5 Star, Inc. v. Atlantic Casualty Ins. Co.

Under ORS 701.105(2003), in order to show unlawful contract reformation, a plaintiff must show that a new insurer agreed to the terms of a former insurance policy to be bound by that former policy. To prove negligent procurement of insurance, a plaintiff must show that defendant insurance agent was an agent of the particular insurer under ORS 744.078(4).

Plaintiff 5 Star appeals an order of summary judgment in favor of insurer Atlantic and former insurer Parham, arguing that the trial court erred by dismissing its claims for unlawful reformation, common-law contract reformation, and negligent procurement of insurance. Plaintiff, a general contractor, obtained insurance in 2001 from agent Parham from two different insurers over two years, both were permanently replaced in 2003 by Atlantic. In 2005, Rains, a subcontractor, was severely injured on the job. Rains sued plaintiff, and Atlantic denied coverage and refused to defend plaintiff. A default judgment of $18 million was entered against plaintiff. Plaintiff settled with Rains in exchange for plaintiff’s filing of two separate actions against each Parham and Atlantic—the claims were consolidated at trial. On review, the Court determined that plaintiff failed to prove that the policy covered Rains’ injury. Under the common-law and statutory reformation theories, the Court determined that no evidence showed that the policy covered the actions of plaintiff’s subcontractors. Finally, under the negligent procurement theory, plaintiff could not prove that Parham was an agent of Atlantic, and therefore the coverage that the former insurers provided over plaintiff’s subcontractors did not transfer to Atlantic when the policy changed. Plaintiff was unable to show a triable issue of fact, and the trial court’s order was AFFIRMED.