WEBB v NATIONAL UNION FIRE 9935303-parol evidence rule prohibits dmission of extrinsic evidence of prior or con- temporaneous agreements,
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JACK WEBB, Special Deputy Receiver for American Eagle Insurance Company, a Texas corporation, Nos. 99-35303 99-35645 Plaintiff-Appellee, D.C. No. v. CV-97-3032-MRH NATIONAL UNION FIRE INSURANCE OPINION COMPANY OF PITTSBURGH, PA., a Pennsylvania corporation, Defendant-Appellant.
Appeals from the United States District Court
for the District of Oregon
Michael R. Hogan, District Judge, Presiding
Argued and Submitted
March 7, 2000--Portland, Oregon
Filed March 24, 2000
Before: Alfred T. Goodwin, Susan P. Graber and
Raymond C. Fisher, Circuit Judges.
Opinion by Judge Goodwin
_________________________________________________________________
COUNSEL
Thomas W. Sondag, Lane Powell Spears Lubersky, Portland,
Oregon, for the defendant-appellant.
Frank C. Gibson, Eugene, Oregon, for the plaintiff-appellee.
_________________________________________________________________
OPINION
GOODWIN, Circuit Judge:
National Union Fire Insurance Company of Pittsburgh
("National Union") appeals the district court's entry of sum-
mary judgment in favor of Jack Webb, Special Deputy
Receiver for American Eagle Insurance Company ("American
Eagle"). National Union contends that the district court erred
in refusing to consider extrinsic evidence that allegedly would
prove that American Eagle's insurance policy provided the
only coverage for the plane crash at the root of this litigation.
National Union further appeals the court's award of attorneys'
fees to American Eagle under Or. Rev. Stat. S 742.061
(1995). We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In November of 1992, a Beech Baron aircraft piloted by
Walter Graham crashed while en route from Medford to
Baker City, Oregon, killing Graham and his three passengers.
Graham had rented the plane from Southern Oregon Skyways,
Inc. ("SOS"), in order to carry out an air taxi business that he
operated. The entire SOS fleet of airplanes was insured by
National Union but, under Graham's arrangement with SOS,
he was required to maintain separate liability coverage. Gra-
ham thus contracted to purchase an American Eagle insurance
policy, but the parties dispute whether this coverage was to be
exclusive of, or in addition to, National Union's policy in the
event of loss during his use.
American Eagle contends that both policies covered any
loss to Graham and his passengers, and it points out that both
policies contain "Other Insurance" clauses allowing for shar-
ing of liability on a pro rata basis with other insurers. There-
fore, it argues, National Union should be liable for
contribution for the expenses that American Eagle incurred
when the latter settled claims for approximately $1,000,000
following the crash. In support, American Eagle cites the
express wording of Endorsement 14 of National Union's pol-
icy, which states that its coverage extends to "any person
operating the aircraft under the terms of any rental agreement
or training program which provides any remuneration to
[SOS] for the use of such aircraft." (Emphasis added).
Because Graham was paying rent under a sublease for SOS's
plane, American Eagle contends that National Union's policy
unambiguously covered the rented aircraft. The district court
viewed the situation similarly, and it held National Union
responsible for contribution.
[1] National Union counters, however, that the district court
erred by failing to consider extrinsic evidence that allegedly
would prove that Graham and American Eagle intended
American Eagle's policy to provide the sole coverage to Gra-
ham. National Union submits that when Graham arranged to
sublease the plane from SOS, its president, Monte George,
explained to Graham that SOS's "insurance wouldn't cover
[Graham's] air taxi business and he would have to get his own
insurance on the aircraft." In addition, National Union offers
the testimony of William Clark, coincidentally the insurance
agent for both American Eagle and National Union. Clark
would testify that his understanding of Graham's insurance
plans was that American Eagle's policy was to be the only
one covering Graham in this situation.
National Union thus argues that it would be inequitable to
hold it liable for contribution to which it never agreed. It
urges this court to consider the extrinsic evidence surrounding
the formation of the insurance policies at issue here. In sup-
port, National Union states that Oregon courts may consider
extrinsic evidence to determine the parties' intent when they
formed a contract, even if a certain term appears unambiguous
on its face. National Union further maintains that the district
court's award of attorneys' fees to American Eagle was not
warranted by Or. Rev. Stat. S 742.061, because that law was
meant to protect insureds, and not insurers like American
Eagle.
American Eagle responds that current Oregon law prohibits
courts from taking into account extrinsic evidence in the case
of an unambiguous contract. See Yogman v. Parrott, 325 Or.
358 (1997). It submits that the term "any rental agreement"
means just that, and therefore National Union cannot escape
liability by relying on its alleged different understanding of its
insurance policy. American Eagle adds that the district court
made very careful findings after rejecting National Union's
extrinsic evidence, upholding only some of American Eagle's
claims for contribution and denying others. American Eagle
also argues that the grant of attorneys' fees was justified by
Or. Rev. Stat. S 742.061, because it was suing to enforce
National Union's compliance under the terms of its own
insurance policy. It argues that the district court's action in
granting fees was directly in line with the policy advanced by
the statute, which is to encourage the settlement of claims
while discouraging their unreasonable rejection by insurers.
DISCUSSION
1. Extrinsic Evidence
The parol evidence rule prohibits, as between the parties to
a contract, the admission of extrinsic evidence of prior or con-
temporaneous agreements, whether oral or written, to explain
the meaning of a contract when the parties have reduced their
agreement to an unambiguous integrated writing. 11 Samuel
Williston & Richard A. Lord, A Treatise on the Law of Con-
tracts, S 33:1, at 541 (4th ed. 1999) (hereinafter "Williston on
Contracts"). Insurance policies are subject to the same general
principles of construction as other contracts. "A policy's
words and terms are construed according to `their plain, ordi-
nary and accepted sense in the common speech of man unless
it appears from the policy that a different meaning is intend-
ed.' " Industrial Indem. Co. v. Aetna Cas. & Sur. Co., 465
F.2d 934, 936 (9th Cir. 1972) (citation omitted). Further,
"[t]he parol evidence rule is applicable, and evidence of con-
temporaneous oral agreement is admissible only to explain an
ambiguity in the policy." Id. (emphasis added). Finally, if an
ambiguity does in fact exist, it is to be construed against the
insurer, who has the primary duty to draft a clear and unam-
biguous policy. See id.
National Union contends, however, that Oregon and Ninth
Circuit law allow district courts to evaluate parol or extrinsic
evidence even in the case of an unambiguous contract. It cites
Abercrombie v. Hayden Corp., 320 Or. 279, 292 (1994), for
the proposition that "[t]he trial court may consider parol and
other extrinsic evidence to determine whether the terms of an
agreement are ambiguous." Furthermore, National Union
urges that parol evidence can be used in litigation between a
party to the contract and a stranger thereto. See Carolina Cas.
Ins. Co. v. Oregon Auto. Ins. Co., 242 Or. 407 (1965); XTI
Xonix Techs. Inc. v. First Interstate Bank of Ore., N.A., 156
B.R. 821 (Bankr. D. Or. 1993).
[2] Although Abercrombie has not been expressly over-
ruled, later Oregon Supreme Court and Oregon Court of
Appeals cases have not followed its implication that extrinsic
evidence may be considered in determining whether an
ambiguity exists. Rather, the consensus among Oregon courts
is that they are opposed to considering extrinsic evidence to
determine the parties' intent unless an ambiguity is apparent
from the four corners of the document. See, e.g., Yogman, 325
Or. at 361, 363-364; Roe v. Doe, 161 Or. App. 477, 487
(1999) ("[I]f, but only if, an ambiguity exists, we `examine
extrinsic evidence.' " (quoting Yogman, 325 Or. at 363));
Crain v. Siegel, 151 Or. App. 567, 572 (1997) (same). Yog-
man, which was decided after Abercrombie, concluded that
the parol evidence rule prohibits the admission of extrinsic
evidence in a case in which a contract is unambiguous. See
Yogman, 325 Or. at 361.1
Carolina Casualty, on which National Union relies, is dis-
tinguishable on its facts. There the contract involved was a
subterfuge aimed solely at circumventing Interstate Com-
merce Commission regulations governing the trucking indus-
try. Similarly, XTI Xonix was a bankruptcy case,
distinguishable from the situation in which three parties to
two contracts dispute overlapping insurance coverage and its
apportionment in mitigating the risk of one loss.
[3] This court therefore will first consider well-settled Ore-
gon law concerning the express terms of multiple insurance
policies that appear to provide overlapping coverage for the
same loss. In such cases, liability is prorated according to the
proportion of the policy limits to the total limits of all other
policies. See Oregon Auto. Ins. Co. v. State Acc. Ins. Fund,
272 Or. 32 (1975). To allow extrinsic evidence to "prove" that
National Union did not intend to be bound by its underwriting
obligation on the facts of this case would introduce uncer-
tainty into settled Oregon insurance law regarding proration
of liability among co-insurers. See Forest Indus. Ins.
Exchange v. Viking Ins. Co., 82 Or. App. 615, 617 (1986);
Oregon Auto. Ins. Co. v. United States Fidelity & Guar. Co.,
195 F.2d 958 (9th Cir. 1952). Co-insurers (by virtue of there
being two or more overlapping policies) could routinely
attempt to introduce extrinsic evidence that would "prove"
that the understanding of the parties was that their insurance
policy did not provide coverage even though its unambiguous
terms would indicate the opposite.
Furthermore, the result we reach is in line with the strong
public policy rationale supporting the exclusion of extrinsic
evidence in interpreting unambiguous contract provisions.
The exclusion of parol evidence reflects the "presumption that
a subsequent written contract is of a higher nature than earlier
statements, negotiations, or oral agreements by deeming those
earlier expressions to be merged into or superseded by the
written document." 11 Williston on Contracts, S 33:1, at 548.
The parol evidence rule also seeks to achieve the related goal
of "insuring that contracting parties, whether as a result of
miscommunication, poor memory, fraud, or perjury, will not
vary the terms of their written undertakings, thereby reducing
the potential for litigation." Id. at 549-50 (footnote omitted).
To allow extrinsic evidence merely because a third party to
one contract tenders the evidence of intent with respect to a
second contract would seriously weaken the policy behind the
prohibition of such evidence in the first place.
[4] The district court was not required to consider extrinsic
evidence in determining whether National Union's policy pro-
vided coverage. The policy speaks for itself. We affirm the
district court's holding that National Union is liable for con-
tribution to American Eagle for the expenses that it incurred
to settle claims.
2. Attorneys' Fees
Or. Rev. Stat. S 742.061 provides:
If settlement is not made within six months from the
date proof of loss is filed with an insurer and an
action is brought in any court of this state upon any
policy of insurance of any kind or nature, and the
plaintiff's recovery exceeds the amount of any ten-
der made by the defendant in such action, a reason-
able amount to be fixed by the court as attorney fees
shall be taxed as part of the costs of the action and
any appeal thereon.
Here, the district court awarded attorneys' fees to American
Eagle for its efforts to enforce National Union's obligation to
contribute to the claims that American Eagle paid following
Graham's crash.
National Union maintains, however, that the district court
erred in awarding fees because the statute was intended to
protect insureds, not insurers. It argues that the policy behind
Or. Rev. Stat. S 742.061 is to provide a strong incentive to
insurance companies to comply with their obligations to make
an insured person whole. Therefore, it is aimed at those who
are suing on behalf of an insured, and not for the protection
of insurance companies like American Eagle. National Union
relies on Interstate Fire v. Underwriters at Lloyd's London,
139 F.3d 1234 (9th Cir. 1998), for the proposition that an
insurer has no right to fees simply because a good-faith dis-
pute with another insurer leads to litigation.
However, American Eagle does not seek a settlement fund
reallocation like the plaintiff did in Interstate Fire. Rather, it
is only attempting to make National Union honor its own
insurance policy in the first instance, which comes within the
public policy protected by Or. Rev. Stat. S 742.061. "The pol-
icy behind the statute is to encourage the settlement of claims
and to discourage the unreasonable rejection of claims by
insurers. If the insurer . . . relies upon a mistaken theory of its
legal liability, the plaintiff is entitled to a reasonable attorney
fee." Heis v. Allstate Ins. Co., 248 Or. 636, 643-44 (1968).
Thus, the district court's award of attorneys' fees appears to
be in line with the public policy goals of Or. Rev. Stat.
S 742.061, which is designed to protect those suing on behalf
of an insurance policy. After all, American Eagle filed its
claim simply to ensure that National Union complied with its
obligations under the latter's own insurance contract.
In addition, as American Eagle notes, there is nothing in the
text of Or. Rev. Stat. S 742.061 that prevents insurers from
receiving attorneys' fees, or that requires that only insureds
can recover fees. See, e.g., Portland Gen. Elec. Co. v. Pacific
Indem. Co., 579 F.2d 514 (9th Cir. 1978) (per curiam) (hold-
ing that an excess insurer is entitled to recover attorneys' fees
from primary carrier under a subrogation theory). The text is
in the passive voice, permitting fees after "an action is
brought." It is not limited, for example, to the situation in
which "an insured brings an action." Moreover, American
Eagle points out that even judgment creditors have been
awarded attorneys' fees under Or. Rev. Stat. S 742.061. See
Northwest Marine Iron Works v. Western Cas. & Sur. Co., 45
Or. App. 269 (1980). If judgment creditors may be awarded
attorneys' fees, surely the district court did not err in granting
American Eagle fees resulting from its efforts to enforce
National Union's compliance with its insurance policy.
CONCLUSION
We affirm the district court's holding prohibiting the intro-
duction of extrinsic evidence unless an ambiguity already
exists on the face of a contract. Additionally, the court's
award of attorneys' fees to American Eagle fell within its dis-
cretion: insurers are not prohibited from receiving such
awards, and the motives behind American Eagle's action are
the same ones that Or. Rev. Stat. S 742.061 was intended to
protect.
AFFIRMED. Costs and attorneys' fees to Appellee.
_______________________________________________________________
FOOTNOTES
1 Oregon courts also will consider the circumstances surrounding the
formation of a contract; Or. Rev. Stat. S 42.220 provides:
In construing an instrument, the circumstances under which it
was made, including the situation of the subject and of the par-
ties, may be shown so that the judge is placed in the position of
those whose language the judge is interpreting.
However, that statute does not apply, because the extrinsic evidence that
National Union seeks to introduce does not relate to the circumstances
under which the contract was made but, rather, consists of later statements
about what the contract means.
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