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Leach v. Scottsdale Indemnity Co.

Court of Appeals of Oregon

February 12, 2014

ROBERT LEACH, Plaintiff-Appellant,
v.
SCOTTSDALE INDEMNITY COMPANY, dba Scottsdale Insurance Company, Defendant-Respondent

Submitted September 18, 2013

Page 338

[Copyrighted Material Omitted]

Page 339

Marion County Circuit Court. 11C13379. Courtland Geyer, Judge.

Beau D. Harlan and Harlan Law Firm filed the briefs for appellant.

Michael A. Lehner and Lehner & Rodrigues, P.C., filed the brief for respondent.

Before Duncan, Presiding Judge, and Lagesen, Judge, and Schuman, Senior Judge.

OPINION

Page 340

[261 Or.App. 236] LAGESEN, J.

Plaintiff Robert Leach appeals from a final judgment dismissing with prejudice his claims against his insurance company, defendant Scottsdale Indemnity Company (Scottsdale). Leach alleged that Scottsdale breached its duties to defend and indemnify him in connection with Thomas Warberg's personal injury action for injuries sustained as a result of a collision that occurred during a practice session at the motocross track operated by Leach. The trial court granted summary judgment in favor of Scottsdale on both alleged breaches on the ground that the policy did not provide coverage for bodily injuries sustained by motorcycle riders on Leach's track. In addition, the court ruled that Scottsdale was entitled to summary judgment on the alleged breach of the duty to indemnify on the ground that, under the rule of law announced in Stubblefield v. St. Paul Fire & Marine, 267 Ore. 397, 517 P.2d 262 (1973), a covenant not to execute by Warberg in favor of Leach extinguished any obligation of Scottsdale to indemnify Leach. We reverse and remand.

I. BACKGROUND

Leach leased, designed, and operated a motocross course at the Fair and Expo Center in Salem, Oregon,[1] under the name " Bob Leach Enterprises." Scottsdale insured the premises under a commercial general liability policy. The policy provided for $1,000,000 in

Page 341

" bodily injury" and " property damage" liability coverage. It stated that Scottsdale

" will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies. We will have the right and duty to defend the insured against any 'suit' seeking those damages."

However, the policy also contained an endorsement exclusion--titled the " Athletic or Sports Participants" exclusion (" Athletic Participant" exclusion)--that limited the scope of its coverage. The exclusion provided that " this insurance does not apply to 'bodily injury' to any person while practicing for or [261 Or.App. 237] participating in any sports or athletic contest or exhibition that you sponsor."

Leach routinely held both motocross practice sessions and motocross races at the track. Generally, Leach would hold races on Friday and Saturday nights, or occasionally on Saturday and Sunday, and he would have practice sessions on Wednesday evenings and on those Sundays where no races were held. During one practice session, a rider lost control of the motorcycle that he was riding, and entered Warberg's lane and collided with him. Warberg was seriously injured.

Warberg sued Leach, the rider who caused the collision, and others in Warberg v. Fleck, et al. ( Warberg I ). Warberg sought economic damages for medical expenses in an amount not less than $100,000; economic damages for lost wages or salary in an amount not less than $1,000,000; and noneconomic damages in the amount of $5,000,000. Leach tendered the complaint to Scottsdale. Scottsdale denied coverage and refused to defend or indemnify Leach in connection with the suit on the ground that " Scottsdale does not owe a duty to defend or indemnify its insured, Bob Leach Enterprises, because the 'Athletic Ore. Sports Participant' Exclusion is applicable to bar coverage."

After Leach unsuccessfully moved for summary judgment, Warberg settled with Leach. In accordance with the settlement, the trial court entered a stipulated judgment against Leach in the amount of $1,500,000. After judgment was entered, Leach and Warberg entered into an " Assignment and Covenant Not to Execute" agreement. Under the agreement,

" pursuant to ORS 31.825, Leach * * * assign[ed] all his rights of recovery, choses in action, and enforcement of obligations between himself and Leach's Insurance Policy holder, Scottsdale Indemnity Company, and against any and all other persons having any responsibility or liability for the Judgment entered in favor of Warberg by Leach * * *."

(Emphasis omitted.) In turn, Warberg " agree[d] not to enforce the Judgment against Leach by execution or any other manner against Leach in exchange for the Assignment."

[261 Or.App. 238] Pursuant to the assignment, Warberg then sued Scottsdale for breach of contract in Warberg v. Scottsdale ( Warberg II ). The complaint alleged that Scottsdale had failed to defend and indemnify Leach in connection with Warberg's original lawsuit in contravention of its obligation under the policy. Scottsdale moved for summary judgment on the grounds that (1) it had no duty, as a matter of law, to defend Leach against Warberg's original claim because its policy " specifically excluded bodily injuries suffered while practicing sports or athletics" ; and (2) it had no present duty to ...


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