3:14-cv-00599
D. Or.Aug 21, 2015Background
- Plaintiffs Cedar Lake HOA and Decatur Bridgewater HOA obtained a default judgment (~$149,015 plus supplemental fees) against their former manager Northwest Empire for funds stolen by Northwest Empire officer David Kobbeman.
- Northwest Empire was insured under a Sentinel Hartford Spectrum business policy that included Employee Dishonesty coverage (plus a $25,000 "Super Stretch") but incorporated a Crime Common Conditions definition/exclusion for "employee."
- Sentinel initially treated Northwest Empire's claim as inactive pending additional information; later correspondence and submissions (by Northwest Empire, plaintiffs, and third parties) occurred but Sentinel concluded the submissions were insufficient to establish coverage.
- Plaintiffs served writs of garnishment on Sentinel seeking to collect judgment amounts from any insurance proceeds owed to Northwest Empire under the Employee Dishonesty endorsement; Sentinel refused to pay, saying coverage was not established.
- The dispositive legal question was whether Kobbeman qualified as an "employee" under the policy (which defined "employee" to include persons the insured has the right to direct and control and excluded managers/directors except when acting within usual employee duties).
- Magistrate Judge Papak recommended granting Sentinel's cross‑motion for summary judgment and denying plaintiffs' motion because Kobbeman was not an "employee" under the policy; plaintiffs' claims against Sentinel were to be dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Kobbeman was an "employee" under the Policy so as to trigger Employee Dishonesty coverage | Kobbeman was an employee: he held officer titles, had payroll/tax forms, and Northwest Empire described him as an employee in claim materials | Kobbeman was a director/officer with autonomy and shared ownership/control; Policy excludes managers/directors except when acting within usual employee duties, and Northwest Empire lacked right to direct/control him | Held: Kobbeman was not an "employee" under the Policy; he acted as an autonomous officer/owner, so Employee Dishonesty coverage was not triggered |
| Whether Sentinel was obligated to pay under the garnishment writs absent a valid coverage determination | Plaintiffs argued garnishment should reach any proceeds due under the Claim if the Claim is valid | Sentinel argued no obligation to deliver funds because the Claim was not established under the Policy and it never determined coverage in plaintiffs' favor | Held: Because coverage was not triggered (see above), Sentinel had no obligation to pay under the writs; plaintiffs' garnishment claim dismissed |
Key Cases Cited
- N Pac. Ins. Co. v. Hamilton, 332 Or. 20 (determining insurance policy interpretation is a question of law; courts look to policy terms)
- Hoffman Constr. Co. v. Fred S. James & Co., 313 Or. 464 (defining ambiguity analysis for insurance contract terms)
- California Union Ins. Co. v. Am. Diversified Sav. Bank, 948 F.2d 556 (9th Cir.) (officers/principal controllers are not employees for similar fidelity/insurance coverage; corporate control factor important)