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Inc. v. Atlantic Casualty Insurance Co.

Court of Appeals of Oregon

February 11, 2015

5 STAR, INC., an Oregon corporation, Kevin Rains and Mitzi Rains, Plaintiffs-Appellants,
v.
ATLANTIC CASUALTY INSURANCE COMPANY, Defendant-Respondent, and PARHAM INSURANCE AGENCY INC., an Oregon corporation; and Bradley Robert Parham, an Individual, Defendants

Argued and Submitted July 17, 2013.

Marion County Circuit Court 09C12928. Vance D. Day, Judge.

Brian R. Whitehead argued the cause and filed the briefs for appellants.

Brian C. Hickman argued the cause and filed the brief for respondent.

Before Duncan, Presiding Judge, and Haselton, Chief Judge, and Wollheim, Senior Judge.[*]

OPINION

Page 468

[269 Or.App. 53] DUNCAN, P. J.

In this civil case, plaintiff 5 Star, Inc. (5 Star) brought claims against its insurer, defendant Atlantic Casualty Insurance Company (Atlantic) for reformation of its insurance policy and for negligent procurement of insurance. Plaintiffs Kevin Rains and Mitzi Rains, who have a judgment against 5 Star, brought a claim against Atlantic pursuant to ORS 742.031, which permits direct actions by judgment creditors against the insurer of an insured, but insolvent, judgment debtor. Atlantic filed a motion for summary judgment on all of the claims against it, and the trial court granted the motion and entered a limited judgment dismissing all of the claims against Atlantic. 5 Star and the Rainses appeal. For the reasons explained below, we conclude that the trial court did not err in granting Atlantic's motion, and, therefore, we affirm.

I. STANDARD OF REVIEW

We will affirm the trial court's granting of Atlantic's motion for summary judgment if, viewing the record on summary judgment in the light most favorable to plaintiffs, as the nonmoving party, we determine that there is no genuine issue of material fact and Atlantic is entitled to judgment as a matter of law. Jones v. General Motors Corp., 325 Or. 404, 420, 939 P.2d 608 (1997).

Page 469

II. HISTORICAL AND PROCEDURAL FACTS

At all times relevant to this appeal, 5 Star was a general contractor and, as such, was required by former ORS 701.105(1) (2003)[1] to have insurance. In 2001, Jerry Molan, the president and owner of 5 Star, contacted an insurance agent, Bradley Parham, to obtain insurance for 5 Star. Parham completed, and Molan signed, several insurance applications stating that 5 Star did not use subcontractors. Parham secured a one-year business liability policy for 5 Star from Farmers Insurance.

[269 Or.App. 54] Farmers Insurance did not renew the policy. As a result, in 2002, Parham sought a replacement business liability policy for 5 Star and submitted an application to an insurance broker, Anchor Bay Insurance Managers (Anchor Bay). In response, Anchor Bay provided Parham a quote for insurance coverage by Atlantic. The policy contained multiple exclusions, including an exclusion for claims arising out of the actions of subcontractors.[2] The policy also stated:

" The coverage and terms being offered may not be the same or as broad as requested in your application. Please review carefully and advise us immediately if you have any questions."

Parham accepted the quote on behalf of 5 Star, and Atlantic issued a one-year policy. 5 Star renewed the policy with Atlantic in 2003 and 2004.

In 2005, when the policy was in effect, Kevin Rains was severely injured while working as a subcontractor for 5 Star. Rains and his wife, Mitzi Rains, brought an action against 5 Star and others. Atlantic denied coverage and refused to defend 5 Star. 5 Star did not appear to defend itself, and the trial court entered a default judgment against 5 Star, awarding the Rainses approximately $18 million dollars. See Rains v. Stayton Builders Mart, Inc., 264 Or.App. 636, 639 n 1, 336 P.3d 483 (2014).

Thereafter, 5 Star entered into a settlement agreement with the Rainses. The agreement relieved 5 Star of any obligation to pay the $18 million judgment in exchange for 5 Star holding its claims against Parham and Atlantic " in trust" for the Rainses.

5 Star and the Rainses then filed the present action. 5 Star's claims against Atlantic alleged, inter alia, that (1) 5 Star was entitled to have its insurance policy with Atlantic reformed to include coverage for subcontractors and (2) Parham had negligently failed to procure adequate insurance for 5 Star, and Atlantic was vicariously liable for Parham's failure because Parham was Atlantic's agent.

[269 Or.App. 55] More than a year later, 5 Star filed a second action, claiming, inter alia, that Anchor Bay and one of its employees had negligently failed to procure adequate insurance and that Atlantic was vicariously liable for that failure. The trial court had previously denied a request by 5 Star to amend the complaint in this case to include the allegations against Anchor Bay and its employee, but the court consolidated the two cases for trial.

In this action, Atlantic moved for summary judgment, and the trial court entered a limited judgment dismissing with prejudice all of the claims against Atlantic. That limited judgment is the subject of this appeal.

In the second action, the trial court entered a general judgment in favor of all of the defendants, including Atlantic, ruling that the action was untimely and, in any event, the claims lacked merit. That judgment was entered before the judgment in this action and was the subject of a separate appeal, in which we affirmed the judgment without a written opinion. 5 Star, Inc. v. Crist, 257 Or.App. 420, 304 P.3d 468 (2013).

III. CLAIM PRECLUSION

As an initial matter, Atlantic argues that 5 Star's appellate ...


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