Civ. No. 63-351 | D. Or. | Mar 10, 1965
Plaintiff’s assured purchased from defendant a substance known as “condensed smoke.” The substance exploded injuring two boys. Actions for damages were commenced by the injured in California. Defendant was notified of the commencement of the actions and refused to defend. Plaintiff settled said actions for substantial sums and here, as subrogee, prosecutes this indemnity action to recover the amounts so paid and its costs and expenses there incurred. Defendant admits the reasonableness of the amounts of the settlements.
For decision is the question as to whether this court should favor the plaintiff with the use of the doctrine of “potential liability” as stated in Damanti v. A/S Inger, 153 F. Supp. 600" date_filed="1957-06-27" court="E.D.N.Y" case_name="Damanti v. A/S Inger">153 F.Supp. 600, 602 (E.D.N.Y.1957), reversed on other grounds, 314 F.2d 395" date_filed="1963-03-01" court="2d Cir." case_name="Peter Damanti v. A/S Inger">314 F.2d 395 (2d Cir. 1963); Lilleberg v. Pacific Far East Line, 167 F. Supp. 3" date_filed="1958-10-28" court="N.D. Cal." case_name="Lilleberg v. Pacific Far East Line, Inc.">167 F.Supp. 3 (N.D.Cal.1958); Chicago, Rock Island & Pacific Ry. Co. v. United States, 220 F.2d 939" date_filed="1955-05-03" court="7th Cir." case_name="The Chicago, Rock Island and Pacific Railway Company, a Corp. v. The United States of America">220 F.2d 939, 941 (7th Cir. 1955); American Export Lines v. Norfolk Shipbuilding & Drydock Corp., 336 F.2d 525" date_filed="1964-08-20" court="4th Cir." case_name="American Export Lines, Owner Pro Hac Vice of the S.S. Exmouth v. Norfolk Shipbuilding & Drydock Corporation">336 F.2d 525 (4th Cir. 1964), and others. This being a diversity case, the court should use either the Oregon rule, where the contract was made, and the district in which the action is pending, or the California rule where the previous action was settled.
It is my belief that the Oregon Supreme Court, if faced with the precise problem, would follow the general rule as stated in Nelson v. Sponberg, 51 Wash. 2d 371" date_filed="1957-12-05" court="Wash." case_name="Nelson v. Sponberg">51 Wash.2d 371, 318 P.2d 951 (1957), requiring an indemnitee, if he settles a claim before a judgment, to prove that he was in fact liable in damages. The Oregon court approved an instruction embodying this principle in Jaloff v. United Auto Indemnity Exch., 121 Or. 187" date_filed="1926-12-07" court="Or." case_name="Jaloff v. United Auto Indemnity Exchange">121 Or. 187, 201, 253 P. 883 (1927), and followed the same general rule in Lamb-Weston Inc. v. Oregon Automobile Ins. Co., 219 Or. 110" date_filed="1959-06-24" court="Or." case_name="Lamb-Weston, Inc. v. Oregon Automobile Insurance">219 Or. 110, 115, 341 P.2d 110, 346 P.2d 643, 76 A.L.R.2d 485 (1959). For that matter, National Surety Co. v. Johnson, 115 Or. 624" date_filed="1925-09-15" court="Or." case_name="National Surety Co. v. Johnson">115 Or. 624, 239 P. 538 (1925), and New Amsterdam Casualty Co. v. Terrall, 165 Or. 390" date_filed="1940-10-29" court="Or." case_name="New Amsterdam Casualty Co. v. Terrall">165 Or. 390, 107 P.2d 843 (1940), may be more in point. If California law applies, the same rule is germane. Carpenter Paper Co. v. Kellogg, 114 Cal. App. 2d 640" date_filed="1952-12-11" court="Cal. Ct. App." case_name="Carpenter Paper Co. v. Kellogg">114 Cal.App.2d 640, 251 P.2d 40 (1952); Fidelity & Deposit Co. of Maryland v. Whitson, 187 Cal. App. 2d 751" date_filed="1960-12-28" court="Cal. Ct. App." case_name="Fidelity & Deposit Co. v. Whitson">187 Cal.App.2d 751, 10 Cal.Rptr. 6, 10 (1960).
Although the California courts follow the rule just stated, they nevertheless invoke, in favor of an indemnitee making a settlement, a presumption in favor of liability. Lamb v. Belt Casualty Co., 3 Cal. App. 2d 624" date_filed="1935-01-16" court="Cal. Ct. App." case_name="Lamb v. Belt Casualty Co.">3 Cal.App.2d 624, 631-632, 40 P.2d 311" date_filed="1935-01-16" court="Cal. Ct. App." case_name="Lamb v. Belt Casualty Co.">40 P.2d 311 (1935); Fidelity & Deposit Co. of Maryland v. Whitson, supra. Likewise, the Oregon court has indicated that such a presumption should be invoked. National Surety Co. v. Johnson, supra, 115 Or. 624" date_filed="1925-09-15" court="Or." case_name="National Surety Co. v. Johnson">115 Or. at 630-631, 239 P. 538. The statutory and common law presumption “that the ordinary course of business has been followed” is useful in arriving at a conclusion.
Agreements of compromise and settlement are favored by law. Hodges Agency, Inc. v. Rees and Stover, 202 Or. 139" date_filed="1954-06-30" court="Or." case_name="Hodges Agency, Inc. v. Rees">202 Or. 139, 272 P.2d 216 (1954); In re Union Sav. & Loan Ass’n, 156 Or. 119" date_filed="1937-03-31" court="Or." case_name="Union Bond & Trust Co. v. Gilbert">156 Or. 119, 66 P.2d 997 (1937); Gavin v. United States, 63 F. Supp. 425" date_filed="1945-08-02" court="S.D. Cal." case_name="Gavin v. United States">63 F.Supp. 425 (S.D.Cal.1945), aff’d., 159 F.2d 613" date_filed="1947-02-19" court="9th Cir." case_name="United States v. Gavin">159 F.2d 613 (9th Cir. 1947) and Woodbury v. United States, 232 F. Supp. 49" date_filed="1964-05-26" court="D. Or." case_name="Woodbury v. United States">232 F.Supp. 49 (D.Or.1964).
Therefore, the issue with reference to potential liability is eliminated. Upon a showing of due notice of the claim to the defendant and a failure or refusal to defend, the burden of going forward with the evidence, on the question of liability, will shift to the defendant.
It is so ordered.