In Abrams v. General Star Indemnity Co. (SC S49593) (May 1, 2003), the Oregon Supreme Court continued its recent pattern of eating away at the language of insurance policies by rejecting the insurance company's argument that a third party's complaint alleging intentional conduct by the insured relieves the insurance company of its duty to defend.
In Abrams, the insurance policy provided coverage only for "occurrences," which were defined as "accidents," and the policy excluded coverage for, and defense of, claims involving "‘Bodily Injury' or ‘Property Damage' expected or intended from the standpoint of the insured and from the standpoint of any customer of the insured." Southern Pacific Railroad sued Abrams for conversion, alleging that Abrams had conspired with an employee of Southern Pacific to convert several used rail van trailers that Southern Pacific was leasing from other companies. The complaint alleged that Abrams had worked with Southern Pacific's yard manager to convert the trailers by removing them from the rail yard at night through a different gate, making payments to Southern Pacific's employee instead of to the company, and falsifying documents presented to the DMV in order to obtain titles to the trailers so that Abrams could re-sell them.
Abrams' insurance company rejected Abrams' tender of defense of the Southern Pacific claim, relying on the policy requirement that there be an "occurrence" (i.e., an accident) and on the exclusion for intentional acts. A federal district court agreed that the policy did not provide coverage for the intentional conduct alleged in Southern Pacific's complaint against Abrams. While Abrams' appeal to the Ninth Circuit was pending, the Oregon Supreme Court issued its decision in Marleau v. Truck Insurance Exchange, 333 Or 82, 37 P3d 148 (2001). The Ninth Circuit construed Marleau to mean that, if a third-party alleges a claim against an insured involving intentional conduct, and if the nature of the claim is such that it has a "lesser included offense" that does not involve intentional conduct, the insurance company has a duty to defend. The Ninth Circuit concluded that, because it is possible to commit the tort of conversion without intending to cause harm, the insurance company had a duty to defend Abrams against Southern Pacific's claims of conversion.
The insurance company petitioned for rehearing, asking the Ninth Circuit to certify the issue to the Oregon Supreme Court. The Ninth Circuit agreed, withdrew its opinion, and certified the following question to the Oregon Supreme Court:
"Does an insurer have a duty to defend an insured under an insurance policy with an ‘intentional acts' exclusion if the Complaint against the insured alleges a subjective intent to harm but the claim could be proven through unintentional conduct?"
The Oregon Supreme Court accepted certification and essentially agreed with the Ninth Circuit's analysis. The Supreme Court held that, because allegations of intentional conversion also include ordinary conversion, the insurance company had a duty to defend. Thus, although Southern Pacific's complaint alleged that Abrams had engaged in several wrongful acts, including presenting documents he knew to be false to the DMV in order to obtain titles to the stolen trailers so he could re-sell them, and although the complaint alleged that Abrams acted with the intent to deprive Southern Pacific of the trailers, those allegations were not sufficient to invoke the intentional acts exclusion in Abrams' policy. Instead, because conversion is a type of tort that can be committed without intent, the allegations of intent to harm were not sufficient to defeat the duty to defend.
Under the Oregon Supreme Court's decision, there is a duty to defend unless both of the following conditions are met: (a) the complaint against the insured alleges only intentional conduct, and (b) the type of conduct alleged is such that it can only be committed with intent to cause harm.