Farmers Ins. Co. of Oregon v. Mowry
350 Or. 686, 2011 Ore. LEXIS 709, 261 P.3d 1 (2011)
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Rule of Law:
An insurance policy exclusion that purports to eliminate all liability coverage for claims by one insured against another insured is unenforceable to the extent it fails to provide the minimum coverage required by state law. However, the exclusion is valid and enforceable as to any coverage amount exceeding that statutory minimum.
Facts:
- Farmers Insurance Company issued a motor vehicle liability policy to Tosha Mowry with liability limits of $100,000 per person.
- The policy contained Exclusion 12(a), which stated that coverage does not apply to 'liability for bodily injury to an insured person.'
- The policy defined an 'insured person' to include both the policyholder (Mowry) and any person using her insured car with permission.
- In 2005, Mowry was injured in a collision while riding as a passenger in her own vehicle, which was being driven by her friend, a permissive user.
- Mowry made a claim against her own Farmers Insurance policy for the injuries she sustained in the accident.
Procedural Posture:
- Farmers Insurance Company filed a declaratory judgment action in an Oregon trial court, seeking a ruling that its liability to Mowry was limited to $25,000.
- Mowry argued she was entitled to the full $100,000 policy limit.
- The parties filed cross-motions for summary judgment, and the trial court granted summary judgment for Farmers Insurance Company.
- Mowry, as appellant, appealed to the Court of Appeals of Oregon.
- The Court of Appeals affirmed the trial court's decision in a per curiam opinion, siding with appellee Farmers Insurance Company.
- The Supreme Court of Oregon granted Mowry's petition for review.
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Issue:
Does an unambiguous insurance policy exclusion that eliminates all liability coverage for injuries to an insured person, which conflicts with the state's statutory minimum coverage requirement, limit the insurer's liability to that statutory minimum, or is the exclusion entirely void, entitling the insured to the policy's full declared coverage limits?
Opinions:
Majority - Balmer, J.
No, the exclusion is not entirely void; it is effective for amounts above the statutory minimum, thus limiting coverage to that minimum. The court reaffirms its 20-year-old precedent in Collins v. Farmers Ins. Co. under the doctrine of stare decisis. Although the court disavows the inflexible 'rule of prior interpretation' for statutory construction, it holds that overturning a fully considered precedent requires an affirmative showing that the prior case was wrong or inadequately considered. Mowry's arguments were the same as those considered and rejected by the Collins majority. The court also distinguished North Pacific Ins. Co. v. Hamilton, which invalidated an ambiguous exclusion, from the present case, which involves an unambiguous exclusion that conflicts with statutory requirements. Given the strong interests of stability and predictability in commercial transactions where parties have relied on precedent, Collins remains good law.
Concurring - Durham, J.
No, the exclusion is not entirely void, but this conclusion rests on the principle of stability rather than the correctness of the underlying precedent. The concurring opinion argues forcefully that Collins was wrongly decided because it ignored the statutory requirement for insurance policies to affirmatively state the coverage provided, which a policy containing an absolute exclusion fails to do. However, since insurers like Farmers have since relied on the Collins decision to draft their policies, overturning it now would disrupt the commercial stability that stare decisis is meant to protect. Therefore, despite being flawed, Collins should be followed in this case, and the legislature should address the underlying policy issue.
Analysis:
This case is a significant pronouncement on the doctrine of stare decisis in Oregon, particularly for statutory interpretation. The court abandons the rigid 'rule of prior interpretation' in favor of a more flexible, prudential approach that weighs the need for stability against the need to correct errors. By upholding a precedent (Collins) that was controversial and narrowly decided, the court signals a very high bar for overturning past decisions in areas of commercial law where parties have structured their affairs in reliance on prior rulings. The decision solidifies the 'drop-down' rule for otherwise invalid insured-versus-insured exclusions, allowing insurers to limit liability to statutory minimums using policy language that, on its face, provides no coverage at all.
