plaintiff sought to reform the insurance policy, which does not contain any reference to the alleged rebate, by adding the following agreements to the policy:

“1. That plaintiffs net cost for the Worker’s Compensation insurance was to be: claims expenses plus 22% of the earned premium * * *.

a* * * * *

“3. That defendant’s retention would be 22% of the earned premium.”

Because the rebate agreement alleged is illegal under Oregon law, Mountain Fir Lbr Co. v. EBI Co., supra, there was no error in granting defendant’s motion if Oregon law applies to this transaction. That is true not only of the contract-based claims, but also of the damage claims for misrepresentation and fraud, because allegations of fraud and misrepresentation cannot be used to circumvent the legislative policy forbidding such agreements. Mountain Fir Lbr Co. v. EBI Co., supra, 296 Or at 646.

Plaintiff contends that Oregon’s anti-rebate statutes (ORS 746.035 and 746.045) do not apply to its alleged rebate agreement with defendant, because choice of law and Indian law principles preclude the application of Oregon’s regulatory scheme.to a contract made with an agency of an Indian tribe concerning matters on an Indian reservation. It also argues that the alleged agreement is not prohibited on the Warm Springs Reservation, because the tribe has not enacted a law prohibiting such agreements and must be assumed to follow the common law, which does not invalidate them.

We need not determine what Warm Springs Indian law in regard to insurance rebate agreements might be.² First, defendant’s motions were based on Oregon statutes. If the Oregon Insurance Code does not apply to the agreement, those motions fail, regardless of the state of Warm Springs Indian law. It would then be defendant’s burden to raise affirmative defenses excusing compliance with the alleged agreement. If Oregon’s Insurance Code does apply, tribal law concerning rebate agreements would be irrelevant. Second, if federal Indian law were to preempt state law, the tribal law would not be relevant. Third, and most important to our disposition of this case, if the tribe has consented³ to the application of Oregon’s Insurance Code by virtue of the parties’ having agreed to it in this transaction, whether rebate agreements are otherwise lawful in Warm Springs Reservation is irrelevant.

The pleadings clearly present the question of whether the tribe consented to application of Oregon law, including the insurance code provisions in question, to this contract.⁴ It is clear that the tribe agreed to the application of Oregon workers’ compensation statutes and regulations to all matters governed by the insurance contract. Item 3 of the policy declarations provides that Oregon’s Workers’ Compensation Law applies to the insurance policy. The definition section of the policy provides that “ ‘Workmen’s Compensation Law’ means the Workmen’s Compensation Law * * * of a state designated in Item 3 of the declarations * *

Although Oregon’s Insurance Code (as distinct from the Workers’ Compensation Law) is not expressly mentioned in the insurance agreement, it applies as a matter of law to this kind of policy when, as here, it is issued in Oregon by a California corporation authorized to sell insurance in Oregon, ORS 731.158(3), unless the fact that the insured is an Indian tribe makes it inapplicable. Condition 1 of the policy provides, in part:

“* * * [I]f any change in classifications, or rating plans is or becomes applicable to this policy under any law regulating this insurance or because of any amendments effecting [sic] the benefits provided by the Workmen’s Compensation Law, such change with the effective date thereof shall be stated in an endorsement issued to form a part of this policy.” (Emphasis supplied.)

That condition appears to assume that the insurance is or may be or become regulated by some authority and that classification and rating plans applicable to it, and benefits provided by the applicable Workers’ Compensation Law, may change, and that the changes “shall be in an endorsement to form a part of this policy.” Clearly, that condition incorporates any changes in benefits under the Oregon Workers’ Compensation Law, and there is no reason to believe that the all inclusive language, “any law regulating this insurance” excludes Oregon’s Insurance Code.

If there were any doubt about that, the following endorsement, attached to and forming a part of the policy,⁵ appears to resolve it.

“PARTICIPATING PROVISION

“IT IS AGREED THAT THE PARTICIPATING PROVISION OF THE CONDITIONS OF THIS POLICY ARE [sic] HEREBY AMENDED TO READ AS FOLLOWS:

“EXCEPT AS PROVIDED, THIS POLICY SHALT, PARTICIPATE IN PROFITS AS APPORTIONED BY THE BOARD OF DIRECTORS.

“IT IS UNLAWFUL IN OREGON FOR AN INSURER TO PROMISE TO PAY POLICYHOLDER DIVIDENDS FOR ANY UNEXPIRED PORTION OF THE POLICY TERM OR TO MISREPRESENT THE CONDITIONS FOR DIVIDEND PAYMENTS. DIVIDENDS WILL BE DUE AND PAYABLE ONLY FOR A POLICY PERIOD THAT HAS EXPIRED, AND ONLY IF DECLARED BY AND UNDER CONDITIONS PRESCRIBED BY THE BOARD OF DIRECTORS OF THE INSURER.” (Emphasis supplied.)

The contract provisions appear to constitute an express, or at least a necessarily implied, see Restatement (Second) Conflict of Laws § 187, comment a (1971), choice by the parties to apply the relevant portions of Oregon’s Insurance Code to the insuring agreement that is clearly governed by Oregon law. They also constitute a consent by plaintiff, as required by Indian law principles, to the application of that law. That consent and choice of law is not confined to the Workers’ Compensation Law, because “any law” in condition 1 goes beyond “Workmen’s Compensation Law,” and the endorsement specifically addresses rebate agreements under Oregon law, which are governed by the insurance code.

Our conclusion is reinforced by other facts surrounding the contract. Because of its semi-sovereign status and its control over economic activity on its reservation,⁶ and because the state has no regulatory control over the reservation,⁷ the tribe was not required to procure workers’ compensation insurance for its enterprises within the reservation. However, the tribe also operates a plant in Madras, off the reservation; chose to be insured within the framework of Oregon’s Workers’ Compensation system to compensate its injured workers; and chose an Oregon-qualified insurance company to provide that protection. Because the policy incorporates Oregon Workers’ Compensation Law, it is heavily dependent on Oregon law for its administration and enforcement. Indeed, a significant portion of its performance must take place outside the reservation and by applying Oregon law.

The purpose of Oregon’s Insurance Code is “the protection of the insurance-buying public.” ORS 731.008. The specific provisions at issue, ORS 746.035 and 746.045, have as their purpose “to guarantee that all insurers would have sufficient funds to cover claims filed by the injured workers.” Mountain Fir Lbr Co. v. EBI Co., supra, 296 Or at 645. By prohibiting rate competition among workers’ compensation insurers, the legislature has benefited not only insurers, but employers and workers whose claims are thereby made more secure. Furthermore, because the rating system that sets premiums for Oregon workers’ compensation insurers is dependent on enforcement of the Insurance Code anti-rebate statutes, those statutes must be considered part of the workers’ compensation statutory scheme, although they are contained in a separate chapter of ORS.

Given the interdependence of the policy provisions, the Oregon Workers’ Compensation statutes and the anti-rebate provisions of the Oregon Insurance Code, we perceive no basis for applying foreign law to a small portion of the parties’ contract without some express indication that that was intended, especially when the anti-rebate principle is expressly referred to in the policy. Also, having availed itself of the Oregon workers’ compensation system, one element of which is the increased security and solvency of insurance companies intended to be assured by the insurance code provisions at issue, the tribal agency may not now pick and choose between various benefits offered by the Oregon workers’ compensation system. Presumably, plaintiff has benefited from the increased likelihood of solvency provided by the Oregon statutes.

The dissent apparently would apply the principle of depecage, by separating the issue of the legality of the alleged rebate agreement from all other issues related to this contract and treating that single issue under a different law. Although in some cases courts have applied the law of different jurisdictions to separate issues in the same case under the principle of depecage, that principle does not apply where the parties have chosen which law should apply, either expressly or by incorporating provisions of that law into their contract. It is only when the parties have not made a choice of law that conflict of laws principles become applicable. Restatement (Second) Conflict of Laws § 188, comments b, d. Even in the absence of a choice of law by the parties, it would be difficult to separate the rebate agreement from the insurance agreement, because it has no significance independent of the insurance agreement and cannot be effectuated without a reference to the terms of that agreement and Oregon statutes to establish the claims expenses necessary for calculation of the alleged rebate.

A further problem with the dissent’s approach is that this policy specifically covers activities at the tribe’s plant at Madras Industrial Park, which is off the reservation. The territorial and semi-sovereignty arguments raised by the tribe clearly do not apply to the Madras plant, which is within the territorial jurisdiction of Oregon’s Insurance Commission and is covered by Oregon’s Insurance Code. Extension of the policy’s coverage to that plant is convincing evidence that Oregon law was intended to govern the entire agreement between the parties; there is nothing to indicate that the parties intended the clear references to Oregon law in their agreement to refer only to the Madras plant. Apparently, the dissent would require not only the application of a different law to the single issue of legality of the rebate agreement, but a determination that the rebate agreement was legal as to that part of the policy covering operations on the reservation but illegal as to operations in Madras. Neither party suggests such an apportionment or partial legality approach, and we decline to adopt it in the absence of an express indication that the parties intended such a cumbersome result.

If the parties had not chosen to apply Oregon law by including specific references to it in their agreement, and by fashioning an agreement that could not be administered without reference to Oregon law, and if we were concerned solely with the tribe’s operations on the reservation, the alleged rebate agreement might well be enforceable.⁸ We conclude that, because the parties chose to apply the Oregon Workers’ Compensation Law, including the Insurance Code that applies to policies issued under that law, to this transaction, and by that choice, the tribe consented to the application of all of that law, the statutes in question are applicable to it.⁹ Accordingly, the trial court did not err in striking the allegations relating to a rebate agreement that violated those statutes.

Affirmed.

1 Agencies and enterprises of an Indian tribe are equivalent to the tribe itself for purposes of jurisdictional analysis. Central Machinery Co. v. Arizona Tax Comm’n, 448 US 160, 164 n 3, 100 S Ct 2592, 65 L Ed 2d 684 (1980); Mescalero Apache Tribe v. Jones, 411 US 145, 157 n 13, 93 S Ct 1267, 36 L Ed 2d 114 (1973); Cohen, Handbook of Federal Indian Law 355 (1982 ed).

2 Defendant concedes that “the tribe has never undertaken to regulate insurance transactions (specifically, to determine the legality of the rebate agreement in question) * *

3 The issue of consent in the context of Indian law was not briefed by the parties. We consider it because it is an alternate ground for affirming the trial court, and because the facts that give rise to our finding of consent are apparent on the face of the complaint.

4 The Warm Springs Indian tribe has not consented to general state civil jurisdiction over the reservation. See 41 Op Att’y Gen 48, 49 (1980); 40 Op Att’y Gen 31, 32 (1979); 37 Op Att’y Gen 412, 418 (1975). Plaintiffs filing this action in an Oregon court, although it constitutes consent to civil personal jurisdiction over plaintiff, does not constitute consent to state civil regulation of reservation matters. Three Affiliated Tribes v. Wold Engineering,_US_, 104 S Ct 2267, 81 L Ed 2d 113, 122 (1984); Williams v. Lee, 358 US 217, 219-20, 79 S Ct 269, 3 L Ed 2d 251 (1959). A tribe may cede general civil jurisdiction only by following the tribal voting procedures specifically laid down by federal statute. Kennerly v. District Court of Montana, 400 US 423, 91 S Ct 480, 27 L Ed 2d 507 (1971). However, it has been held that a tribe or tribal agency may consent to state regulation governing an individual activity or agency. Inecon Agricorporation v. Tribal Farms, Inc., 656 F2d 498, 501 (9th Cir 1981) (tribal enterprise not under federal law when registered as Arizona corporation, even though the corporate activity of agricultural land development and management involved land within the reservation).

5 This provision was contained in the 1977 renewal policy. Because that is the only insurance contract incorporated in the tribe’s pleadings, we must assume that the original 1976 contract was identical.

6 Merrion v. Jicarilla Apache Tribe, 455 US 130, 137, 102 S Ct 894, 71 L Ed 2d 21 (1982); 55 Interior Decisions 14, 50 (1934).

7 Washington v. Yakima Indian Nation, 439 US 463, 470, 99 S Ct 740, 58 L Ed 2d 740 (1979); McClanahan v. Arizona Tax Comm’n, 411 US 164, 171, 93 S Ct 1257, 36 L Ed 2d 129 (1973); 41 Op Att’y Gen 48 (1980); 40 Op Att’y Gen 31 (1979); 37 Op Att’y Gen 412 (1975).

8 Federal Indian Law principles which point toward such a result include territorial limitations on the reach of state regulatory power onto the reservation. Seen 7, supra. Because state regulation on a reservation must be expressly approved by Congress, McClanahan v. Arizona Tax Comm’n, supra, 411 US at 171, defendant’s argument that the McCarran-Ferguson Act, 15 USC § 1012, which does not mention Indians, gave the states jurisdiction over insurance matters involving reservation Indians is without merit. Federal preemption principles would also favor enforceability, because this contract involves areas fully controlled by federal law, such as regulation of federally financed tribal enterprises, control of economic development on the reservation, trading by non-Indians with Indians on the reservation, the management of Indian timber resources, and business contracts entered into on the reservation. New Mexico v. Mescalero Apache Tribe, 462 US 324, 335-36, 341, 343-44, 103 S Ct 2378, 76 L Ed 2d 611 (1983); Ramah Navajo School Bd. v. Bureau of Revenue, 458 US 832, 844, 102 S Ct 3394, 73 L Ed 2d 1174 (1982); Merrion v. Jicarilla Apache Tribe, supra, n 6; Central Machinery Co. v. Arizona Tax Comm’n, supra, n 1, 448 US at 164-65; White Mountain Apache Tribe v. Bracker, 448 US 136, 145-49, 100 S Ct 2578, 65 L Ed 2d 665 (1980); Warren Trading Post v. Arizona Tax Com., 380 US 685, 690, 691 n 18, 85 S Ct 1242, 14 L Ed 2d 165 (1965); 55 Interior Decisions 14, 50 (1934).

Even if federal Indian law principles were not sufficient to exclude application of Oregon law to the alleged agreement, Warm Springs tribal law would still be the applicable law under choice of law analysis, if the contract did not, by its terms, make application of Oregon law both necessary and appropriate. Because state regulatory power does not normally extend into the reservation, Oregon has no apparent interest in preserving the solvency of an insurer doing business outside of Oregon’s legislative jurisdiction. The alleged agreement and insurance contract, as a whole, were both negotiated on the Warm Springs Reservation and were signed there. Payment of the alleged rebate, and payment by defendant of any tribal liability under the policy, also were to take place there. Thus Warm Springs has more significant contacts with the contract than does Oregon.

9 The dissent believes that our result “denigrates plaintiffs tribal sovereignty.” (74 Or App at 432). That statement ignores the fact that the tribe could have negotiated an insurance contract that included all of the terms under which compensation would be paid without incorporating the laws of Oregon or any other state. Plaintiff does not contend that defendant fraudulently induced it to incorporate Oregon’s workers’ compensation laws rather than the laws of some other jurisdiction. For that reason, the dissent’s reliance (74 Or App at 437-38) on Restatement (Second) Conflict of Laws § 187, comment b, is misplaced. Plaintiffs contention is that the fraud and misrepresentation induced it to change from a policy issued by SAIF to one issued by defendant; obviously, plaintiff had already chosen to be covered under Oregon’s Workers’ Compensation Law before dealing with defendant.

Lest it be said that it is absurd to hold that the parties chose the law of a state that would render their rebate agreement unlawful, the same may be said of the same agreement involved in Mountain Fir Lbr Co. v. EBI Co., supra, and the numerous other cases listed in the trial court judgment in this case. There could be several reasons for the parties’ not being concerned with illegality: the insured might have relied on the law as we found it to be in the Mountain Fir case — agreement illegal but not void — or they might have relied on the good faith of defendant to perform, notwithstanding the illegality.

The dissent’s objection that our result allows defendant to profit from its own misdeeds (74 Or App at 424 n 1.) should be directed at Mountain Fir Lbr Co. v. EBI Co., supra.