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Coos County Airport District v. Special Districts Insurance Services Trust of Special Districts Association of Oregon

Court of Appeals of Oregon

May 16, 2018

COOS COUNTY AIRPORT DISTRICT, Plaintiff-Appellant,
v.
SPECIAL DISTRICTS INSURANCE SERVICES TRUST OF THE SPECIAL DISTRICTS ASSOCIATION OF OREGON, Defendant-Respondent.

          Argued and submitted August 17, 2017

          Coos County Circuit Court 14CV1340 Richard L. Barron, Judge.

          Andrew E. Combs argued the cause for appellant. With him on the briefs was Whitty, McDaniel, Bodkin & Combs, LLP.

          Andrew C. Lauersdorf argued the cause for respondent. With him on the brief were Janis C. Puracal, Francis J. Maloney, and Maloney Lauersdorf Reiner PC.

          Before DeHoog, Presiding Judge, and Egan, Chief Judge, and Aoyagi, Judge.

         Case Summary: Plaintiff owns and operates an aircraft hangar in North Bend. A fire destroyed the concrete slab that served as the hangar floor. At the time of the fire, defendant insured the hangar, including the slab. Plaintiff replaced the slab and sought reimbursement from defendant, who, under the insurance contract, was required to pay for a "functionally equivalent" replacement slab. When defendant did not cover the full amount of the replacement slab, plaintiff brought this action for breach of contract. The jury returned a verdict for defendant. On appeal, plaintiff assigns error to the trial court's jury instruction regarding the meaning of "functionally equivalent" in the contract.

         Held:

         The court's jury instruction regarding the term "functionally equivalent" was legally incorrect because the term, as used in the contract, is ambiguous and should have been construed against the insurer.

         Reversed and remanded.

         [291 Or. 830] AOYAGI, J.

         Plaintiff owns and operates an aircraft hangar at the Southwest Oregon Regional Airport in North Bend. A fire destroyed the concrete slab that served as the hangar floor. At the time, defendant insured the hangar, including the slab.[1] Plaintiff spent $1, 284, 288 to replace the slab. When defendant reimbursed plaintiff only $942, 719 for the slab, plaintiff filed this action to recover the difference. In essence, plaintiff claimed that the replacement slab was "functionally equivalent" to the old slab, such that defendant was obligated to pay its full cost under the insurance contract, while defendant took the position that the replacement slab was an upgrade and that defendant was not obligated to pay for an upgrade. A key point of the parties' dispute was the meaning of "functionally equivalent" as used in the insurance contract. The court announced its legal conclusion on that issue on the first day of trial (agreeing with defendant's interpretation) and later gave a jury instruction consistent with its conclusion. The jury returned a verdict for defendant. On appeal from the resulting judgment, plaintiff assigns error to the court's jury instruction regarding the meaning of "functionally equivalent." For the reasons that follow, we reverse and remand.

         FACTS

         The following facts are undisputed. Plaintiff owns and operates an aircraft hangar at the Southwest Oregon Regional Airport in North Bend. The original hangar was built in 1941 and had a concrete slab floor. In 2012, the airport was in the process of building a new commercial hangar nearby, and plaintiff was renovating the original hangar for use to support the new commercial hangar. Specifically, plaintiff was demolishing the original hangar structure, but it intended to keep the original slab floor and build a new hangar on it that would, among other things, have larger doors. Plaintiff had historically used the hangar to park [291 Or. 831] light aircraft under 10, 000 pounds. It intended to use the renovated hangar as an "apron space" to park larger aircraft, up to 90, 000 pounds.

         During the renovation of the original hanger, a fire broke out that completely destroyed the hanger and the slab. At the time of the fire, defendant insured plaintiff for losses up to approximately $3.7 million. Because plaintiff was in the process of demolishing the hangar structure, defendant deemed the hangar structure to have zero replacement value, and plaintiff agreed. Defendant acknowledged, however, that it was required to pay to replace the destroyed slab, which plaintiff had intended to keep using, with a "functionally equivalent" new slab. On this point, the parties' insurance contract provides, in relevant part:

"I. Functional Replacement Cost, with respect to Covered Property identified as being subject to Functional Replacement Cost valuation of the Named Participant's current schedule of Covered ...

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