363 P.3d 467
Or.2015Background
- Brownstone Homes (plaintiff) sued contractor A&T Siding for construction defects; A&T’s insurer Capitol declined coverage for the claim.
- Brownstone and A&T settled: a $2 million stipulated judgment against A&T, Brownstone’s covenant not to execute the judgment against A&T, and assignment to Brownstone of A&T’s claims against Capitol (plus Zurich paid $900,000).
- Brownstone served a writ of garnishment on Capitol under ORS 18.352 for the unpaid $1.1 million; Capitol resisted and moved for summary judgment.
- Capitol relied on Stubblefield v. St. Paul Fire & Marine, arguing the covenant not to execute extinguished A&T’s legal obligation and therefore Capitol had no obligation under a policy covering amounts the insured is “legally obligated to pay.”
- Trial court and Court of Appeals granted/affirmed summary judgment for Capitol; Brownstone sought review arguing Stubblefield was distinguishable, legislatively abrogated by ORS 31.825, or wrongly decided.
- The Oregon Supreme Court reversed: Stubblefield was wrongly decided — a covenant not to execute given for an assignment does not automatically extinguish insured or insurer liability; whether liability is extinguished depends on the settlement language and insurance-policy interpretation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Stubblefield apply to garnishment under ORS 18.352? | ORS 18.352 creates a direct statutory remedy against insurer independent of assignment/Stubblefield. | Garnishor stands in insured’s shoes; Stubblefield controls and a covenant not to execute removes the insurer’s obligation. | Stubblefield applies to garnishment; garnisher is subject to insurer defenses, including Stubblefield. |
| Did ORS 31.825 legislatively abrogate Stubblefield? | ORS 31.825 prevents a covenant given for an assignment from extinguishing insurer claims, so Stubblefield is superseded. | Statute applies only when a judgment precedes the assignment (excess-judgment context); it does not abrogate Stubblefield broadly. | Statute targeted “excess judgment” scenarios where judgment precedes assignment; it did not overrule Stubblefield entirely. |
| Is Stubblefield good law or wrongly decided? | Stubblefield’s analysis was cursory and inconsistent with prior precedent and majority authority; the phrase “legally obligated to pay” is ambiguous and should be construed against insurer. | Stubblefield is longstanding precedent and provides a plain meaning of policy language. | Stubblefield was wrongly decided: a covenant not to execute given for an assignment does not per se extinguish insured’s or insurer’s liability; ambiguities in “legally obligated to pay” weigh against insurer. |
| What is the proper approach to settlements with stipulated judgments, covenants not to execute, and assignments? | Settlement effect depends on contract language; covenants are typically contracts not releases, and insurers may be liable unless settlement unambiguously extinguishes liability or collusion/fraud shown. | Insurer warns risk of collusion and that some settlements should extinguish liability as a practical matter. | Court: interpret settlement language under contract/insurance rules; presume ambiguity against insurer; collusion/bad faith remain defenses to be raised and proven by insurer. |
Key Cases Cited
- Stubblefield v. St. Paul Fire & Marine, 267 Or 397 (1973) (held a covenant not to execute extinguished insured’s legal obligation and insurer liability under policy phrasing “legally obligated to pay”)
- Groce v. Fidelity Gen. Ins. Co., 252 Or 296 (1968) (upheld assignability of insured’s claim against insurer and rejected argument that release defeats insurer liability)
- Lancaster v. Royal Ins. Co. of Am., 302 Or 62 (1986) (held effect of covenant/assignment depends on settlement language; ambiguity precludes summary judgment for insurer)
- State Farm Fire & Cas. Co. v. Reuter, 299 Or 155 (1985) (explains garnishor stands in the shoes of the insured and is subject to insurer defenses)
- A&T Siding, Inc. v. Capitol Specialty Ins. Corp., 358 Or 32 (2015) (related certified-question decision addressing an addendum to the settlement agreement in the same dispute)