On February 20, 2014, the Oregon Court of Appeals released an opinion in Leach v. Scottsdale Indem. Co., 261 Or App —, — P3d —, No. A151680 (Feb. 12, 2014), addressing an insurance company’s duty to defend and duty to indemnify under a commercial general liability policy. The case concerned an insured that built and operated a motocross track in Salem, Oregon, where he routinely held practice sessions and competitions. The track was insured under a $1 million liability policy that included an “Sports Participants” exclusion that provided there was no coverage for “‘bodily injury” to any person while practicing for or participating in any sports or athletic contest or exhibition.” While the policy was in effect, a motocross rider was seriously injured during a practice session at the track.
The injured rider sued the insured, among others, for damages resulting from his injuries. The insured tendered the complaint to the insurance company, which denied both the duty to defend and duty to indemnify on the basis the Sports Participants provision barred coverage. The lawsuit involving the injured party was eventually settled, which created a number of other issues that are not addressed in this summary. After the underlying case and its attendant issues were resolved, the insured sued the insurance company for breach of contract based on its denial of the duties to defend and indemnify. The insurance company moved for summary judgment based, in part, on the argument that the injured party’s injuries fell within the parameters of the Sports Participants exclusion. The trial court granted the insurance company’s motion and dismissed the insured’s claims. The insured appealed.
After considering other arguments, the Court of Appeals addressed the scope of the Sports Participants exclusion. The parties agreed that the injured rider was not “participating in” any contest and that motocross constitutes a sport. The disagreement centered on whether the exclusion was triggered by the particular purpose of the practice in which the injury occurred. The insurance company asserted that the provision should be construed broadly to apply to person injured while practicing on the motocross track, regardless of the party’s purpose for being on the track. The insured, on the other hand, argued for a narrower interpretation requiring that the injury occur while the party is practicing for the purpose of preparing for a contest sponsored by the insured.
The Court determined the applicability of the provision turned on the interpretation of the phrase “practicing for” as used in the policy. After applying Oregon contract interpretation law and similar cases from other jurisdictions, the Court of Appeals adopted the insured’s narrower interpretation, finding that the purpose of the injured party’s practice session—i.e., for a competition or not—determined whether the exclusion applied. The Court dismissed the insurance company’s concern that such an interpretation would rely on the unspoken, subjective intent of the injured party by finding that such a determination could be made from analyzing the objective circumstances of each case. Additionally, the Court of Appeals rejected the insurer’s argument that the insured was not entitled to coverage because he thought the policy only covered spectators, as opposed to riders, because interpreting an insurance policy is an issue of law for the court and evidence of the insured’s subjective interpretation cannot be considered under Oregon law.
Once the Court determined the scope of the exclusion, it turned to the duties to defend and indemnify. First, the Court found that the underlying complaint was ambiguous as to whether the injuries would be covered under the policy because it did not indicate the injured party’s purpose for being on the motocross track. Citing the Oregon rule that any such ambiguities must be resolved in favor of finding coverage, the Court found that the insurance company owed the insured a defense in the underlying case. Second, the Court considered whether there was a duty to indemnify based upon the summary judgment record. The record included testimony that, when considered in a light most favorable to the insured, would permit a finding that the injured party was not “practicing for” a competition. Based upon that evidence, the Court determined that there was a factual issue as to whether the exclusion applied and the trial court’s grant of summary judgment was improper.
The lawyers at Maloney Lauersdorf Reiner are experienced in advising clients on issues regarding the duty to defend and duty to indemnify, including providing analysis of the application of specific conditions in a policy. Please contact us with any questions about this case or any other issues addressed in the MLR Insurance Coverage Blog.