Oregon Court of Appeals affirms no insurance coverage by estoppel

By Kevin Clonts and Claude Bosworth

In Deardorff v. Farnsworth, the Oregon Court of Appeals ruled that, in the normal course, an insured cannot invoke estoppel to expand the scope of insurance coverage by negating an express exclusion in an insurance policy. Therefore, even if an insurance agent misrepresents the scope of coverage to an insured, that misrepresentation will not result in coverage so long as the provision the agent interpreted and relied upon was unambiguous.

In Deardorff, the insured directed its insurance agent to obtain insurance for its equine stables. The agent received a quote for business and commercial farm coverage that did not include property or liability coverage (known as CCC coverage). Prior to that coverage year, the insured’s business and commercial farm coverage also did not include CCC coverage, which it had to purchase from another carrier. The insurance agent inquired with the carrier’s underwriter whether the carrier offered CCC coverage, and the underwriter responded, “[l]iability exposure for prop­erty of others in the insured’s CCC, that is covered in liab form.” The carrier then offered a new quote that included CCC coverage, which the insured accepted, and the carrier issued the policy the same day. However, though the policy included CCC property coverage, it did not include CCC liability coverage, and the policy had the following express exclusion: “‘Property damage’ to *** [p]ersonal property in the care, custody or control of the ‘insured.’”


During the coverage period, the insured was transporting horses in California that were owned by others when the trailer transporting the horses caught fire, killing the horses. When the insured was sued by the horse owners’ insurers in a subrogation action, the insurer disclaimed coverage and defense by relying on the policy’s express exclusion. The insured argued that the carrier should be estopped from denying coverage, because its underwriter told the insured’s agent that CCC liability was “covered” under the liability form, and that this communication led the agent to tell the insured that it had CCC liability insurance.


The trial court sided with the insured and held that the carrier was estopped from relying on the exclusion. The Court of Appeals reversed, holding that an insured may not expand the scope of an unambiguous insurance policy through estoppel.


In the normal course, “estoppel cannot be invoked to expand insurance coverage or the scope of an insurance contract.” There are limited times when estoppel can be invoked. One is to overcome a condition of forfeiture in a policy, which is where, initially, the policy provides coverage for the loss, but acts of the insured nullify the coverage. Another situation in which estoppel may be employed is where an insured relies on an agent’s interpretation of an ambiguous provision.


Neither exception to the general rule existed in Deardorff, because the provision the insured relied upon was not a condition of forfeiture and it was an unambiguous exclusion. Therefore, estoppel could not be invoked to expand the scope of coverage.


The full opinion can be found here: http://www.publications.ojd.state.or.us/docs/A152357.pdf.

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