Winter 2010 - oadc.com

Maintaining Restrictions on Bad Faith Cases Against Insurers

Comparing Fault in Negligence Actions

Taking the “Proof” Out of “Proof of Loss”

Recording Opposing Counsel

OADCWinter 2010

Oregon Associationof Defense Counsel

Trial Lawyers Defending You in the Courts of Oregon

Inside…

Indemnity Without Fault?

2010 OADC Practice Group LeadersAUTOMOBILE

Paul Conable, ChairTonkon Torp LLP888 SW 5th Ave., #1600Portland, OR 97204503/802-2188503/972-3888 (fax)[email protected]

Daniel Larsen, Vice ChairAter Wynne LLP1331 NW Lovejoy St., #900Portland, OR 97209503/226-1191503/226-0079 (fax)[email protected]

Heidee Stoller, Publications RepAter Wynne LLP1331 NW Lovejoy St., #900Portland, OR 97209503/226-8616503/226-0079 (fax)[email protected]

Heidi Mandt, Board LiaisonSchwabe Williamson1211 SW 5th Ave. #1900Portland, OR 97204503/222-9981503/796-2900 (fax)[email protected]

COVERAGE EMPLOYMENT

NEW LAWYERS PRODUCT LIABILITY PROF. LIABILITY

Scott O’Donnell, ChairKeating Jones Hughes PC1 SW Columbia, #800Portland, OR 97258503/222-9955503/796-0699 (fax)[email protected]

Kim Hoyt, Vice ChairGarrett Hemann1011 Commercial St., NE #210Salem, OR 97301503/581-1501503/581-5891 (fax)[email protected]

Jonathan Bauer, PublicationsParks Bauer570 Liberty St. SE #200Salem, OR 97301503/371-3502503/371-0429 (fax)[email protected]

Gordon L. Welborn, Board LiaisonHoffman Hart & Wagner439 SW Umatilla Ave.Redmond, OR 97756541/548-6044541/548-6034 (fax)[email protected]

TRIAL PRACTICE

CONSTRUCTION

James Daigle, ChairBrisbee & Stockton LLCPO Box 567Hillsboro, OR 97123503/648-6677503/648-1091 (fax)[email protected]

Nicholas Baldwin-Sayre, Vice ChairCosgrave Vergeer Kester LLP805 SW Broadway, #800Portland, OR 97205503/323-9000503/323-9019 (fax)[email protected]

Bruce Gilbert, PublicationsSmith Freed & Eberhard PC111 SW 5th Ave., #4300Portland, OR 97204-3639503/227-2424503/227-2535 (fax)[email protected]

Dan Schanz, Board LiaisonSpooner & Much PC530 Center St., NE, #722Salem, OR 97301503/378-7777503/588-5899 (fax)[email protected]

COMMERCIAL

Wendy Paris, ChairLaw Offices of Kenneth R. ScearceBuilding One4000 Kruse Way Pl., #135Lake Oswego, OR 97035503/534-4401503/534-4409 (fax)[email protected]

Eric Meyer, Vice ChairZipse Elkins & Mitchell10200 SW Greenburg Rd., #700Portland, OR 97223503/245-3211503/245-3191 (fax)[email protected]

Shelly Damore, Publications RepCosgrave Vergeer Kester LLP805 SW Broadway, #800Portland, OR 97205503/323-9000503/323-9019 (fax)[email protected]

David Auxier, Board LiaisonYturri Rose LLPPO Box SOntario, OR 97914541/889-5368541/889-2432 (fax)[email protected]

Jay Beattie, ChairLindsay Hart1300 SW 5th Ave., #3400Portland, OR 97201503/226-7677503/226-7697 (fax)[email protected]

Robert Sabido, Vice ChairCosgrave Vergeer Kester LLP805 SW Broadway, #800Portland, OR 97205503/323-9000503/323-9019 (fax)[email protected]

Lloyd Bernstein, PublicationsGordon & Polscer9755 SW Barnes Rd., #650Portland, OR 97225503/802-9153503/242-1264 (fax)[email protected]

Brian Talcott, Board LiaisonDunn Carney851 SW 6th Ave., Suite 1500Portland, OR 97204503/417-5474503/224-7324 (fax)[email protected]

Amy Joseph Pedersen, ChairStoel Rives LLP900 SW 5th Ave., #2600Portland, OR 97204503.224.3380503.220.2480 (fax)[email protected]

Todd Hanchett, Vice ChairBarran Liebman LLP601 SW 2nd Ave, 23rd Fl.Portland, OR 97204503.228.0500503.274.1212 (fax)[email protected]

Allyson Krueger, PublicationsHitt Hiller Monfils Williams LLP411 SW 2nd Ave., #400Portland, OR 97204503.595.5382503.228.4250 (fax)[email protected]

Susan Marmaduke, Board LiaisonHarrang Long Gary Rudnick PC1001 SW 5th Ave., 16th FloorPortland, OR 97204-1161503/242-0000503/241-1458 (fax)[email protected]

Vicki Smith, ChairBodyfelt Mount707 SW Washington St., #1100Portland, OR 97205503/243-1022503/243-2019 (fax)[email protected]

Ryan Boyle, Vice ChairBullivant Houser Bailey PC888 SW 5th Ave., #300Portland, OR 97204-2089503/228-6351503/295-0915 (fax)[email protected]

Jamie Valentine, PublicationsKeating Jones Hughes PC1 SW Columbia, Ste. 800Portland, OR 97258503/222-9955503/796-0699 (fax)[email protected]

David Campbell, Legislative RepWilliams Kastner & Gibbs PLLC888 SW 5th Ave., #600Portland, OR 97204503/228-7967503/222-7261 (fax)[email protected]

Molly Jo Mullen, Board LiaisonBodyfelt Mount707 SW Washington St., #1100Portland, OR 97205503/243-1022503/243-2019 (fax)[email protected]

Mary-Anne Rayburn, ChairMartin Bischoff LLP888 SW 5th Ave., #900Portland, OR 97204503/224-3113503/224-9471 (fax)[email protected]

Joshua DeCristo, Vice ChairSchwabe Williamson1211 SW 5th Ave., #1500-2000Portland, OR 97204503/796-2451503/796-2900 (fax)[email protected]

Jennifer Durham, Publications RepHiefield Foster & Glascock LLP6915 SW Macadam Ave., #300Portland, OR 97219503/501-5430503/501-5626 (fax)[email protected]

Michael Sandmire, Board LiaisonAter Wynne LLP1331 NW Lovejoy St., #900Portland, OR 97209-3280503/226-1191503/226-0079 (fax)[email protected]

Jon Stride, ChairTonkon Torp LLP888 SW 5th Ave., #1600Portland, OR 97204503/802-2034503/972-3734 (fax)[email protected]

Eric DeFreest, Vice ChairCalkins & Calkins101 E. 14th Ave.Eugene, OR 97401541/345-0371541/342-1220 (fax)[email protected]

Kelly Giampa, Publications RepHoffman Hart & Wagner1000 SW Broadway, 20th FloorPortland, OR 97205503/222-4499503/222-2301 (fax)[email protected]

Greg Lusby, Board LiaisonArnold GallagherPO Box 1758Eugene, OR 97440-1758541/484-0188541/484-0536 (fax)[email protected]

OADC BOARD OF DIRECTORS

OFFICERS

DRAKE HOODPresidentBrisbee & Stockton LLCPO Box 567 Hillsboro, OR 97123503.648.6677 • 503.648.1091 (fax)[email protected]

JEANNE LOFTISPresident-ElectBullivant Houser Bailey PC888 SW 5th Ave., #300 Portland, OR 97204503.499.4601 • 503.295.0915 (fax)[email protected]

GREG LUSBYSecretary/TreasurerArnold GallagherPO Box 1758 Eugene, OR 97440541.484.0188 • 541.484.0536 (fax)

DIRECTORS

DAVID AUXIERYturri Rose LLPPO Box “S”Ontario, OR 97914541.889.5368 • 541.889.2432 (fax)[email protected]

HEIDI MANDTSchwabe Williamson1211 SW 5th Ave., #1900Portland, OR 97204503.222.9981 • 503.796.2900 (fax)[email protected]

SUSAN MARMADUKEHarrang Long Gary Rudnick PC1001 SW 5th Ave., #1600Portland, OR 97204503.242.0000 • 503.241.1458 (fax)[email protected]

MOLLY JO MULLENBodyfelt Mount707 SW Washington St., #1100Portland, OR 97205503.243.1022 • 503.243.2019 (fax)[email protected]

MICHAEL (SAM) SANDMIREAter Wynne LLP1331 NW Lovejoy St., #900Portland, OR 97209503.226.1191 • 503.226.0079 (fax)[email protected]

DAN SCHANZSpooner & Much, PC530 Center St., NE, #722Salem, OR 97301503.378.7777 • 503.588.5899 (fax)[email protected]

BRIAN TALCOTTDunn Carney851 SW 6th Ave., #1500Portland, OR 97204503.417.5474 • 503.224.7324 (fax)[email protected]

GORDON L. WELBORNHoffman Hart & Wagner439 SW Umatilla Ave.Redmond, OR 97756541.548.6044 • 541.548.6034 (fax)[email protected]

ADMINISTRATIVE OFFICE

SANDRA FISHER, CAE147 SE 102nd

Portland, OR 97216503.253.0527 • 503.253.9172 (fax)[email protected]

D E P A R T M E N T S

ASSOCIATION NEWS 19

PENDING PETITIONS FOR REVIEW 27

RECENT CASE NOTES 21

FROM THE PRESIDENT 2

Common Law IndemnitySee article on page 7

PRACTICE TIPS 17✔✔

F E A T U R E S

AN ARGuMENT FOR MAINTAINING OREGON’S RESTRICTIONS ON bAD FAITH CASES AGAINST INSuRERSPatrick Clark

COMMON lAW INDEMNITy IN PRODuCTS lIAbIlITy ACTIONS INVOlVING PASS-THROuGH DISTRIbuTORSRobert Wilsey

COMPARING FAulT IN NEGlIGENCE ACTIONS: lOOkING bACk AND PlANNING FORWARDPeter Eidenberg & Lindsey Hughes

SuPREME COuRT: NOTICE + DuTy TO INVESTIGATE = “PROOF OF lOSS” uNDER ORS 742.061Andrew Lauersdorf & Beth Cupani

MAkING A RECORD: RECORDING OPPOSING COuNSElMark Fucile

10

7

4

13

15

▼

Oregon Association of Defense Counsel ■ Winter 20102

hank you all for allowing me to serve as the Presi-dent of the Or-egon Association of Defense Coun-

sel. It has been my privilege to serve on the OADC’s Board of Directors for the past six years. I hope, in the year left to me as an officer of the organization, to help build on the tremendous work of those who have come before your cur-rent Board.

Since President Obama has recently given his first state of the union report to the Congress, and since this is my first letter to the members, it is probably ap-propriate to begin with a bit of a state of the organization report. Jeanne Lof-

tis and I recently met with leaders of state defense organizations at the Defense Research Institute’s Annual Con-vention, and again at a meeting of leaders of state defense groups

from the Western United States. In both instances, the reports from other groups emphasized declining membership, lack of participation, and other problems. We reported to these other groups on the OADC’s continued growth in member-ship; the strength of our publications; the education and training of our lawyers seasoned and new; our fairly recent addi-tion of a lobbying team; and our nascent political action committee, the “Oregon

p r e s i d e n t ’ s m e s s a g e

State of the Organization Report

Association of Defense Counsel PAC.” In terms of our membership, we are

nearly 700 members strong. In 2009, 59 attorneys joined the OADC. Where any-where from 20 to 30 members had joined each year from 2000 to 2005, since 2006, those numbers have increased to 60 to 70 new members each year. The orga-nization has not conducted a concerted membership drive. What those numbers show, along with our high retention rate, is that the OADC is generally meeting the needs of its members.

One of the things we most often hear compliments on is the quality of the newsletter. The newsletter, really a magazine-like periodical to me, not only looks professional, it offers well-written, timely articles related to defense practice in Oregon. The tone of the publication’s articles is not biased, and the articles generally present a well-rounded view of any given topic. In addition to the newsletter, an increasingly important, though sometimes distracting, service provided by the OADC is its listserve. Be-lieve it or not, there are many other state

defense groups that have decided not to create a listserve for fear of misuse or concern of possible fallout from improper use of the format. Thank you to those who regularly use the listserve and to those who lurk and watch but provide much

appreciated information in “reply” to a request for information.

For several years now, the OADC has presented a training program for newer attorneys and for attorneys newer to trial practice. The Defense Practice Academy now comprises a one-day program that is normally held at the Multnomah County Courthouse in September. Class size is limited to around 30 students. It is always well attended and generally results in a wait-list each year. While we train newer attorneys ourselves in my office, we always send our newer attorneys to the Practice Academy because of the excel-lent presentations by skilled attorneys and judges. We usually have a lunch with 10 to 20 judges, all of whom have been very generous with their time in attend-ing the Academy and in listening to and talking with younger lawyers.

In addition to the Practice Academy, the OADC continues to hold CLE events at the Annual Convention and at its Fall Seminar. This year, the Fall Seminar will focus on a traditional “insurance defense” topic involved in auto accident and similar cases. Our hope is to develop a commercial litigation stand-alone CLE as an additional annual program. Finally, with regard to education, all professional groups the Board has researched over the past several years have noticed a distinct

Continued on next page

B y D R A K E A . H O O D

T

▼

Oregon Association of Defense Counsel ■ Winter 2010 3

The firm you want on your side

Eric Larson Family law attorney, proud grandfather

Representing clients in Oregon and Washington

503. 227.1515

gevurtzmenashe.com

tenacityFamily law:

DivorceWhen a marriage ends,decisions made today canhave impacts that last a lifetime. That’s why youneed someone who will go to bat for your needs,and your children. As theregion’s most experiencedfamily law firm, we’remore than just lawyers.We’re champions for yourfuture, too.

downward trend in the number of peo-ple physically attending meetings and continuing education seminars. Nonethe-less, we are in the process of developing a webinar format so that we can offer Oregon-focused CLEs to all members in as convenient a way possible.

Having said something about a move to offer CLE on a webinar/long-distance format, I have to say that the most im-portant function that the OADC serves is the development of professional ties between the members. It is a tremendous resource for an attorney to get to know other attorneys whom they can ask for help, refer a client and generally share the ups and downs of defending cases. I have also had the privilege of trying cases with and against other OADC members near and far, and had a great time do-ing so because I was among friends. For those of you in positions to make decisions about sending your attorneys to CLEs, I encourage you to look long-term into the in-vestment you make when you send your associates to OADC events. There may be no direct clients at all events, but it is at those times that your associ-ates make bonds with other attorneys who will be or are in a position to refer work; more importantly, you are investing in your people when you send them to these events.

At the recent regional meeting of defense leaders, Jeanne and I heard from the lobbyist for the California defense organizations (there are two of them that have banded together for lobbying activities). We learned that the plaintiff’s bar in California regularly spends $3 to $4 mil-lion per year on lobbying ac-

tivities, while the defense organizations, combined, may raise $100,000 a year. While we are in no way trying to play in that kind of league and we know that our own efforts are not going to raise the kind of money other litigation groups might raise, nonetheless, our lobbying efforts are going well. We seem now to be on the edge of the radar of those in the legislature who are and will be mak-ing decisions related to bills that may affect members. We remain committed to protecting the interests of defense at-torneys and to the fairness of the system of civil litigation. Part of the reason the Board hired lobbyists was your responses to questionnaires sent by the Board. You said you wanted a more active voice in the legislature. To continue to move the OADC onto the radar screen of those

making decisions, the Oregon Associa-tion of Defense Counsel PAC needs your support. Several firms have generously contributed to the fund. A number of individuals have also contributed. Please contribute a small amount, or large, to the PAC at your earliest opportunity. If we are to have a voice in Salem, the PAC needs your support.

Finally, there are two standing OADC committees that deserve mention here, although I hope to report more on their activities in the coming issues of this pub-lication. The amicus committee routinely meets to review requests from members for assistance in cases before the Supreme Court. They weigh in on fewer cases than one might expect, but hope to do so in cases of greatest significance. The mem-bers of the government affairs commit-

tee meet regularly with Inga Deckert and Jack Isselmann to review proposed legislation and decide what positions to recommend the OADC Board take on certain legislation. The committee also provides mem-bers to testify before legisla-tive committees as requested or as needed.

As always, I have to thank Sandra Fisher and her staff at Update Management for their help and dedication to the OADC: we could not have a better administrative organiza-tion helping us.

Were I not the President of the OADC this year, I would have considered it a privilege to be a member of this orga-nization; I hope it is for each of you. If you do not feel that way yet, join a practice group and get involved. The invest-ment you make here in active participation will be repaid many times over. J

President’s Messagecontinued from page 2


FEATURES

I. IntroductionThis article argues that rational

policy requires that tort damages should not be recoverable in “bad faith” claims based on an insurer’s breach of its duty to defend. To be sure, this is already the law in Oregon. But the staying power of this rule is questionable, evidenced by na-tional trends in bad faith cases based on an insurer’s denial of a claim; the opinion of at least one Oregon Court of Appeals case; a recent opinion from the Oregon

Supreme Court; and a bill that was in-troduced during the Oregon Legislature’s 2009 session (House Bill 2791 - itself simi-lar to a bill that re-cently became law in Washington state). This trend should go no further.

II. Current Oregon Law on “Bad Faith” Breach of Insurance Contract

In Farris v. U. S. Fidelity and Guaranty

Co., 284 Or 453, 587 P2d 1015 (1978), the Oregon Supreme Court rejected the argu-ment that tort damages are recoverable for an insurer’s breach of its duty to de-fend – even where the insurer is “aware that there [is] coverage” at the time of the breach. Id. at 459-60. Though the

plaintiff in Farris urged the court to per-mit the recovery of tort damages for an insurer’s “bad faith” breach of its duty to defend, the court stated that an insurer’s “failure to undertake representation of [the insureds] which required them to represent themselves could only have been a breach of contract.” Id. at 465.

The court subsequently held, in Georgetown Realty, Inc. v. The Home

Insurance Company, 313 Or 97, 108, 831

P2d 7 (1992), that an insured can poten-tially recover tort damages in an action against its insurer where the damages claimed by a third party, relating to con-duct covered under the policy, exceed policy limits, and the insurer unreason-ably rejected a settlement offer that was within policy limits, thus exposing the insured to potential personal liability. In that context, if the insured proves that, in reaching its decision to reject the settle-ment offer, the insurer failed to put the insured’s interests on par with its own, the insurer’s “bad faith” entitles the insured to tort damages. Goddard v. Farmers Ins.

Company of Oregon, 344 Or 232, 261, 179 P3d 645 (2008).

It is critical to note that the breach contemplated by the “failure to settle” exception to the rule limiting recovery to contract damages occurs only once the insurer has undertaken a defense of the insured. The rationale is that, under Or-egon law, a legally implied, independent duty of care arises after (and only after) a defense is undertaken.

III. Farris under FireThe “Farris rule” has met with criti-

cism. In Warren v. Farmers Ins. Co. of

Oregon, 115 Or App 319, 326, 838 P2d 620 (1992), for example, though the court rejected plaintiff’s bad faith claim under Farris, as it was based only on the insurer’s

An Argument for Maintaining Oregon’s Restrictions on Bad Faith Cases Against Insurers


Patrick Clark

Patrick ClarkWilliams Kastner


FEATURES

breach of its duty to defend, the court espoused its distaste for that rule, stating, “[w]ere we writing on a clean slate, we might reach a different result.” Id. The court continued:

[I]t is difficult to see why the insurer should be in a better position by refusing to defend and thereby breaching the in-surance contract than it would have been had it undertaken the defense but done so negligently. We fail to see any principled dis-tinction between the conflict of interest that exists when an in-surer makes a decision whether to defend and the conflict that exists when, having undertaken the defense, a settlement oppor-tunity arises that would cost the insurer its policy limits but would result in no personal liability for the insured.

Id. The Court of Appeals is correct to chal-lenge the Supreme Court’s reasoning, but its perspective is somewhat skewed. The purpose of the Farris rule is not to put the insurer in a better position where it undertakes no defense of the insured. The point is to put the insured in a better position where the insurer breaches a fi-

duciary duty to the insured, exposing the insured – who is relying on the insurer’s expertise – to personal liability.

Though Farris has not been over-ruled, the Oregon Supreme Court’s current jurisprudence suggests that it is shying away from its holding in Farris, providing an interesting background for the recently proposed House legislation.

In Goddard v. Farmers Ins. Co. of Oregon,

344 Or 232, 264, 179 P3d 645 (2008), the court emphasized that “although Farris did hold that a liability insurer’s refusal to defend its insured at all was purely a

breach of contract, it did not apply that same holding to insurers who, like defen-dant, failed to settle claims against their insureds.” (Emphasis in original.)

The court’s emphasis suggests a nar-rowing of its interpretation of Farris, limiting the holding to the specific facts of that case and continuing the trend that began in Georgetown Realty. While Goddard and Georgetown Realty are dis-tinguishable from Farris on the principled distinction between the insurer’s duty to defend and its duty to settle, the court’s language, especially when considered along with the Court of Appeals’ above-quoted dicta in Warren, suggests that any plausible argument that the insurer did more than simply deny coverage will ex-pose insurers to potential tort liability.

IV. Why Farris is “Good Law”: A Policy Perspective

Tort damages are not a necessary remedy for an insurer’s breach of the duty to defend. Indeed, the cost of abandon-ing the Farris rule would be substantial, and would provide a more just result in only a limited number of cases. While the overall cost to society of permitting extra-contractual damages recoveries in failure to settle cases is limited, the cost of permitting tort damages for breach of the duty to defend would be much greater.

Farris is “good law” not only in the sense that it has not been overruled, but also in the sense that it serves society’s best interest—“best interest,” meaning the greatest good for society as a whole, in a utilitarian sense. Though a purely utilitarian model is inappropriate where dealing with individual liberty interests, insurance law mainly deals with economic issues. In the bad faith context, assum-ing plaintiff can establish her claim, the right infringed is a contractual right to a payment—a purely economic right. Con-

cededly, some individuals will be insuffi-ciently compensated due to illegitimate tactics by insurers, but those situations are exceptional. And, though it is impos-sible to prove this claim empirically (be-cause opinions on the “economic value” of emotional costs will necessarily differ, reflecting differing values) most people would probably agree that the financial and emotional costs borne by those few individuals is less than the (potentially significantly) increased economic cost in the form of premiums that will be borne by society in inverse proportion to expendable income.

Insurance premiums are dispropor-tionately borne by the working and middle classes. Not only do lower-income people tend to pay higher insurance pre-miums, insurance premiums represent a higher proportion of expended income. If the goal is to distribute wealth more evenly, refusing to adopt policies that would place a disproportionate finan-cial burden on lower-income individuals serves the goal of more equal wealth distribution, at least where “wealth” is defined by reference to expendable income.

There are good reasons for permit-ting the recovery of tort damages for breach of the duty to settle, but not for breach of the duty to defend. Con-cededly, the Farris court’s reasoning is not terribly persuasive. The idea that a fiduciary relationship arises only where an insurer actually undertakes a defense of the insured is a poor justification for the distinction between a breach of the duty to defend and the duty to settle. As the Court of Appeals suggested in Warren, it is essentially a conclusion that leaves us asking “why?”: Why doesn’t the insurer owe a fiduciary duty to defend valid claims? An insurer wields the same power over the insured, and the insured is just as reliant on the insurer, in this

BAD FAITH CASES AGAINST INSURERScontinued from page 4



FEATURES

context as in the context of settlement negotiations.

One particularly good justifica-tion for this distinction is the practical consideration about litigation costs. In terms of unjustified litigation costs, de-fined as costs associated with bad faith claims alleged unjustifiably and solely to obtain leverage in the coverage claims, permitting bad faith claims based on an alleged breach of the duty to settle does not pose the same risk as permitting such claims based on the denial of a claim or a breach of the duty to defend. It is fairly simple for a plaintiff who has been de-nied coverage to state a claim, but very few plaintiffs can allege facts showing that the plaintiff has been damaged as a result of the breach of the duty to settle. Specifically, in the latter situation, such

plaintiffs must allege, at a minimum, that they received settlement offers from a third-party plaintiff; that those offers were reasonable; that those offers were rejected; that the case was tried; and that the jury returned a verdict with an award for which the insured was at least partly personally liable. In the former situation, such plaintiffs need only allege that they were damaged because of a breach of the policy.

When a Washington law similar to Oregon House Bill 2791 took effect, bad faith claims increased by a factor of more than eight. And no one can doubt that the massive increase in litigation will be absorbed by increased premiums, paid by Washington residents. Oregon should not join this trend.

VI. ConclusionThe fact is, there are sufficient forces

pressuring insurers to act in good faith, apart from tort damages, making tort dam-ages almost superfluous – and certainly not making them worth the cost of substan-tial increases in premiums. For example, by wrongfully refusing to pay a claim or defend an insured, an insurance company can risk waiving coverage defenses, waiv-ing policy limits, and the imposition of civil and criminal administrative penalties provided by the unfair claims practices act. Sufficient consumer protections exist, and a few perceived cases of injustice – the ones that make us feel righteously indignant - do not justify the extreme cost to society that would accompany the flood of bad faith litigation that would follow the over-ruling of the Farris doctrine. J

Oregon Association of Defense CounselAnnual Convention

June 17-20, 2010Sunriver Resort

Sunriver, Oregon

Mark your calendars to attend this year’s convention in Sunriver. This conven-

tion is going to be a weekend full of exciting activities and education at Sunriver

Resort! The convention will feature approximately 7 hours of outstanding CLE

credit, a scramble golf tournament, two evening social activities and more. Mark

your calendars now and plan to attend!

Convention Registration: Information will be mailed in late March and

will also be available on the website www.oadc.com at that time.

Lodging: Start your planning now by booking your lodging through

Sunriver Resort today. Call the resort directly to make your reservations at

800.547.3922.

OADC Annual ConventionJune 17-20, 2010Sunriver Resort

Sunriver, Oregon

BAD FAITH CASES AGAINST INSURERScontinued from page 5


FEATURES

microwave rolls off an as-sembly line somewhere in the world and boards a foreign-flagged ship bound for an American port; there,

it is received by an American distribu-tor that forwards it on to the retailer in Portland; and, at the end of its worldwide journey, our microwave melts down in a consumer’s kitchen and she is injured. Who should pay? If the consumer pre-vails against the retailer, the retailer must cast about for, among other forms

of relief, common law indemnity—the manu-facturer may be out-side the jurisdiction of the court, but the distributor is not. The distributor has done nothing more than move the microwave

along through the chain of distribution; it is, in effect, a “pass-through distribu-tor,” but could the distributor’s position in the chain be enough for an Oregon court to find that it should indemnify the retailer? Courts around the country disagree, and the question is an open one under Oregon law.

To prevail on a common law indem-nity claim in Oregon, “[t]he claimant must plead and prove that (1) he has discharged a legal obligation owed to a

third party; (2) the defendant was also liable to the third party; and (3) as be-tween the claimant and the defendant, the obligation ought to be discharged by the latter.” Fulton Ins. Co. v. White

Motors Corp., 261 Or 206, 493 P2d 138 (1972). The last element “means that, although the claimant must have been legally liable to the injured third party, his liability must have been ‘secondary’ or his fault merely ‘passive’ while that of the defendant must have been ‘active’ or ‘primary.’” City of Astoria v. Astoria &

Columbia River R.R. Co., 67 Or 538, 136

P 645 (1913) introduced these concepts of “active” and “passive” fault and, im-portantly, suggested that “passive” fault includes fault that is merely “constructive rather than actual.”

The court applied the primary/secondary, active/passive indemnity concepts in a simple chain of distribution case, Smith Radio v. Challenger Equip.

Ltd., 270 Or 322, 527 P2d 711 (1974) where Smith, a retailer, sued Challenger, a manufacturer of radio equipment, af-ter it was sued by a logger, Mace, who had been injured by a radio supplied

Indemnity Without Fault? Common Law Indemnity in Products Liability Actions Involving Pass-Through DistributorsRobert M. WilseySmith Freed & Eberhard PC

A


Robert Wilsey


FEATURES

by Challenger to Smith which then sold it to Mace’s employer. Before reviewing the evidence the court declared that “[t]here is no doubt that if Smith Radio merely delivered the [radio] to [Mace’s employer] as received by it from Challenger, it was merely passively or secondarily liable and entitled to indemnity.” The court found that Smith had not altered the radio, and, thus “Challenger, as the manufacturer, was primarily or actively liable to Mace and since Mace elected to sue the retailer Challenger is required to indemnify the retailer.” The question left open by Smith is whether the indemnity analysis would have been different had Smith sued an intermediate, pass-through, distributor rather than the manufacturer.

The leading case granting indem-nity under the common law between pass-through distributors within the chain of distribution is Promaulkyo v.

Johns Manville Sales Corp., 562 A2d 202 (N. J. 1989). Promaulkyo arose from an asbestosis wrongful death action brought by the estate of an employee of Ruberoid Corp., alleg-ing strict product liability against Ruberoid and its suppliers. Ruberoid bought asbestos from Buck Corp., which bought that asbestos from Amtorg Corp., an import/export company. Neither Buck nor Amtorg ever received delivery of the asbestos, which had been shipped directly from the manufacturer to Ruberoid.

The court granted Buck’s request for indemnification by Amtorg based on the “two basic principles of strict liability in tort”: first, that the risk of loss should be allocated to the party best able to control it and, second, that the risk of loss should be allocated to the party best able to

distribute it. The court relied on the strict product liability rule that “al-though a distributor and retailer may be innocent conduits in the sale of the defective product, they remain liable to the injured party,” and, thus, “al-location of the risk of loss between the parties in the chain of distribution is achieved through common law indem-nity[.]” “Here,” the court explained, “[b]oth Amtorg and Buck are liable to plaintiff because of their relationship to the product as it proceeded down the chain of distribution.”

Requiring Amtorg to indem-nify Buck was justified because “[i]n general, the effect of requiring the party closest to the original producer to indemnify parties farther down the chain shift[s] the risk of loss to the most efficient accident avoider.” Just as a manufacturer can better distribute the cost of a loss “among all purchasers of its products[,]” the court reasoned, “a wholesale distribu-tor can generally pass the risk among a greater number of potential users.” That, the court concluded, made allo-cating the risk to the distributor closest to the manufacturer consistent with preventing unjust enrichment, one of the traditional goals of common law indemnity.

The Supreme Court of Texas has taken the opposite view. In SSP

Partners v. Gladstrong Investments

Corp., 275 SW 3d 444 (Tex 2008), the parents of a child killed in a fire al-leged that the fire had resulted from the defective safety wheel of a butane lighter sold by SSP and manufactured by Gladstrong. The lighter had been manufactured in China and imported by Gladstrong Hong Kong, a Chinese company. Gladstrong Hong Kong had designed the lighter’s safety wheel, and owned Gladstrong USA, a Califor-

INDEMNITY WITHOUT FAULT?continued from page 7


OADC NewsletterEditors 2010

EDITOR IN CHIEFJeanne LoftisBullivant Houser Bailey PC 888 SW 5th Ave., #300Portland, OR 97204503/[email protected]

ASSOCIATE EDITORWesley RabornGeneral CounselShilo Management Corporation11600 SW Shilo LanePortland, OR 97225503/641-6565, ext [email protected]

FEATURE ARTICLES EDITORGeorge PitcherWilliams Kastner & Gibbs PLLC888 SW 5th Ave., #600Portland, OR 97204503/[email protected]

CASE NOTES EDITORDan LindahlLindahl Law Firm PC121 SW Morrison St., #1100Portland, OR 97204503/[email protected]

PRACTICE TIPS EDITOREric MeyerZipse Elkins & Mitchell10200 SW Greenburg Rd., #700Portland, OR 97223503/[email protected]

EDITORIAL ASSISTANTStephanie WilkenBullivant Houser Bailey PC 888 SW 5th Ave., #300Portland, OR 97204503/[email protected]


FEATURES

nia corporation that distributed the lighters in the United States.

After losing at trial, SSP sought indemnity from Gladstrong USA. The court rejected SSP’s claim, relying on the “fundamental principle underly-ing indemnity law,” that “a person who, without fault, has become sub-ject to tort liability for the unauthor-ized and wrongful conduct of another, is entitled to full indemnity from the other for expenditures properly made to discharge the liability.” SSP argued that because the common law required a manufacturer who is liable for a product defect to indemnify a seller who is not independently cul-pable, an “upstream seller” should be required to do the same for down-stream sellers. The court disagreed, concluding that the common law “does not support the imposition of an indemnity obligation on someone innocent of wrongdoing,” and, thus, “SSP is not entitled to common law indemnity without proof that Glad-strong USA was responsible for the defective condition of the lighters.” The court recognized that although a seller is liable for injuries to the consumer in strict liability, just as the manufacturer is, the seller’s liability is “not based on fault; it is imputed by law,” and thus strict liability-type “imputed fault” would not, without more, support a claim for common law indemnity.

The Oregon approach is closer to SSP than to Promaulkyo; however, the question remains open because no Oregon case has confronted the same kind of chain of distribution fact pattern. It is possible that an Oregon court applying Smith Radio to a case where a manufacturer ships the prod-uct to a distributor, who then ships the product—unaltered—to the retailer,

could conclude that the manufacturer remained “primarily or actively liable” despite the additional link in the chain of distribution. The Smith Radio ap-proach, unlike the approach taken in Promaulkyo, focuses on the actions of the party toward the product rather than the position of the party in the chain of distribution. Moreover, be-cause Astoria suggests that imputed fault is “passive” fault under the indemnity analysis, the strict liability

theory of Promaulkyo, which imputes fault based solely on a party’s presence in the chain of distribution, might not be enough to establish liability for indemnity under current Oregon law. Nonetheless, the question is an open one, and because our global economy shows no signs of simplifying itself, the Oregon bar ought to be alert to the potential for common law indemnity claims between pass-through distribu-tors. After all, someone has to pay. J

INDEMNITY WITHOUT FAULT?continued from page 8

FeaturingF Trials: Tips, Tactics, and Practical Tales with

Michael P. Cash, Gardere Wynne Sewell LLP, Houston, TX

F Presentation of the 13th Annual Owen M. Panner Professionalism Award to Nancie K. Potter, Roberts Kaplan LLP, Portland

Cosponsored by the Oregon State Bar Litigation Section

Friday, March 5 & Saturday, March 6, 2010Skamania Lodge, Stevenson, Washington

To register or for more information, please visit www.osbarcle.org or call the OSB CLE Service Center at (503) 431-6413, toll-free in Oregon at 1-800-452-8260, ext. 413.

Special rates are available at Skamania Lodge through February 16, 2010. Call the Lodge at (509) 427-7700 or toll-free, 1-800-221-7117, and ask for the Oregon State Bar Litigation Institute rate.


FEATURES

efense counsel often consid-er, and sometimes struggle with, whether fault in ac-tions for negligence should be allocated to others, and if so, to whom. We address

the statutory provisions, the impact of a plaintiff’s dismissal or settlement with another defendant on the remaining defendant’s comparison case, and out-line arguments why, in wrongful death cases, the comparison can extend to the fault of beneficiaries in appropriate cir-cumstances.

The Comparative Negligence Statute and Its Historical Development

ORS 31.600(2) governs the alloca-tion of fault and com-parative negligence. It states: “The trier of fact shall compare the fault of the claimant with the fault of any party against whom recovery is sought, the fault of third party defendants who are liable in tort to the claimant, and the fault of any person with whom the claimant has settled.”

Oregon under-took several signifi-cant tort reform mea-

Comparing Fault in Negligence Actions: Looking Back and Planning ForwardPeter D. Eidenberg & Lindsey H. HughesKeating Jones Hughes PC

supported a conclusion that the fault of non-parties or settled parties could not be considered. Faverty, 133 Or App at 530-533.

Because a non-party or settling party could not be assigned a percentage of the fault under the old statutory scheme, any judgment obtained against a non-settling defendant was set off dollar-for-dollar by the amount of the settlement, and the remaining tortfeasors were then respon-sible for the reduced verdict. Hirosovescu

v. Shangri-La, Inc., 127 Or App 22, 24-25, 870 P2d 859 (1994). This principle was set forth in ORS 18.455(1), which provided that the claim would be reduced “to the extent of any amount stipulated by the

sures in 1987 and 1995. Prior to the 1995 amendments, the comparative fault statutory scheme was construed to limit consideration of fault only to those parties from whom recovery was sought when the case was sent to the trier of fact. Mills v. Brown, 303 Or 223, 226 (1987)(interpreting ORS 18.470 and 18.480, later renumbered ORS 31.605 and 31.600, respectively); Faverty v.

McDonald’s Restaurants of Oregon, 133 Or App 514, 530-531 (1995)(evaluating comparative negligence statutory provi-sions formally identified as ORS 18.470, 18.480, and 18.485(2-3)). The Faverty court specifically found the language of comparative negligence statutes


D

Peter Eidenberg

Lindsey Hughes


FEATURES

covenant, or in the amount of consider-ation paid for it, whichever is greater.” Id. at 25 (italics omitted).

The 1995 amendments to the stat-utes altered the field of persons the trier of fact could consider when assessing fault. Whereas the prior scheme focused only on the “parties” to the lawsuit, the amended language of ORS 18.470 (renumbered ORS 31.600) explicitly pro-vides an expanded group of persons a jury may consider when assessing fault. This includes “any party against whom recovery is sought, the fault of third party defendants who are liable in tort to the claimant, and the fault of any person with whom the claimant has settled.” ORS 31.600(2). The revised statute also reduces the plaintiff’s recovery by the share of fault attributed to a party enu-merated in ORS 31.600(2), and no longer by the amount of the settlement. Cf. Shin

v. Sunriver Prepartory School, Inc., 199 Or App 352, 373-74, 111 P3d 762 (2005)(stat-ing the context of ORS 31.600 includes ORS 31.605(1)).

Under the plain language of the statute, the jury cannot formally allocate fault to a party who is dismissed by the claimant without settlement, and who is not otherwise brought in as a third party defendant. 1 Damages (Oregon CLE 1998) § 9.27. A party who is originally named in a complaint but later dismissed by the plaintiff does not fall within any of the persons described in ORS 31.600(2).

Further support for the limitation and form of fault allocation is found in ORS 31.605, which provides that a special verdict may be requested by any party and the jury may be asked to indicate the degree of fault of each person specified in ORS 31.600(2). It continues: “The de-gree of each person’s fault so determined shall be expressed as a percentage of the total fault attributable to all persons considered by the trier of fact pursuant to ORS 31.600.” ORS 31.605(1)(b).

Of course, a plaintiff who has settled with a defendant will not be asking the court to permit a comparison of the set-tling party’s fault. Upon learning of the settlement, the remaining defendant or defendants must make a determination whether to assert the settling party’s fault as an affirmative defense in order to limit or reduce any verdict awarded against the remaining defendants. If the jury’s allocation is desired, the remaining defendants should seek leave to file an amended answer, asserting the settling defendant’s fault as an affirmative de-fense. Otherwise, the risk is that the jury will not be instructed on the allocation of fault, and there is no basis to include the settling defendant on the verdict form.

The Argument that the Conduct of a Dismissed Party Was the Sole and Exclusive Cause of Injury

Prohibiting any allocation of fault to a defendant who is dismissed from a case without a settlement does not

COMPARING FAULTcontinued from page 10

mean that the remaining defendant(s) are precluded from arguing that the dismissed party may be at fault. Indeed, ORS 31.600(5) provides that the statute is not intended to prevent any party to the litigation from asserting that the dismissed party may have been the sole and exclusive cause of plaintiff’s injury. Therefore, a remaining defendant may still assert the “empty chair” defense against a person, even if that person is a non-party or a person not referenced in ORS 31.600(2). This provision does not preclude a defendant from putting on relevant evidence regarding the conduct of a non-party as it may relate to causa-tion. Lyons v. Walsh & Son’s Trucking Co., 183 Or App 76, 85, 51 P3d 625 (2002)(citing language from formerly num-bered statute ORS 18.470(5), now ORS 31.600(5)). This allows for the “empty chair” defense, but prevents any formal finding of fault against a non-party in the jury’s allocation. The jury simply will not be asked to allocate fault between responsible parties.

The Opportunity to Third-Party a Dismissed Co-Defendant Should Not Be Overlooked

Counsel for both the settling defen-dant and the remaining defendant(s) should keep in mind the possibility that the remaining defendant may be able to third-party the dismissed defendant back into the case. ORCP 22 provides that a third-party plaintiff may, as of right, third-party in a defendant within 90 days of the initial claim being filed against the third-party plaintiff. Thereafter, the inclusion of a third-party defendant requires the agreement of the parties to the original claim, as well as leave of the court.

Under the plain language

of the statute, the jury

cannot formally allocate

fault to a party who is

dismissed by the claimant

without settlement, and

who is not otherwise

brought in as a third party

defendant.



FEATURES

“Claimants” in Wrongful Death Actions Against Whom Fault May Be Assessed Include Beneficiaries

In wrongful death cases, defen-dants should consider the opportunity to allocate fault to the “claimant.” A “claimant” whose fault may be compared with the defendant’s is not defined in ORS 31.600, but “claimant” means a person who asserts a claim or right. In the wrongful death setting, “claimant” under ORS 31.600(1) and (2) includes a parent beneficiary seeking recovery for wrongful death. Robinson

v. CSD, 140 Or App 429, 914 P2d 1123 (1996) (construing former ORS 18.470) (holding jury properly could consider alleged fault of plaintiff mother/per-

sonal representative and her husband in causing decedent’s death). The analysis supporting application of Robinson to ORS 31.600 (1995) includes the recog-nition that designated beneficiaries in actions under ORS 30.020 are considered “claimants” in other contexts. E.g., Christensen v. Epley, 287 Or 539, 548, 601 P2d 1216 (1979) (construing ORS 30.270(1)(c), court held that spouse and next of kin are claimants for purpose of giving notice of tort claims for wrong-ful death); Mendez v. State of Oregon,

64 Or App 581, 587, 669 P2d 364 (1983) (same; held personal representative was not an independent “claimant” under Oregon Tort Claims Act, ORS 30.270(1)). Not surprisingly, plaintiffs

COMPARING FAULTcontinued from page 11

disagree with this argument under the past version of ORS 31.600. The status of a beneficiary as a claimant whose comparative fault in causing the decedent’s death is currently at issue in a case pending assignment for argument in the Oregon Court of Appeals, Son v. Ashland Community

Healthcare, CA 137065.

Considerations for Dismissal and Allocation

Although a dismissed defendant is not subject to a formal allocation of fault on the verdict form, defendants who have settled with the plaintiff can be included for purposes of a jury’s fault allocation. In a case with multiple parties, defendants who are not target defendants may be able to use this as leverage to be dismissed from the case without pay-ing any settlement. However, those defendants should be aware that in certain circumstances, a remaining co-defendant may be able to third-party in the dismissed defendant. Therefore careful consideration should be given before discussing possible dismissal by a plaintiff.

Non-settling defendants should remember that fault may still be allocated to defendants who settle with the plaintiff, and should weigh carefully the advantages and disad-vantages to having an empty-chair defendant. Nothing in the compara-tive negligence statutes prevents assertions of fault to non-parties or settled defendants, but a formal al-location of fault may only be assessed to parties identified in ORS 31.600(2). Defendants are also reminded that in wrongful death cases, fault may be allocated against some claimants, although the allocation of fault to a beneficiary-claimant remains an open question. J

Real pRopeRty purchase/sale, development, construction, HOAs/CCRs, boundaries/easements, condemnation

Business formation, sales contracts, employment, insurance, non-competes, dissolution

toRts injury, death, malpractice, civil rights

www.corrigan-law.com 1000 SW Broadway, Suite 2130Portland, OR 97205

ChuCk Corrigan

Mediation arbitration

503.241.0677


FEATURES

or insurers issuing insurance policies in Oregon, opening a claim and conducting a thorough investigation the moment an insured makes

any contact regarding a potential loss may now be necessary to avoid a subse-quent attorney fee award. The Oregon Supreme Court’s decision in Parks v. Farm-

ers Insurance Company of Oregon, 347 Or 374, 2009 WL 4981699 (Or), will change the way that insurers do business in Or-egon. If the insurance industry is paying attention, it might consider seeking a legislative fix in 2010.

The Parks decision represents the final step in the evolution of the court’s interpretation of the term “proof of loss” under ORS 742.061. The court issued a trio of decisions on this issue in the past decade beginning with Dockins v. State

Farm Insurance Company, 329 Or 20, 985 P2d 796 (1999). In Dockins, the court held that the term “proof of loss” could be “any event or submission that would per-mit an insurer to estimate its obligations (taking into account the insurer’s obliga-tion to investigate and clarify uncertain claims).” Id. at 29. The court determined that the purpose of “proof of loss” is to “afford the insurer an adequate oppor-tunity for investigation, to prevent fraud and imposition upon it, and to enable it to form an intelligent estimate of its rights and liabilities before it is obliged to pay.” In Dockins, the court held that plaintiffs’ complaint in the underlying

residents of California who owned a rental property in Oregon. The property was insured under a relatively standard landlords insurance policy. The insurance policy excluded from coverage any loss or damage caused by or resulting from the seepage, dispersal, migration, or escape of pollutants or contaminants.

The plaintiffs learned from police that the rental property had been va-cated and quarantined, because the tenants were operating a clandestine methamphetamine laboratory inside the rental. Plaintiffs contacted their insurance agent by telephone to inquire about coverage for the cost of decon-taminating the rental property, and were told by the agent that damage resulting from pollution or contamination was excluded from coverage. The agent asked plaintiffs if there was any other damage to the property, and mentioned that

Supreme Court: Notice + Duty to Investigate = “Proof of Loss” Under ORS 742.061Andrew Laudersdorf & Beth CupaniMaloney Lauersdorf Reiner PC


F

litigation was sufficient “proof of loss” to start the clock running on an award of attorney fees pursuant to ORS 742.061.

Nine years later, in Scott v. State Farm

Mutual Automobile Insurance Company, 345 Or 146, 190 P3d 372 (2008), the court broadened the term further when it held that an insured’s written application for PIP benefits constituted “proof of loss” for UM benefits under an automobile insurance policy. Consequently, an in-surer that does not carefully investigate potential UM/UIM coverage upon receipt of a claim for PIP benefits may find itself facing an award of attorney fees even if it accepted coverage, consented to arbitration, or tendered benefits on the PIP claim within the six months required by ORS 742.061.

In Parks, the court went a step fur-ther in its interpretation of the word “proof.” The plaintiffs in Parks were

▼


vandalism damage would be covered if the property had been vandalized by the tenants. Plaintiffs told the agent that there was some vandalism damage, but the amount of vandalism was minimal, and they did not want to make a claim for any vandalism damage.

Plaintiffs called again a month later. During the second telephone call plain-tiffs told the agent the cost of decontami-nating the rental property, and gave the agent the names of the decontamination contractor and one of the tenants. Plain-tiffs also gave the agent more details about the extent of vandalism damage to the rental property – two broken win-dows – and reiterated that they did not want to submit a claim for the vandalism damage, because the cost of repairing the damage would be less than the policy deductible. The agent invited plaintiffs to call her back if they had any other damage to report or changed their minds about making claim for the vandalism.

Neither the agent nor the insurer heard anything further from plaintiffs until plaintiffs filed suit for breach of contract. Plaintiffs’ complaint did not mention or refer to damage caused by or resulting from the production of methamphetamine inside the rental property. Plaintiffs simply alleged that the property had sustained $70,000 in “accidental physical damage,” which was the triggering language of the coverage contained in the policy at issue.

The insurer answered the complaint, immediately initiated discovery, and sought a detailed itemization and sup-porting documentation of the “acciden-tal physical damage” alleged. Plaintiffs testified during depositions that they did not know the extent of damage to the rental property and, indeed, had never been in the rental property to inspect the damage. Plaintiffs also produced to the insurer, for the first time ever, a repair es-

timate prepared by a contractor hired by plaintiffs’ attorney. The repair estimate indicated extensive vandalism damage, including holes in the walls, broken win-dows, door damage, and damage to the exterior of the rental property.

After completing discovery, and within six months of the filing of plain-tiffs’ complaint, the insurer tendered an ORCP 54E offer to allow judgment against it on all of plaintiffs’ claims, ex-clusive of attorney fees and costs, in the sum of $22,021.31. Plaintiffs accepted the offer.

Plaintiffs filed a petition for an award of attorney fees pursuant to ORS 742.061, and alleged that the two tele-phone calls constituted “proof of loss” for purposes of that statute. The trial court agreed with plaintiffs and awarded them attorney fees from the date of the telephone calls forward. The insurer ap-pealed the ruling of the trial court.

The Oregon Court of Appeals re-versed the trial court and held that the filing of plaintiffs’ complaint was the first event or submission sufficient to establish “proof of loss” for the purposes of ORS 742.061. The Court of Appeals pointed out that the telephone calls merely provided notice of an uncovered loss, i.e., methamphetamine contamina-tion, and a potentially covered loss for which plaintiffs did not want to submit a claim. Accordingly, the telephone calls were merely “notice of loss,” at best, and were not sufficient to establish “proof of loss.”

The Oregon Supreme Court dis-agreed. The Oregon Supreme Court held that plaintiffs’ telephone calls regard-ing methamphetamine damage were sufficient to trigger the insurer’s duty to investigate, regardless of whether the loss was potentially excluded from coverage. The Court held that metham-phetamine contamination was not so

PROOF OF LOSScontinued from page 13

clearly excluded from coverage that the insurer was relieved of its obligation to complete a thorough investigation of plaintiffs’ claim upon receipt of plaintiffs’ telephone calls:

We hold that plaintiffs’ tele-phone calls to [the insurer’s] agent, and particularly [plain-tiffs’] May 19, 2003, call reciting the amounts that he had paid and expected to pay to clean up the contamination caused by the methamphetamine lab, con-veyed sufficient information to allow [the insurer] to ascertain its obligations vis-à-vis a possible claim for methamphetamine damage, taking into account [the insurer’s] duty to investigate and clarify uncertain claims. That telephone call qualified as ‘proof of loss’ for purposes of such a claim.

Id. at *8.

This holding has serious implications for insurers. The Parks decision effectively requires a prudent insurer to open a claim file every time their insured calls with an inquiry about a loss—whether or not the loss is excluded from coverage, and even if the insured affirmatively states that he or she does not wish to make a claim for the damage in question. Counsel should advise insurers that their investigations should encompass all potential coverages and causes of loss. An insurer that fails to open a claim and conduct an investi-gation at the outset of contact from its insured runs a significant risk of battling a demand for attorney fees down the road. The Oregon Supreme Court has made clear in Parks that very little proof is required of an insured in order to start the attorney fee clock running. J


FEATURES

Earlier this year, the OADC list-serve lit up with a lively debate on the legal, ethical and professional consid-erations of recording a telephone call on a motion conferral with opposing counsel. The recording that gave rise to the debate was posted to the list-serve and was actually quite moder-ate in tone and content. Nonetheless, the lawyer who made the recording and later submitted it to the court with his conferral certification did not tell opposing counsel that the call was being recorded.

In this article, we’ll examine the legal and ethical rules in Oregon on recording conversations in the context of conferrals with opposing counsel. Oregon statutory law draws

a significant distinction between recording telephone calls and in-person conversations that, in turn, produces differing results under the ethics rules. We’ll look at both telephone and in-person record-

ing. Because the recording rules are not uniform throughout the country, we’ll conclude with a discussion of resources to determine the law and professional rules on this issue in other jurisdictions. Although we’ll focus on recording oppos-ing counsel, the same general principles apply equally to recording conversations with any person—including witnesses and even our own clients.

At the outset, I should emphasize three caveats. First, we’ll look at what the law and the ethics rules permit and not

Making a Record:Recording Opposing Counsel

whether recording opposing counsel is either “professional” or even a good idea in any given circumstance. Second, we’ll focus on civil practice rather than the use of recordings by law enforcement in criminal investigations and prosecutions. Third, we’ll discuss circumstances where the lawyer’s identity is known, rather than covert investigations that are the purview of Oregon’s unique RPC 8.4(b).

Telephone CallsRecording a telephone call in which

the person recording is a participant is legal in Oregon under both federal and state law. 18 USC § 2511(2)(d) governs the former and ORS 165.540(1)(a) controls the latter. With both, the key element is that they only require the consent of one participant, and the requisite consent can be supplied by the participant doing the recording. Neither requires disclosure to

other participants that the conversa-tion is being recorded. The roots of the ORS 165.540 stretch back over 50 years, and its legislative history is chronicled in State v. Lissy, 304 Or 455, 747 P2d 345 (1987).

Because statutory law in Or-egon permits recording calls, the Oregon State Bar concluded in For-mal Ethics Opinion 2005-156 (2005) that lawyers can record telephone conversations without violating the prohibitions in RPC 3.3(a)(5) and RPC 8.4(a)(2) on illegal conduct. Although this opinion was issued following the adoption of the Rules of Professional Conduct in 2005, it is substantively similar to predeces-sors (Legal Ethics Opinions 1999-156

(1999) and 1991-74 (1991)) applying the former Oregon Disciplinary Rules. In fact, the Oregon Supreme Court in In re Binns, 322 Or 584, 589-92, 910 P2d 382 (1996), relied on a telephone conversation be-tween a client and a lawyer recorded without notice by the client in disciplin-ing a lawyer and, in doing so, specifically noted that ORS 165.540(1)(a) permits such recording.

Formal Ethics Opinion 2005-156 (again like its predecessors) cautions, however, that although notice is not re-quired under governing statutory law, a lawyer cannot represent that a conversa-tion is not being recorded when, in fact, it is. In that instance, the lawyer would have violated RPC 8.4(a)(3), which prohib-its “conduct involving dishonesty, fraud, deceit or misrepresentation[.]”

In the conferral that triggered the listserve discussion, there was no issue of

Mark J. FucileFucile & Reising LLP

Mark Fucile


FEATURES

misrepresentation. Therefore, as the Bar’s General Counsel concluded in an email later posted on the listserve, Formal Eth-ics Opinion 2005-156 controlled and there was no violation.

In-Person ConversationsFederal law (again, 18 USC § 2511(2)

(d)) allows in-person conversations to be recorded without notice as long as one of the participants consents, and the consent-ing participant can be the person recording the conversation. Oregon law, however, is different. Unlike telephone conversations, ORS 165.540(1)(c) generally requires that all participants to an in-person conver-sation be informed of the recording. Exceptions under ORS 165.540(6) include public events like government hearings, trials, press conferences, and classes at educational institutions. Importantly for present purposes, ORS 165.540(6)(c) also creates an exception for private meetings involving an unconcealed recording device where all of the participants knew “or reasonably should have known that the recording was being made.”

Again mirroring state statutory law, Formal Ethics Opinion 2005-156 finds that in-person conversations recorded in viola-tion of ORS 165.540(1)(c) also violate RPC 3.3(a)(5) and RPC 8.4(a)(2), which convert knowing violations of statutory law into violations of the RPCs. To the extent that the conversation involved evidence gather-ing, RPC 4.4(a) also prohibits lawyers from knowingly using “methods of obtaining evidence that violate the legal rights” of another person. Beyond the professional rules, illegal in-person recordings could open the lawyer concerned to potential criminal charges under ORS 165.540(1)(c), and ORS 41.910(1) prohibits the intro-duction into evidence of conversations recorded in violation of ORS 165.540.

ORS 165.540(1)(c) only prohibits secret in-person recordings. In State v. Matthews, 55 Or App 708, 639 P2d 705 (1982), the Court of Appeals found that as long as a participant is told that the conversation is

being recorded, no violation results, even if the other participant doesn’t consent. Similarly, in State v. Knobel, 97 Or App 559, 777 P2d 985 (1989), the Court of Appeals emphasized that ORS 165.540(1)(c) applies primarily to concealed record-ing devices. ORS 165.540(6)(c) makes this explicit by exempting unconcealed devices where the participants in the conversation knew or reasonably should have known that the conversation was being recorded.

This last point was highlighted in a recent disciplinary case involving an in-person conferral between counsel. Because the charge against the lawyer was dismissed, the decision was reported as “name withheld” in the June 2008 Bar Bulletin. Counsel were handling a difficult case and their relationship had become strained to the point that they largely confined their conferrals to writing and “on the record” discussions during de-positions. At one deposition, the court reporter was not set up yet when the lawyers began a conferral. One lawyer switched on the recorder in his “smart phone” (a model the other lawyer owned, too, and that had a bright red light when recording), announced “let’s get this on the record” and placed the phone on the conference table between them. The other lawyer objected and filed a complaint against the recording lawyer with the Oregon State Bar. A Disciplinary Board trial panel dismissed the charge, finding that no violation occurred under ORS 165.540(6)(c) because the recorded lawyer either knew or should have known the conferral was being recorded.

Beyond Oregon

It is important to stress that states vary in their treatment of lawyer re-cording both in terms of their statu-tory law and interpretive ethics opin-ions. For example, some states—such as Washington under its Privacy Act (RCW 9.73.030)—generally require consent of all participants to a recording regardless

of whether the conversation is by tele-phone or in-person. Others find by way of ethics opinions that, even if permit-ted by statutory law, recording without notice and consent is inherently decep-tive. ABA Formal Ethics Opinion 01-422 (2001) catalogs many of these varying approaches. It is available on the ABA Center for Professional Responsibility’s web site at www.abanet.org/cpr.

Oregon and most other states now include a choice-of-law provision in their Rules of Professional Conduct patterned on ABA Model Rule 8.5(b). In litigation, the professional rules of the forum state (or federal district court) generally apply unless the “predominant effect” of the conduct occurs in a different state. An argument can certainly be made under the “predominant effect” exception that even a call from Oregon to another state may be governed by that other state’s recording law because the predominant effect of the recording occurs in the other state. In short, if you are handling a case in another venue or even calling opposing counsel in another state, you should check both the law and bar eth-ics opinions in that other state before making a decision on recording without notice and consent.

Summing Up

We’ve probably all had times when we wish we had a recording of what was said during a conferral. Moreover, although UTCR 5.010 only requires a “good faith effort to confer,” many judges encourage telephone or in-per-son conferral rather than an exchange of emails or letters. U.S. District Court LR 7-1(a) goes still further by specifically requiring attorneys to confer by tele-phone or in person. Although recording opposing counsel is generally permitted under Oregon statutory law and ethics rules subject to the limits just discussed, lawyers should carefully weigh the prac-tical ramifications before making that kind of record. J

MAKING A RECORDcontinued from page 15


PRACTICE TIPS

17

✔✔

istory is replete with stories of people who dedicated their lives to one type of work, but made their mark through things only tangen-tially related to their work.

Percy LeBaron Spencer, for example, accidentally invented the microwave oven while trying to develop a radiation weapon for the military. Leo Durocher, a professional baseball player who later became manager of the New York Gi-ants, is remembered primarily not for his sports career but for coining the phrase, “Nice guys finish last.”

Whether or not Mr. Durocher’s famous ad-monition is correct in the realm of baseball is a question I am not qualified to answer, my own career in the game having never ad-

vanced beyond a mediocre performance on a high school team. But I feel safe in asserting that Durocher would not have made it far as a litigator with that philosophy.

Several years ago, I attended a CLE on trial practice presented by Keith Evans, a British-born lawyer who has tried hundreds of cases in both the US and the UK. Early in his presentation, to

H

well-served, because such conduct slows the progression of the case to a crawl while increasing fees exponentially with little or no offsetting substantive benefit. What possible advantage is there to be gained through paying your attorney to appear in court to defend against a mo-tion to compel production of evidence that never should have been withheld in the first place?

If you are already gagging in an-ticipation of my employing saccharine clichés about flies and honey, let me state my thesis in words you might find more palatable by turning another trite truism on its head: Sometimes you have to be kind to be cruel.

When You Have to Be Kind to Be Cruel

Practice TipsBy Eric Meyer

Zipse Elkins & Mitchell

emphasize one of the main lessons he wanted to impart, he held up a demonstrative exhibit, a large white foam board bearing a short statement in huge black letters: BE LIKABLE. A simple device to convey a simple message, to be sure, but one that I have never forgotten, perhaps because I have found it to hold more enduring wisdom than almost anything else I have learned about trial work.

Evans’ message is potent not just because the world would be a more pleasant place if we were all nicer to each other (although obviously it would be) but because it has been my obser-vation that, far more often than not, strategic goals are easier to achieve by being congenial than by being overtly aggressive and belligerent, even with opposing parties. We have all discovered for ourselves how much more expensive and time-consuming a lawsuit becomes when the adverse party or opposing counsel insists on being difficult purely for the sake of being difficult. A client represented by such an attorney is never


Eric Meyer


PRACTICE TIPS✔✔ A case in point: I once defended

a plaintiff with respect to the counter-claim that the woman she was suing had asserted against her. This in effect put me in the position of co-counsel to a rather flamboyant and self-impressed plaintiffs’ attorney. When the time came to depose the defendant/counterclaim plaintiff, my “colleague” led off. In terms of pure theater, he did not disappoint: he was loud, demonstrative, intimidating to the small woman we were deposing, and at times downright insulting, exclaiming melodramatically that her responses to his questions were not credible and haughtily “reminding” her that she was under oath. By the time he was finished, her hatred for him was palpable.

Then it was my turn. I spoke more quietly and more politely, assuring the opposing party that I had no intention of wasting anyone’s time revisiting any-thing that had already been covered. I phrased my questions respectfully, and when a response didn’t ring true to me, rather than accuse her of lying I simply explored the matter more thoroughly through other questions until I got an answer with which I was satisfied. When I said I was done, the deponent was actually smiling at me, having clearly found her conversation with me to be much less vexing than that with the other attorney.

But here’s the thing: When the tran-script arrived from the court reporter, I found that every admission and state-ment by the opposing party that I needed to craft a motion for summary judgment, which in turn persuaded her attorney to dismiss the counterclaim outright, came from my part of the deposition, whereas the answers elicited by the other lawyer were essentially worthless. In fairness to that other attorney, this could of course be explained in part by the fact that he and I had different objectives at the de-position based on our roles – his was to

develop evidence to meet a burden of proof, whereas mine was to determine what evidence the opposing party had against my client.

More important than our respec-tive goals, however, was the fact that I had been able to get the opposing party to relax and speak freely and at length, whereas the other lawyer had made her so angry and uncomfortable that she had kept her guard up, giving him little more than “yes,” “no” and prodigious helpings of “I don’t remem-ber.” With apologies to Muhammad Ali, I would submit that this lawyer did our common client a disservice by electing to sting like a bee rather than float like a butterfly.

This lesson carries over into the courtroom as well. Gerry Spence, who is widely regarded as one of America’s best living trial attorneys, tells a story from early in his practice of feeling tri-umphant after humiliating an adverse

witness on cross-examination, only to have the jury rule against him and one juror confront him after the trial, asking, “Mr. Spence, why did you make us hate you so much?”

As a young lawyer, I was taught never to “clobber” a witness on cross-exam until and unless the jury gave me “permission” to – that is, until and un-less I had a strong intuitive sense from the jurors’ body language that they did not like or believe the witness and wanted to see him clobbered. Beating up on a sympathetic witness is virtually guaranteed to alienate the entire jury, probably irrevocably.

Perhaps my single most precarious moment ever in court came when I had to confront a soft-spoken and petite young woman about a history of child-hood abuse recorded in her medical records and about which she had just testified falsely. This was not, unfortu-nately, a collateral matter I could afford to leave unaddressed – it went right to the heart of the central issue of the case. Acutely aware of the likelihood of irretrievably losing the jury if I did not handle the issue with utmost sensitivity, I delved in gingerly, feeling as if I was walking a tightrope over a canyon filled with molten lava.

I am convinced that I survived that moment, and ultimately achieved a good result in the trial, because I had prefaced my questions to the witness by stating explicitly: “I am truly sorry that I have to ask you about this, ma’am, but I have to.” In a situation such as that, in which a likable witness is being forced to acknowledge traumatic events for which she was not at fault, the jurors’ natural human impulse towards empa-thy can render the fact that the witness has been untruthful all but irrelevant. If I had not killed my opponent with kind-ness in that case, the jury would have killed me with their verdict. J

As a young lawyer, I was

taught never to “clobber” a

witness on cross-exam until

and unless the jury gave

me “permission” to – that

is, until and unless I had a

strong intuitive sense from

the jurors’ body language

that they did not like or

believe the witness and

wanted to see him clobbered.sssssssssssss

sssssssssssss


ASSOCIATION NEWS

19

OCTO

Contributions for the OADC News-letter are always welcome. For our SPRING 2010 edition, please send your articles no later than:

MARCH 29, 2010

Submissions may be sent to:Jeanne Loftis, Editor in ChiefBullivant Houser Bailey PC888 SW 5th Ave., #300Portland, OR 97204503/[email protected]

Please email your articles in either WordPerfect or Microsoft Word for-mat (preferred). J

Calendar

Association NewsDeadline New Members

■ Richard AudleyAudley & Audley

■ Candice BroockSmith Freed & Eberhard PC

■ Scott BrooksbyBrooksby Kaempf PC

■ Katie BuxmanSmith Freed & Eberhard PC

■ Abra Cooper Schwabe Williamson

■ Lee Ann Donaldson

■ Diana Fedoroff Bodyfelt Mount

■ Jeffrey Frasier Chenoweth Law Group

■ Manasi Kumar Schwabe Williamson

■ Jay McAlpin Zipse Elkins & Mitchell

■ LeAnn McDonald Schulte Anderson

■ Mark McGranaghan Bittner & Hahs PC

■ Kelly Riggs MacMillan Scholz and Marks

■ Bryana Sack Bodyfelt Mount

■ Katie Smith Davis Rothwell Earle & Xóchihua

■ Jamie Valentine Keating Jones Hughes PC

OADC welcomes the following new members to the association:

2010 OADC Convention

June 17-20, 2010

Sunriver, Oregon

Defense Practice Academy

September 24, 2010

Portland, Oregon

OADC Fall Seminar

November 5, 2010

Oregon Convention Center

Portland, Oregon

The OADC website, oadc.com, has many enhanced features including: our passcode protected on-line membership directory, enhanced calendar of events that allow on-line registration for CLE events, enhanced OADC leadership list-ings, ability to update your membership data with OADC on-line, on-line member-ship application, on-line dues renewal, amicus briefs that OADC has filed, expert witness information, legal updates and tips, newsletters (for member’s only), and more!

To be a part of our active, mem-

OADC Website

bers only, listserve please send an email to [email protected] with a request to be added to the email listserve along with your name. Once your membership is veri-fied by OADC staff, you will be added to the listserve and a welcome letter will be emailed to you with instructions on how to use the listserve.

We hope you enjoy the site and find it a useful tool and benefit. Please email us at [email protected] or call OADC at 503.253.0527 or 800.461.6687 with ques-tions. J


ASSOCIATION NEWS

Association News

■ ORCP 7 and 9 - Service and Fil-ing: Address potential conflicts in Rule 9C & 9D and clarify rules for personal service and service by mail.

■ ORCP 36 and 43 - Electronic Discovery: Potential changes to address e-discovery, including definition for “electronically stored information” (ESI).

■ ORCP 36 and 43 - Additional Discovery Issues: Consider sug-gested limitations on the num-ber of RFPs, the number and length of depositions, require-ments for motions to compel and disclosures.

■ ORCP 38: Potential changes considered in light of the Uni-form Interstate Depositions and Discovery Act.

■ ORCP 54 - Offers of Judgment: Potential changes to time frame, scope and confidentiality.

■ ORCP 69 - Default Judgment: Restructuring of rule to give clarification to overall process and necessity for Pre-Motion Notice, Motion, Order and Judg-ment.

Council on Court Procedures

■ E - F i l i n g : R u l e changes consid-ered in light of fu-ture e-filing.

■ Counterclaims in Domestic Relations Practice: Discussion on whether rule change is neces-sary to conform to domestic relations practice. Detailed infor-

mation regarding the above issues can be located on the COCP Website, www.coun-ciloncourtprocedures.org. The COCP website also hosts a plethora of information including Current ORCPs, Agen-das and Minutes for COCP meetings, and Legislative History by Rule.

Meetings are open to the public but OADC members are welcome to submit suggestions or comments via your OADC representatives on the Council: Gene Buckle, John Bachofner, Mark Weaver or Kristen David. The Council will continue to consider sug-gested rule changes until early sum-

mer, at which time it will narrow the final amendments for publication in the Fall, and thereafter will submit the proposed amendments to the legislature for passage “as law” in December.

—Submitted by Kristen David

of Bowerman & David PC

The Council on Court Procedures (COCP), under the guidance of current Chair Gene Buckle, is currently con-sidering a number of proposed amendments to the Oregon Rules of Civil Procedure including the following:


RECENT CASE NOTES

RICHARD AUDLEY

CONSULTANT / EXPERT WITNESS FORINSURANCE COVERAGE ISSUES

• 47YearsExperiencespecializing in first party property issues

• AdjunctProfessorofInsuranceLaw, Willamette University College of Law Salem Oregon

• MemberofCalifornia,Idaho&OregonBars

• Qualifiedasanexpertwitnessin numerous courts of law

• OfficesinOregonandCalifornia

3120 Dogwood Dr. S, Salem OR 97302503-335-7929

80 El Camino Real, Berkeley, CA 94705510-332-2962

[email protected]

Recent Case Notes

An order compelling production of privileged information is not an appealable collateral order

In Mohawk Industries, Inc. v. Car-

penter, 130 S Ct 599 (December 8, 2009), the Supreme Court of the United States held that an order requiring production of privileged information is not imme-diately appealable under the collateral order doctrine.

In Mohawk Industries, the federal district court ordered the defendant to produce certain privileged attorney-client communica-tions on the grounds that the privilege had been waived. The defendant attempted to immediately appeal the order, relying on the collat-eral order doctrine. Under that doctrine, a decision that does not end the litigation is nonetheless appealable if the decision (1) is conclusive, (2) resolves an important question separate from the case’s merits, and (3) is ef-fectively unreviewable on appeal from the final judg-ment. The court of appeals dismissed the appeal for lack of jurisdiction, and the United States Supreme Court affirmed.

The Supreme Court held that the collateral order doctrine was not satisfied because “postjudgment ap-


Appellate Procedure

peals generally suffice to protect the rights of litigants and assure the vitality of the attorney-client privilege.” The Court also noted that an aggrieved party had several options for seeking immediate appellate review of an order compelling disclosure of privileged information, including an in-terlocutory appeal under 28 USC § 1292(b) or a petition for a writ of mandamus.

The Supreme Court affirmed the judgment of the United States Court of Appeals for the Eleventh Circuit dismissing the appeal for lack of appellate jurisdic-tion. J

--Submitted by R. Daniel Lindahl of

Lindahl Law Firm, PC

Attorney Fees

Insureds’ telephone calls to an insurance agent reporting damage to their rental property constitute “proof of loss” for purposes of ORS 742.061

In Parks v. Farmers Ins. Co., 347 Or 374 (December 24, 2009), the Oregon Supreme Court returned to the familiar issue of what constitutes “proof of loss”

under ORS 742.061. The court held that two tele-phone calls the insureds made to their insurance agent were sufficient to satisfy the court’s func-tional definition of “proof of loss.”

The insureds owned a house that they rented to tenants. The home was insured by Farmers Insur-ance Company. Police dis-covered a methamphet-amine lab in the house, and seized it and placed the house under quarantine. The insureds made two phone calls to their insur-ance agent. Although the parties disagreed about the precise substance of those conversations, they agreed that the methamphetamine damage was discussed.

The insureds later sued Farmers, seeking coverage for all accidental physical damage to the house. More


RECENT CASE NOTES

Recent Case Notes


for such damage. In rejecting that argu-ment, the supreme court noted that the insureds’ complaint included a claim for methamphetamine damage, and the claim for methamphetamine damage was never eliminated from the case before the case was resolved through the offer of judgment. Accordingly, the phone calls constituted proof of loss for methamphetamine damage, the insureds sued for coverage for methamphetamine damage, and the insureds ultimately, and more than six months after the phone calls, recovered from the insurer on that claim. Consequently, the insureds were entitled to recover attorney fees under ORS 742.061.

The supreme court reversed the deci-sion by the court of appeals and affirmed the judgment of the circuit court. J

[For a fuller discussion, please see

article on page 13.]

—Submitted by Benjamin Bloom of

Hornecker, Cowling, Hassen & Heysell,

LLP

Child Abuse

than six months after their phone calls to the insurance agent, the insureds resolved the case by accepting Farmers’ offer of judgment.

The insureds then moved for an award of attorney fees under ORS 742.061. Under that statute, an insured is entitled to attorney fees where (1) the insurer fails to settle the insured’s claim within six months of the date that the insured files a proof of loss, and (2) the insured brings an action against the insurer and recovers more than any ten-der that the insurer has made. The trial court awarded fees, the court of appeals reversed, and then the Oregon Supreme Court granted review.

In the supreme court, the issue was whether the insureds’ telephone calls to their insurance agent constituted “proof of loss” for purposes of ORS 742.061. The court first rejected Farmers’ argument that proof of loss must be in writing. Then the court addressed whether the phone calls were “proof of loss.”

The court began by reiterating that it has given “proof of loss” a “functional definition,” holding that “proof of loss” means information sufficient to allow the insurer to estimate its obligations through a reasonable investigation. In arguing that the phone calls were not proof of loss, the insurer argued that the phone calls were not proof of loss for any covered damage because the phone calls concerned only methamphetamine dam-age, and the policy did not cover meth-amphetamine damage. Consequently, reporting methamphetamine damage did not trigger any duty on the part of the insurance company to investigate the claim and determine the amount owed. Furthermore, since methamphetamine damage was not covered, the offer of judgment did not include any payment

Priest’s conduct in front of plaintiff could be “child abuse,” triggering extension of the statute of limitations in such cases

In Schmidt v. Mt. Angel Abbey, 347 Or 389 (December 24, 2009), the Oregon Supreme Court interpreted ORS 12.117(1), which extends the statute of limitations for actions based on conduct that con-stitutes “child abuse,” where the action accrues while the person entitled to bring the action is under 18 years of age. Decid-ing that a reasonable jury could find that

plaintiff’s claims involved “child abuse,” which would trigger application of ORS 12.117(1), the supreme court reversed a summary judgment dismissing the plain-tiff’s claims as untimely.

In 1958, while a high school fresh-man at Mt. Angel Seminary, plaintiff was asked to meet a priest in the priest’s office. When plaintiff arrived, the priest was seated behind his desk, and began asking plaintiff questions about sexual-ity and reproduction, including whether plaintiff had ever masturbated. During the questioning, plaintiff could see that there was motion going on under the priest’s cassock, and plaintiff felt it was “pretty obvious” that the priest was mas-turbating. After approximately 30 to 45 minutes, plaintiff left the room.

Forty-four years later, plaintiff com-menced an action against the priest and Mt. Angel Abbey, seeking damages for intentional infliction of emotional distress and for breach of fiduciary duty. The trial court granted summary judgment on the grounds that the claim was untimely, and the Oregon Court of Appeals affirmed. The Oregon Supreme Court then granted review.

The supreme court analyzed whether a reasonable factfinder could find that plaintiff’s claims fit within ORS 12.117, which extends the statute of limitations for tort actions based on conduct that constitutes “child abuse” where the action accrues while the person who is entitled to bring the action is under 18 years of age. “Child abuse” is defined at ORS 12.117(2). The plaintiff argued that his claims fit within two definitions of “child abuse.” First, he argued that a factfinder could find that the priest’s actions involved injury caused by “cruelty to the child.” Second, he argued that a factfinder could find that the priest’s actions involved


RECENT CASE NOTES

Damages

Recent Case Notes


“sexual exploitation of a child.” The supreme court agreed with both

arguments. First, the court held that the phrase “cruelty to [a] child” means (1) acts that are performed with the specific intent of injuring or harming the child and that are capable of producing those results, and (2) acts that, by their very nature, demon-strate a willful and wanton disregard for the child’s welfare, such that one can infer a willingness to have the child injured. The court then analyzed the factual allegations and concluded that a reasonable jury could find that the priest’s alleged acts constitut-ed “cruelty to [a] child” within the meaning of the statute and, therefore, satisfied the definition of “child abuse.”

The court next addressed whether the priest’s actions constituted “sexual exploi-tation.” After an exhaustive analysis of the statute, including a detailed discussion of the principle of ejusdem generis, the court held that “sexual exploitation” means conduct where an individual uses a child in a sexual way for his or her own gratifica-tion or benefit, and the child is personally involved. The court then decided that a reasonable jury could find that the priest’s actions satisfied that definition of “sexual exploitation.”

Having decided that a jury could find that plaintiff’s claims arose from “child abuse,” as that phrase is defined in ORS 12.177(2), the court reversed the summary judgment dismissing plaintiff’s claims. The supreme court remanded the case to the court of appeals for further proceedings because there was additional grounds for affirmance that the court of appeals had not addressed in its previous decision. J

--Submitted by Benjamin M. Bloom

of Hornecker, Cowling, Hassen & Heysell,

LLP

Plaintiffs’ fraud claim required evidence from which the jury could determine the difference between the price plaintiffs paid for the property and the property’s fair market value

In Morasch v. Hood, 232 Or App 392 (December 9, 2009), the Oregon Court of Appeals applied the general rule that in a fraud case, the proper measure of dam-ages is “out-of-pocket” damages rather than “benefit-of-the-bargain” damages. Because the plaintiffs failed to present evidence from which the jury could determine the amount of plaintiffs’ out-of-pocket damages, the appellate court affirmed the judgments notwithstanding the verdict entered in favor of the defen-dants. But the appellate court reversed attorney-fee awards made pursuant to ORS 20.105 and ORS 20.190(3).

The case arose from the plain-tiffs’ purchase of residential property. Plaintiffs later sued for fraud and civil conspiracy, alleging that they purchased the property in reliance on defendants’ misrepresentations about the property, and that they would not have purchased the property if they had known the true facts about the property.

At trial, the plaintiffs sought dam-ages based on a “benefit-of-the-bargain” theory. Under that theory, damages are measured by the difference between the actual value of the property and its value as represented. In support of that theory, the plaintiffs presented evidence of what it cost to improve the property so that it

was in the condition represented by the defendants. The defendants countered that plaintiffs were entitled to only “out-of-pocket” damages, measured by the difference between the purchase price of the property and its fair market value on the date of sale.

The jury returned a verdict for the plaintiffs and awarded damages, but the trial court granted the defendants judgments notwithstanding the verdict, finding that plaintiffs had failed to pres-ent evidence from which the jury could determine damages based on the “out-of-pocket” measure of damages appli-cable to the plaintiffs’ fraud claim.

The appellate court affirmed on the grounds that there was a failure of proof of damages because the plaintiffs had failed to present evidence of the property’s fair market value on the date of sale. In so holding, the appellate court restated the rule that a fraud plaintiff is entitled to subjective, “benefit-of-the- bargain” damages only when the claim involves misrepresentation and warranty of value. Otherwise, a fraud plaintiff must provide evidence of the property’s fair market value to satisfy the objective, “out-of-pocket” measure of damages. Evidence of the cost to remediate differ-ences between a property as represented and a property’s true condition is insuf-ficient to meet that burden.

Also, the appellate court reversed the award of attorney fees and prevail-ing party fees to defendants pursuant to ORS 20.105 and 20.190(3). The fact that a claim is unsuccessful does not necessarily render a plaintiff’s position objectively unreasonable. A position is objectively unreasonable only “if it is not supported by the law as applied to the facts.” Here, the court of appeals found that although plaintiffs did not present legally sufficient


RECENT CASE NOTES

Recent Case Notesevidence of damages, the jury’s verdict established that plaintiffs had brought forth some evidence of damage that the jury believed, and sufficient evidence for the jury to infer that the defendants con-spired to conceal material information from the plaintiffs. Thus, the defendants were not entitled to the fees awarded by the trial court because the plaintiffs’ claims were not without objectively rea-sonable bases.

The judgment for defendants was af-firmed, although the awards of attorney fees and prevailing party fees under ORS 20.105 and 20.190(3) were reversed. J

--Submitted by Andrea H.

Thompson of Stoel Rives LLP

Employment

Plaintiff entitled to neither compensatory or punitive damages nor a jury trial in ADA retaliation case

In Alvarado v. Cajun Operating Co., 588 F3d 1261 (9th Cir Dec. 11, 2009), the United States Court of Appeals for the Ninth Circuit held that compensatory damages, punitive damages, and the right to a jury trial are not available in retaliation claims brought under the Americans with Disabilities Act (ADA).

Plaintiff worked as a cook at de-fendant’s restaurant. He complained after his supervisor allegedly made dis-criminatory remarks related to age and disability. Shortly afterward, plaintiff received several disciplinary write-ups for poor performance, although he had always had satisfactory job performance until that point. After being terminated,

plaintiff sued his former employer for, among other things, retaliation under the ADA.

Before trial, the federal district court held that plaintiff was not entitled to seek compensatory or punitive damages on his ADA retaliation claim, nor was he entitled to a jury trial on that claim.

In affirming, the Ninth Circuit fo-cused on the plain, unambiguous lan-guage of the statute. The court held that the ADA remedy provisions specifically enumerate those sections of the act for which compensatory and punitive dam-ages (and a jury trial) are available, and that the ADA anti-retaliation provision is not included.

The ADA provisions prohibiting discrimination based on disability and the failure to accommodate are located under Title I and at 42 USC § 12112. The anti-retaliation provision, however, is lo-cated under Title V and at 42 USC § 12203. The ADA itself does not contain specific remedy provisions, but instead incorpo-rates the remedy provisions from Title VII of the Civil Rights Act of 1964, specifically 42 USC § 2000e-5, which provides for equitable remedies only. The Civil Rights Act of 1991, 42 USC § 1981a, expanded available remedies to include compensa-tory and punitive damages, but only for violations of specific, enumerated sec-tions; 42 USC § 12112 is included, but 42 USC § 12203 is not. The court reasoned that, because the “plain and unambigu-ous provisions of 42 USC § 1981a limit the availability of compensatory and punitive damages to” specific claims that did not include ADA retaliation claims, the “ADA retaliation claims are redressable only by equitable relief.”

In reaching this conclusion, the court noted that it was joining the Seventh and Fourth Circuits, the only other federal

circuit courts of appeal to have passed on the issue. The court also noted that several district courts in other circuits had reached the opposite conclusion, largely by emphasizing the overall structure of the ADA and the “expansive” intent of the 1991 amendments.

The district court’s judgment was affirmed. J

--Submitted by Ryan Gibson of

Stoel Rives LLP

Plaintiff raised jury issue re negligence claim, but summary judgment proper against federal retaliation and constructive discharge claims

In Steele v. Mayoral, 231 Or App 603 (November 4, 2009), the Oregon Court of Appeals reversed a summary judgment dismissing the plaintiff’s negligence claim against her former employer, finding that the plaintiff had presented evi-dence from which a jury could find that the defendant had negligently failed to adequately investigate complaints about acts of sexual harassment by one of its employees who later assaulted plaintiff. But the appellate court affirmed sum-mary judgment against the plaintiff’s federal claims for retaliatory harassment and constructive discharge.

Plaintiff, a high school counselor, developed a social relationship with May-oral, the principal at the school where she worked. During one of their social out-ings, Mayoral allegedly sexually assaulted plaintiff. Several months later, plaintiff resigned her employment.

Plaintiff then sued both Mayoral and the school district. Her claims included common-law negligence in supervising



RECENT CASE NOTES


Recent Case Notes

Recreational Use Immunity

and retaining Mayoral, and retalia-tory harassment and retaliation under 42 USC 2000e-3(a). The circuit court ordered summary judgment against these claims.

The court of appeals reversed the summary judgment against the negli-gence claim. In support of her claim, plaintiff presented evidence that before she was sexually assaulted by Mayoral, the district had failed to investigate a report that Mayoral had sexually ha-rassed a person who might have been a district employee. The court of ap-peals concluded that a reasonable juror could find that the school district was negligent in not complying with its duty to investigate reports of sexual harass-ment by an employee and impose any required discipline.

But the court affirmed summary judgment against plaintiff’s federal claims that she was subjected to retalia-tory harassment and was constructively discharged. A retaliation claim under Title VII requires proof that the plaintiff experienced a materially adverse ac-tion. Plaintiff relied on evidence that Mayoral watched her closely and made threatening remarks about eliminat-ing her position; that she received an anonymous email that said “Quit”; that someone turned up the heat in her of-fice; that co-workers failed to bring her questions that were within the scope of her duties as lead counselor; and that co-workers projected hostility.

The court held that this evidence was insufficient to create a jury ques-tion on the retaliatory harassment claim. The court particularly emphasized that Mayoral’s actions did not deter plain-tiff from reporting Mayoral’s conduct, which suggested that his actions were

not sufficiently material and adverse to provide the basis for a claim. The other actions were isolated and relatively minor incidents that did not recur and, consequently, did not rise to the level of a materially adverse action.

Finally, the court affirmed sum-mary judgment against plaintiff’s claim that she was constructively discharged. Having failed to establish an adverse action or hostile work environment, plaintiff had also failed to satisfy the higher standard required for construc-tive discharge.

The court reversed the summary judgment against the negligence claim, but affirmed summary judgment against the retaliatory harassment and constructive discharge claims. J

--Submitted by Shemia Fagan of

Ater Wynne LLP

Recreational use immunity applied to riding a motorcycle in a planned activity at a motorcycle rally

In Kelly v. Hochberg, 231 Or App 155 (September 30, 2009), the Oregon Court of Appeals held that recreational use immunity under ORS 105.682 ap-plied to claims arising from injuries plaintiff suffered while riding his mo-torcycle as part of a planned activity at a motorcycle rally. Consequently, the court affirmed the trial court’s summary judgment against plaintiff’s claim.

Plaintiff, a motorcycle enthusiast, attended the Iron Horse Rodeo, an an-

nual gathering of motorcyclists. The gathering occurred in Josephine County. The gathering included events and con-tests, including a Poker Run. The Poker Run consisted of a game of five-card stud poker in which each player rides a motorcycle over a five-leg course, draw-ing a playing card at the end of each leg. At the end of the course, the player with the best hand earns a prize.

The Poker Run took the riders along a road owned by the Bureau of Land Management. The road was open to the public year-round, without charge, for commercial, recreational, and adminis-trative access. While traveling the road, the plaintiff was injured in a collision with a car.

Plaintiff hired defendant to repre-sent him in an action for damages for the injuries he suffered in the accident. Defendant sued the driver of the car and Josephine County, which defen-dant erroneously thought owned the road where the accident occurred. By the time that defendant discovered his error, it was too late to sue the proper defendant—the BLM.

Plaintiff sued defendant for legal malpractice. Defendant moved for summary judgment on the grounds that any claim against the BLM would have been unsuccessful because ORS 105.682—the recreational use immunity statute—made the BLM immune from liability. That statute provides generally (and subject to certain exceptions not relevant in this case) that an owner of land who permits any person to use the land for recreational purposes is immune from liability for injuries arising out of the use of the land for recreational purposes. The circuit court agreed and granted the motion.


RECENT CASE NOTES

Recent Case Notes

Wrongful Discharge

On appeal, the dispositive issue was whether plaintiff was engaged in a “recreational” use of the road at the time of the accident. Plaintiff argued that the statute did not apply because he was using the road for travel rather than for any recreational purpose. But the court rejected that argument, not-ing that the statute’s definition of “rec-reational purposes” includes several forms of recreational travel, such as hik-ing, boating, and waterskiing, indicat-ing that the legislature contemplated that some forms of travel fit within the scope of “recreational purposes.” In this case, the plaintiff was injured while traveling as part of a recreational event at a motorcycle rally. Thus, the “travel itself was the recreation.” Accordingly, the recreational use immunity statute applied.

The court affirmed the summary judgment for the defendant. J

—Submitted by Jennifer Franks of

Schwabe Williamson & Wyatt

Employee’s complaints about employer’s sales activities did not provide a basis for a wrongful-discharge claim

In Lamson v. Crater Lake Motors,

Inc., 346 Or 628 (August 20, 2009), the Oregon Supreme Court held that the defendant auto dealership was entitled to a directed verdict against plaintiff’s wrongful-termination claim because

plaintiff failed to present evidence that his termination resulted from ful-filling a societal obligation sufficiently important to provide the basis for a wrongful termination claim.

Plaintiff, an automotive sales manager, complained to defendant (his employer) about allegedly unethi-cal and illegal sales tactics used by an outside company that the dealership hired to conduct sales events. Plaintiff was terminated after failing to report for work and participate in one of the outside company’s sales events.

Plaintiff then sued his former employer for wrongful discharge, al-leging that he had been terminated because he complained about the outside company’s unlawful conduct. Plaintiff prevailed at trial, but the court of appeals reversed, and the supreme court granted review.

The Oregon Supreme Court af-firmed the court of appeals’ deci-sion. The court held that plaintiff’s wrongful termination claim required evidence that he had been terminated for performing a public obligation or duty so important that it war-ranted a departure from the usual rules applicable to discharge from at-will employment. The court held that plaintiff’s complaints to his em-ployer about the allegedly unethical and unlawful conduct of the outside company did not meet that standard. Consequently, the defendant was en-titled to a directed verdict.

The decision of the circuit court was reversed and the decision by the court of appeals was affirmed. J

--Submitted by Jocelynne

McAdory of Bullivant Houser Bailey

PC

Oregon Association of Defense Counsel

Annual ConventionJune 17-20, 2010

Sunriver ResortSunriver, Oregon

Mark your calendars to attend this year’s convention in Sunriver. This convention is going to be a weekend full of exciting activities and education at Sunriver Resort! The convention will feature approximately 7 hours of outstanding CLE credit, a scramble golf tournament, two evening social activities and more. Mark your calendars now and plan to attend!

Oregon Associationof Defense CounselOADC

Trial Lawyers Defending You in the Courts of Oregon


PETITIONS FOR REVIEW


Pending Petitions For ReviewThe following is a brief summary of cases for which petitions for review have been filed with the Oregon

Supreme Court. These cases have been selected for their possible significance to OADC members. This

summary is not intended to be an exhaustive listing of the matters that are currently pending before the

court. For a complete itemization of the petitions and other cases, the reader is directed to the court’s

Advance Sheet publication.

Petitions for Review That Have Been Allowed

Arbitration■ Snider v. Production Chemical Manufacturing, Inc., 221

Or App 593, 191 P3d 691, rev allowed, 345 Or 417 (2008) (argued before the Oregon Supreme Court on May 18, 2009)Plaintiff’s employment contract with defendant required

arbitration of controversies that “involv[ed] the construction or application of any of the terms, provisions, or conditions” of the employment contract. After being terminated, the plaintiff sued for breach of the employment contract and for violation of wage and hour laws. Plaintiff later filed a second amended complaint, and defendant filed its answer and affirmative de-fenses, which did not allege that plaintiff’s claims were subject to mandatory arbitration.

A week before trial, defendant successfully moved to post-pone the trial. Defendant subsequently filed a petition to com-pel arbitration and abate the circuit court case. The trial court denied defendant’s petition to compel arbitration and abate the circuit court case on the ground that defendant had waived its contractual right to arbitration by “’actively litigat[ing]’ the case for eight months between the filing of the complaint and the filing of the motion to compel arbitration.” A jury trial resulted in a verdict for the plaintiff.

Defendant appealed, contending, in part, that the trial court erred in denying its petition to compel arbitration. In response, plaintiff argued that the order denying defendant’s petition to compel arbitration was not reviewable because defendant had not appealed that order within 30 days after it was entered.

The court of appeals concluded that, because defendant had failed to timely appeal the order denying arbitration, it lacked jurisdiction to review that order.

In the supreme court the issues are: (1) Whether the failure to file an interlocutory appeal from

a trial court order denying a petition for arbitration, as permit-ted by ORS 36.730, divests an appellate court of jurisdiction to later consider an assignment of error challenging that order in an appeal from the final judgment entered in the action.

(2) Whether ORS 19.425, which provides that an appellate court “may review any intermediate order involving the merits or necessarily affecting the judgment appealed from,” permits an appellate court to review an intermediate order denying a petition for arbitration in an appeal from the final judgment.

(3) What is the effective date of ORS 36.730, which allows interlocutory appeals from orders denying petitions for arbitra-tion?

(4) Whether ORS 36.730 applies to a situation where the arbi-tration agreement was entered into before January 1, 2004, and some of the causes of action also accrued before that date.

(5) Whether defendant waived its right to arbitration by delaying in filing its petition for arbitration, or by participating in a trial on the merits after defendant’s petition for arbitration was denied.




Employment■ Emerald Steel Fabricators, Inc. v. Bureau of Labor and Indus-

tries, 220 Or App 423, 186 P3d 300, rev allowed, 345 Or 417 (2008) (argued before the Oregon Supreme Court on March 6, 2009)Employer Emerald Steel Fabricators, Inc. hired complainant

on a temporary basis as a drill press operator. Complainant was told that he would be required to take a drug test before he could be hired as a permanent employee. At the time, complainant was participating in Oregon’s medical marijuana program because of certain medical problems, but did not mention that fact because he feared he would not be hired. After complainant disclosed his use of medical marijuana, he was told by his supervisor that he was no longer needed.

Complainant filed a complaint with BOLI’s Civil Rights Divi-sion, alleging that he was the victim of unlawful employment practices. BOLI issued formal charges against employer. Ultimately, BOLI ruled that employer had failed to reasonably accommodate complainant’s disability, and awarded damages of approximately $28,000. Employer sought judicial review of BOLI’s final order on reconsideration, and the Court of Appeals affirmed.

On review, the issues are: (1) whether employer preserved the issues raised on appeal, and (2) whether anything in Oregon law imposes a duty upon an employer to accommodate an employee’s use of medical marijuana.

Evidence■ Cler v. Providence Health System-Oregon, 222 Or App 183,

192 P3d 838 (2008), rev allowed, 345 Or 618 (2009) (ar-gued before the Oregon Supreme Court on September 14, 2009).This is the rare case that involves an allegedly improper

closing argument, and whether even if there were error, it was substantial enough to warrant a new trial.

A nurse gave plaintiff an intravenous injection, resulting in an injury to the plaintiff’s hand. Plaintiff then sued for mal-practice.

During her opening statement at trial, defense counsel told the jury that she would be calling an oncology nurse as an expert witness. But because of scheduling problems, the expert never testified.

Despite his knowledge of the scheduling problems, during closing argument plaintiff’s counsel emphasized defendant’s failure to call an expert nurse and argued that it was because defendant could not find one to say that plaintiff had received adequate care. Over plaintiff’s objection, the court permitted defense counsel to explain that the expert nurse had been in the courtroom and was prepared to testify, but that the expert had to leave town before she could be called to the stand.

On appeal, the court of appeals held that the trial court abused its discretion by allowing defense counsel to explain why the nurse did not testify because that argument depended on evidence not in the record. But the appellate court also held that the error did not substantially affect the plaintiff’s rights.

The supreme court will decide whether the trial court erred in allowing the defendant to explain to the jury why the nurse had not testified and, if so, whether the error was prejudicial.

Insurance■ Bonds v. Farmers Insurance Company of Oregon, 227 Or App

185, rev allowed, 347 Or 258 (2009) (scheduled for argument before the Oregon Supreme Court on March 1, 2010). This case involves ORS 742.504(12)(a)(B), which provides

that no claim for underinsured motorist (“UIM”) coverage shall accrue unless, within two years from the date of the accident, “the insured or the insurer has formally instituted arbitration proceedings.” The statute’s effect is to toll the time within which an action for UIM benefits must be commenced if either the in-surer or the insured formally institutes arbitration proceedings within two years from the date of the accident.

Plaintiff was insured under defendant’s automobile policy, which contained UIM coverage. On July 2, 2003, plaintiff was in-jured in an accident allegedly caused by another driver. On March 29, 2005, plaintiff informed one of defendant’s adjusters that he had settled with the driver, but intended to seek UIM cover-age from defendant because the settlement did not adequately compensate him for his damages. The same day, defendant sent plaintiff two letters. One acknowledged plaintiff’s UIM claim and stated, “Should we disagree on the liability/damages owed by the underinsured motorist, [defendant] consents to submit this matter to binding arbitration.” The second letter stated that defendant disagreed about the extent of damages owed. On July 6, 2005—two years and four days after the accident—defendant’s adjuster called plaintiff’s attorney to inquire whether an action had been filed on the UIM claim. When informed that no action had been filed, the adjuster indicated that the time for resolving the claim had lapsed under the terms of the policy, which parallel ORS 742.504(12) (2003). The next day, plaintiff’s attorney called the adjuster and stated that plaintiff would “accept” defendant’s “offer” to arbitrate the UIM claim, appar-ently referring to defendant’s March 2005 letters. The adjuster replied that the UIM claim was time-barred because the letters did not amount to the formal institution of arbitration. Plaintiff subsequently brought an action for a judicial declaration that his claim was timely and for an order compelling defendant to arbitrate. The trial court agreed with plaintiff that defendant’s March 2005 letters formally instituted arbitration and granted him the relief that he sought.




Defendant appealed, and the court of appeals reversed and remanded. Relying on the text of ORS 742.504(12) and on case law, the court first rejected defendant’s contention that an offer and acceptance is required to formally institute arbitration proceedings, instead concluding that the act could be performed unilaterally. However, because the institution of arbitration must be “formal,” the court determined that at the relevant time, ORS 36.635(1) governed. That statute -- part of the Uniform Arbitration Act -- requires that one party provide notice of the institution of arbitration in the manner agreed to by the parties, or by certified mail, return receipt requested, or by service as authorized for summons under ORCP 7 D. In focus-ing on ORS 36.635(1), the court rejected plaintiff’s claim that it was inapplicable because it was not signed into law until after the accident, noting that the statute applies to all arbitration agreements “whenever made.” Finally, the court determined that, even if ORS 36.635(1) was inapplicable, formal institution of arbitration required something more than mere notice.

On review, the issues are:(1) Under the terms of ORS 742.504(12)(a)(B), what must an

insurer or an insured do to “formally institute arbitration” so as to satisfy a policy’s time limit on an uninsured or underinsured motorist claim?

(2) Is the court of appeals correct that “institution of arbitra-tion requires more than mere notice; it requires the establish-ment and setting up of the formal process of arbitration”? If so, then what exactly is that?

(3) Whether an offer to arbitrate under ORS 36.635(1) of the Uniform Arbitration Act, allegedly made in the manner agreed by the parties and done with identification of the disputed is-sues, is sufficient to “formally institute arbitration.”

(4) Did the court of appeals err in concluding that the parties had not varied the notice requirement for initiation of arbitration, provided by default in the Uniform Arbitration Act at ORS 36.635(1)?

(5) Does the Uniform Arbitration Act, enacted after this policy and accident, apply to a prior claim under the arbitration process envisioned in ORS 742.504(10)?

(6) Did the court of appeals apply the wrong standard of review in construing the insurer’s letters?

■ Bresee Homes, Inc. v. Farmers Insurance Exchange, 227 Or App 587, rev allowed, Oregon Supreme Court No. S057573 (January 21, 2010) (scheduled for argument before the Oregon Supreme Court on May 13, 2010).Plaintiff Bresee Homes, Inc., seeks review of a court of

appeals decision that affirmed a trial court decision granting summary judgment to defendant Farmers Insurance Exchange on plaintiff’s complaint against defendant for failure to defend

and denial of coverage.Plaintiff is engaged in the business of constructing homes.

Some of the homes that plaintiff built developed problems related to the use of synthetic stucco siding, which gave rise to claims by the homeowners. Plaintiff sought coverage under its policy with defendant, which defendant denied. Plaintiff subsequently filed a complaint alleging that defendant had breached the insurance contract by failing to defend plaintiff and by denying coverage.

The circuit court granted defendant’s motion for summary judgment, holding that coverage was excluded by the policy’s exclusion for “products – completed operations.” That exclu-sion was defined as including all property damage “occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work’” except for “[p]roducts that are still in your physical possession” or “[w]ork that has not yet been completed or abandoned.”

On appeal, the court of appeals affirmed. The court held: (1) the term “your work” in the contract included the work per-formed by plaintiff’s subcontractor because the term included work done on behalf of plaintiff; (2) the “products – completed operations” exclusion excluded coverage unless an exception to the exclusion applied; (3) plaintiff had the burden to show that an exception to the exclusion applied, and failed to meet that burden because it produced no evidence that the damage alleged in the complaint occurred before completion of the work; (4) extrinsic evidence of the parties’ intent is not part of the interpretation of an insurance policy under Oregon law, either to create or explain ambiguities under the policy; and (5) the doctrine of waiver does not apply in circumstances where a plaintiff seeks to expand the coverage of an insurance policy, because such an expansion would not be a relinquishment of an insurer’s rights.

On review, the issues are as follows:(1) Whether an insured, in trying to establish a duty to

defend under an insurance policy, has the burden of produc-ing evidence beyond that contained in the pleadings and the policy of insurance?

(2) Whether there is a difference between coverage for damage “to an insured’s work” and “arising from an insured’s work?”

(3) Whether endorsements, exclusions, or any other provi-sions in an insurance policy should be construed independently, or instead construed within the text and context of the policy as a whole?

(4) Whether extrinsic evidence, particularly that which can be characterized as an admission, may be introduced to cre-ate an ambiguity, or submitted to the factfinder under proper instruction?




(5) Whether an insurance company can waive the applica-tion of an exclusion to its policy?

■ ZRZ Realty Company v. Beneficial Fire and Casualty Insur-ance, 222 Or App 453, 194 P3d 167 (2008), adh’d to as modi-fied on recons, 225 Or App 257, 201 P3d 912, rev allowed, 346 Or 363 (2009) (argued before the Oregon Supreme Court on January 6, 2010).This insurance coverage case involves the common policy

provision stating that there is no coverage for damage that was expected or intended.

Plaintiffs received a notice from the Oregon Department of Environmental Quality demanding that they investigate and clean up certain damaged property. Plaintiffs, in turn, sued their insurers for coverage. One of the defenses raised to the plaintiffs’ claims was that coverage was precluded because the policies did not cover damage that was expected or intended. The trial court held that where a policy expressly states that it does not cover damage that is expected or intended, the insurer has the burden of proof on that issue. The court of appeals disagreed, and reversed on that issue. Thus, one of the issues before the Oregon Supreme Court is, when an insurance policy excludes coverage for “expected or intended” property damage or defines a covered occurrence as property damage “neither expected nor intended,” whether the insured or the insurer has the burden of proving that the property damage was or was not expected or intended. A secondary issue is whether a policy is ambiguous where it is capable of more than one reasonable interpretation, but one of the reasonable interpretations is more likely than the other.

Product Liability■ Mason v. Mt. St. Joseph, Inc., 226 Or App 392, 203 P3d 329,

rev allowed, 347 Or 42 (2009) (scheduled for argument before the Oregon Supreme Court on March 1, 2010).This case presents issues concerning what is a “product li-

ability civil action” under Oregon law.Decedent worked as a carpenter during the 1968 demoli-

tion and construction of a General Electric Company warehouse. During the construction GE required the construction company for which decedent worked to purchase new asbestos products and install them. GE also required the construction company to salvage asbestos products that had been installed in the building in 1953 and reuse them in the new construction. Decedent was exposed to asbestos fibers and developed diseases that caused his death in 2004.

Decedent’s personal representative brought suit against GE. In order to avoid a statute of limitations defense, plaintiff needed to fit within ORS 30.907, which provides a special statute of limitations for a “product liability civil action for damages

resulting from asbestos-related disease.” Under ORS 30.900 and 30.920, a product liability civil action is a civil action brought against a manufacturer, distributor, seller, or lessor of a prod-uct for damages arising out of a product defect. The trial court dismissed the action on the grounds that it was not a product liability civil action because the defendant did not fit within any of the categories listed in the statute. The court of appeals affirmed. In the supreme court, the issues are:

(1) Is the term “distributor” as used in ORS 30.900 to define which cases are a “product liability civil action,” limited to the kind of commercial distributors who could qualify as “sellers” for purposes of strict liability under ORS 30.920?

(2) Did the legislature intend that a “product liability civil action” – and the attendant statutes of ultimate repose—could include claims against the manufacturer or seller of a particular category of defective product who causes the plaintiff to be harmed by another manufacturer’s similarly defective prod-uct?

(3) Do the common law principles of joint liability for the tortious conduct of another apply when the underlying tortious conduct involves the sale of a dangerously defective product?

Punitive Damages■ Hamlin v. Hampton Lumber Mills, Inc., 222 Or App 230, 193

P3d 46 (2008), rev allowed, 346 Or 157 (2009) (argued before the Oregon Supreme Court on September 18, 2009)In this case, the Oregon Supreme Court is reviewing the

constitutionality of a punitive damages award rendered in the context of an employment claim.

After plaintiff suffered a workplace injury and was off work for a while, the defendant refused to reinstate the plaintiff’s employment on the grounds that plaintiff was a safety risk. Plaintiff sued, alleging defendant’s failure to reinstate him was unlawful. The jury returned a verdict in favor of plaintiff and awarded a net verdict of $6,000 in economic damages and $175,000 in punitive damages.

On appeal, the court of appeals vacated the punitive damages award and remanded the case to the trial court with instructions to grant a new trial unless plaintiff agreed to a remittitur of the punitive damages award. In reviewing the punitive damages award, the court of appeals held that the defendant’s conduct was only moderately reprehensible because the evidence supported only two of the several factors associ-ated with particularly reprehensible conduct. The court also examined the ratio between the punitive damages award and the compensatory damages award. The court noted that in cases involving strictly economic harm, punitive damages generally are not to exceed a four-to-one ratio unless a particularly egregious act causes a comparatively small economic injury, the injury is difficult to detect, the non-economic harm is difficult to value,




or the defendant’s conduct is extraordinarily reprehensible. The court held that the defendant’s moderately reprehensible conduct and the small compensatory damages award did not justify a punitive damages award more than 30 times greater than the compensatory damages award. The court held that the maximum constitutionally permissible punitive damages award was four times the amount of the compensatory dam-ages award. Now the supreme court will evaluate whether the punitive damages award was unconstitutionally excessive.

■ Estate of Michelle Schwarz v. Philip Morris, Inc., 206 Or App 20, 135 P3d 409 (2006), rev allowed, 346 Or 213 (2009) (argued before the Oregon Supreme Court on November 2, 2009).In a wrongful-death action resulting from smoking ciga-

rettes manufactured by defendant, the decedent’s personal representative alleged claims for products liability, negligence, and fraud. A jury returned a verdict for plaintiff on all claims, and apportioned fault between defendant (51 percent) and decedent (49 percent). The jury awarded compensatory dam-ages of approximately $168,000 and $150 million in punitive damages. The Oregon Court of Appeals remanded to the trial court for a new trial on the issue of punitive damages. The majority of the court held that the trial court should have instructed the jury that it could not punish defendant for the impact of its conduct on nonresidents when determining punitive damages.

The Oregon Supreme Court has granted review. The issues on review, as framed by the plaintiff, are:

(1) In claiming reversible error for the failure of a trial court to give a party’s requested instruction, must the propo-nent of the proposed instruction demonstrate that it was an accurate and complete statement of the law on the issue?

(2) In claiming reversible error for a trial court’s failure to give a requested instruction, is the burden on the proponent of the instruction to demonstrate that the proposed instruction accurately and completely stated the law?

(3) Must the party claiming instructional error demon-strate that, even if the proposed instruction was correct and complete, substantial prejudice occurred because of the failure to give the instruction?

(4) Must the trial court be affirmed for any reason that supports its decision?

■ Patton v. Target Corp., 580 F3d 942 (9th Cir 2009), certified question accepted, 347 Or 260 (October 7, 2009).This case involves Oregon’s split-recovery statute, ORS

31.735, which entitles the State of Oregon to 60 percent of punitive damages awarded under Oregon law. ORS 31.735 provides that, “[u]pon the entry of a verdict including an award

of punitive damages, the Department of Justice shall become a judgment creditor as to the punitive damages portion of the award.”

Plaintiff Patton sued defendant Target Corp. for violating the federal Uniformed Services Employment and Reemployment Rights Act (USERRA), and for wrongful discharge under Oregon law. At trial, the jury returned a verdict for the plaintiff on the state law claim, and for defendant on the USERRA claim. The jury awarded $17,950 in economic damages, $67,000 in noneconomic damages, and $900,000 in punitive damages.

Before entry of judgment, the plaintiff and defendant entered into a settlement agreement and jointly moved for a judgment of dismissal. The State intervened in the case, arguing that it had a vested interest in 60 percent of the punitive dam-ages upon entry of the verdict. District Court Judge Anna Brown allowed the State to intervene, but denied the State’s claim that it must approve the settlement. Judge Brown reasoned that the State could not have obtained a vested interest in the punitive damages award before entry of a judgment, and that the par-ties were therefore free to settle the case without the State’s involvement or consent.

Accordingly, Judge Brown entered a judgment of dismissal. The State appealed to the Ninth Circuit, which certified the fol-lowing question to the Oregon Supreme Court:

When a jury has returned a verdict that includes an award of punitive damages under Oregon law, is the State of Oregon’s consent necessary before a court may enter a judgment giving effect to any settlement between the parties that would result in a reduction or elimination of the punitive damages to which the State would otherwise be entitled under Oregon Revised Statutes §31.735?

■ Strawn v. Farmers Insurance Company of Oregon, 228 Or App 454, rev allowed, 347 Or 258 (2009) (scheduled for argument before the Oregon Supreme Court on March 2, 2010).This case involves a class action brought by plaintiff against

defendants with respect to the payment of personal injury protection (PIP) benefits. In summary, plaintiff challenged de-fendants’ use of cost-containment software to evaluate their insureds’ medical expenses in relation to other bills for the same procedure in a given region. If defendants determined that the charge submitted by an insured’s provider exceeded a certain percentage of the range of the charges in those other bills, defendants refused to pay the excess on the ground that it was “unreasonable.” Plaintiff alleged that defendants’ review process resulted in the denial of claims for reasonable medical ex-penses, thereby increasing defendants’ profits at the expense



of PIP claimants and medical providers.A jury returned a verdict in plaintiff’s favor, including an

award of punitive damages. The trial court ultimately entered a general judgment for plaintiff and the class he represented in the amount of $898,323.80 for compensatory damages and prejudgment interest, $8,000,000 for punitive damages, and $2,670,000 for attorney fees, plus litigation expenses and costs. Subsequently, the trial court entered a supplemental money judgment that awarded statutory attorney fees, an attorney fee sanction, and unpaid fees and costs of the claims admin-istrator.

Defendants appealed, and the court of appeals concluded that the jury’s punitive damage award must be reduced, but otherwise affirmed on the other issues raised on appeal. The court agreed with defendants that the $8 million dollar punitive damage award violated defendants’ rights under the Due Pro-cess Clause of the Fourteenth Amendment to the United States Constitution. The court determined that, because the harm was uniquely economic and because the conduct of defendants was only moderately reprehensible, punitive damages could not exceed a multiple of four times the compensatory damages plus prejudgment interest. Consequently, the court ordered a new trial on punitive damages unless plaintiffs agreed to remittitur of punitive damages to four times their compensatory damages and interest. On review, the issues, as framed by the parties, are as follows:

Issues raised by plaintiff:(1) Where defendants did not assign error to the trial

court’s alternative grounds for rejecting their challenge to the punitive damages award -- grounds that allegedly included defendants’ failure to preserve a right to claim that the jury’s award was unconstitutionally excessive -- did the Court of Ap-peals err in addressing the due process question and reversing the trial court?

(2) Did the court of appeals err when it concluded that the jury’s punitive damage award violated due process?

Issues raised by the defendants:(1) Did the trial court err, in a class action suit involving

PIP coverage, by excluding evidence of the reasonableness of defendants’ investigation of PIP claims and evidence of the reasonableness of individual charges?

(2) Did the trial court err in denying a directed verdict in defendants’ favor on a fraud claim, where the plaintiff in a class action matter provided no evidence of individual class members’ reasonable reliance and no evidence of damages traceable to reliance?

(3) Did the court of appeals err by adopting a 4:1 ratio as a presumptive norm for all punitive damages cases without physical injury, in light of the trend to limit punitive damage

awards, as reflected in the Oregon Supreme Court’s decision in Goddard v. Farmers Insurance Co., 344 Or 232, 179 P3d 645 (2008) and the decision of the United States Supreme Court in Exxon Shipping Co. v. Baker, 544 US __, 128 S Ct 2605, 171 L Ed 2d 570 (2008)?

Trial Practice■ Charles v. Palomo, 227 Or App 335, 206 P3d 200, rev allowed,

347 Or 42 (2009)This case has issues concerning both preservation of error

and the right to present rebuttal argument at trial.At the end of a jury trial arising from a car accident, both

plaintiff and defendant presented closing argument. The trial court then began instructing the jury. Plaintiff’s counsel requested rebuttal argument. The court instructed counsel to approach the bench. Outside the hearing of the jury, the court stated to plaintiff’s counsel “You don’t get any.” According to an affidavit by plaintiff’s counsel, the trial judge then held up a copy of the Oregon Rules of Court, open to ORCP 58. Plaintiff’s counsel responded “Okay.” Plaintiff made no rebuttal argument, and the jury returned a verdict for defendant. Plaintiff appealed and the court of appeals affirmed.

In the supreme court the issues are:(1) To preserve error, must a party who requests but is

denied argument further object, when the trial court appar-ently anticipated and rejected the legal basis for the party’s request?

(2) Is a plaintiff entitled to reply to a defendant’s closing argument to the jury when the plaintiff has made an initial, opening argument to the jury?

Pending Petitions for Review — Net Yet Granted or Denied

■ Kelly v. Hochberg, 231 Or App 155 (2009) (involving the recreational use immunity statute).

■ McCollum v. Kmart Corporation, 228 Or App 101 (2009) (involving the grounds for granting a new trial under ORCP 64 B).

Pending Petitons for Review — Denied

■ Greene v. Salomon Smith Barney, Inc., 228 Or App 379, rev

den, 347 Or 348 (November 24, 2009) (involving the court’s statutory duty to “proceed summarily” to decide a motion to compel arbitration).

■ Rhiner v. Red Shield Insurance Company, 228 Or App 588, rev den, 347 Or 348 (November 24, 2009) (involving the meaning of “temporary worker” in a liability policy). J

Documents

Winter 2010 - oadc.com