LANDAU, J.
This is a construction defect case in which a condominium homeowners association sued a contractor for negligence. The contractor's insurer refused to defend the contractor against the action, and the contractor and the homeowners association thereafter entered into a settlement that included a stipulated judgment against the contractor, a covenant by the homeowners association not to execute that judgment, and an assignment to the homeowners association of the contractor's claims against its insurer. When the homeowners association then initiated a garnishment action against the insurer, however, the trial court dismissed the action on the ground that, under Stubblefield v. St. Paul Fire & Marine, 267 Or. 397, 517 P.2d 262 (1973), the covenant not to execute had released the contractor from any obligation to pay the homeowners association and, in the process, necessarily released the insurer as well. The homeowners association appealed, arguing that Stubblefield either is distinguishable on its facts or has been superseded by statute. In the alternative, it argued that Stubblefield was wrongly decided and should be overruled. The Court of Appeals affirmed. Brownstone Homes Condo. Assn. v. Brownstone Forest Hts., 255 Or.App. 390, 401, 298 P.3d 1228 (2013). For the reasons that follow, we conclude that, although Stubblefield is not distinguishable and has not been superseded by statute, it was wrongly decided. We therefore reverse and remand for further proceedings.
The relevant facts are largely those set out in A&T Siding v. Capitol Specialty Insurance Corp., 358 Or. 32, 359 P.3d 1178 (2015), a related case recently decided by this court on a certified question from the United States Court of Appeals for the Ninth Circuit.
Brownstone eventually settled with A&T and Zurich. The settlement agreement called for a $2 million stipulated judgment in favor of Brownstone and against A&T, $900,000 of which Zurich agreed to pay as A&T's insurer. The agreement also included (1) an assignment to Brownstone of any claims A&T had against Capitol relating to Brownstone's action against A&T; (2) a covenant by Brownstone that, "in no event [would] it execute upon or permit execution of the stipulated judgment against A&T or its assets," but that it would seek recovery of the unexecuted portion of the judgment from Capitol; (3) a promise by A&T that it would cooperate with Brownstone in pursuing the assigned claims against Capitol; and (4) an agreement "to release each and every other settling party * * * from all past, present and future claims" except for claims by or between Brownstone and Capitol.
The stipulated judgment was entered in the Multnomah County Circuit Court. Brownstone then served a writ of garnishment on Capitol for $1.1 million, the unpaid portion of the judgment. Brownstone relied on ORS 18.352, which provides:
Capitol rejected the writ, and Brownstone applied to the trial court for an order requiring Capitol to appear. See ORS 18.778 (process for obtaining order to appear). Capitol continued to resist the garnishment and moved for summary judgment, arguing that Brownstone's covenant not to execute against A&T had released A&T from any legal obligation to pay Brownstone damages. Because the terms of its policy limited Capitol's liability to "those sums that the insured becomes legally obligated to pay," Capitol argued, the effect of the covenant not to execute was to eliminate its obligation of coverage. In support of its summary judgment motion, Capitol relied on this court's decision in Stubblefield.
In Stubblefield, the plaintiff sued his wife's doctor for alienation of affection and criminal conversation. The doctor was insured, but the insurer declined to defend. The plaintiff and the defendant eventually settled. Under the terms of the settlement agreement, the defendant agreed to pay the plaintiff $5,000. The parties also agreed to the entry of a money judgment against the defendant for $50,000, a covenant by the plaintiff not to execute that judgment for any amount in excess of the $5,000 that the defendant had agreed to pay, and the defendant's assignment of any claims he might have against his insurer in the matter over and above the $5,000 payment.
The plaintiff then initiated an action against the insurance company under the assignment, but the trial court found in favor of the insurance company. This court affirmed, explaining:
Stubblefield, 267 Or. at 400-01, 517 P.2d 262 (emphasis and omissions in original).
In this case, Capitol argued that Stubblefield controlled, because the settlement agreement between Brownstone and A&T was, in all material respects, identical to the one at issue in Stubblefield, and the terms of coverage were as well. In response, Brownstone argued that Stubblefield does not apply to garnishment actions brought under ORS 18.352. According to Brownstone, the plain wording of that statute independently authorizes a judgment creditor to proceed directly against an insurer. In the alternative, Brownstone urged that the legislature abrogated Stubblefield in 1989, when it enacted what is now ORS 31.825, which expressly provides that "a defendant in a tort action against whom a judgment has been rendered" may assign a claim that the defendant may have against an insurer and that any release or covenant not to sue given for that assignment "shall not extinguish" the claim.
The trial court rejected Brownstone's contentions, concluded that Stubblefield controlled, and granted Capitol's motion for summary judgment. Brownstone appealed, reprising its arguments that Stubblefield does not apply to garnishment proceedings brought against a judgment debtor's insurer under ORS 18.352, and that, in any event, Stubblefield has been abrogated by the legislature's enactment of ORS 31.825. The Court of Appeals rejected both arguments and affirmed.
On review, Brownstone advances three arguments: (1) Stubblefield does not apply to garnishment proceedings brought against a judgment debtor's insurer under ORS 18.352; (2) the legislature abrogated Stubblefield when it enacted what is now ORS 31.825; and (3) in all events, Stubblefield was incorrectly decided and should be overruled. We consider each of the three arguments in turn.
Brownstone first argues that Stubblefield does not apply to this case. In Brownstone's view there is a key distinction between the facts of Stubblefield and this case: namely, the legal mechanism used to satisfy the judgment from the insurer. Brownstone observes that, in Stubblefield, the plaintiff proceeded directly against the judgment debtor's insurer under the assignment of claims in the parties' settlement agreement. Brownstone notes that, in this case, it did not assert a common-law claim under an assignment of rights, but instead proceeded under ORS 18.352, which statutorily authorizes parties who have obtained a judgment in an action for damages to proceed directly against the judgment creditor's insurance assets. Plaintiff contends that, although the circumstances in Stubblefield might otherwise mirror those of this case, a garnishment proceeding under ORS 18.352 should be controlled by the terms of that statute and not a judge-made rule that speaks specifically to the assignment of a judgment debtor's assignment of claims against its insurer.
As Brownstone sees it, the statute sets out only two requirements for recovery from a judgment debtor's insurance policy: (1) that a judgment has been rendered against the judgment debtor for injury or damage to person or property; and (2) that the judgment debtor has a covered liability for any injury or damage to person or property.
We agree with Capitol. As we have noted, ORS 18.352 provides that, when a judgment has been rendered for injury or damage to person or property and the judgment debtor has a policy of insurance covering liability for such injury or damage to person or property, "the amount covered" by that policy is subject to garnishment. (Emphasis added.) Stubblefield plainly holds that a covenant not to execute against an insured judgment debtor releases the judgment debtor from any legal obligation to pay damages to the judgment creditor as a matter of law, and, as a result, eliminates any damages that the insurer is "legally obligated to pay" under the policy. The fact that Stubblefield happened to be a case in which the plaintiff brought an action against the insurer on an assigned claim had no effect on the court's reasoning and provides no basis for limiting its holding in this case.
This court's cases construing ORS 18.352 confirm that conclusion. In State Farm Fire & Cas. v. Reuter, 299 Or. 155, 700 P.2d 236 (1985), for example, Reuter was charged with sexually assaulting Bullen. Reuter pleaded not guilty by reason of mental disease or defect, but the jury rejected the claim of mental disorder and found him guilty. At the time of the assault, Reuter had a liability policy with State Farm Fire & Casualty. The policy contained an exclusion for intentional injury. Bullen initiated a civil action for damages against Reuter, alleging that the latter had committed the assault when suffering from a mental disorder that rendered the assault something other than an intentional act. State Farm responded with an action for a declaration of its obligations under Reuter's policy, arguing that the criminal conviction established, as a matter of law, that damages arising out of the sexual assault were subject to the exclusion for intentional injuries. Id. at 157-58, 700 P.2d 236.
This court was thus confronted with the issue of how Reuter's criminal conviction affected Bullen's claim. The court began by noting that, clearly, Reuter was bound by that conviction. Id. at 163, 700 P.2d 236. The question remained whether Bullen, because of her legal relationship to Reuter, was bound as well. Id. at 164, 700 P.2d 236. The court explained that, if Bullen obtained a judgment against Reuter under the allegations of her complaint, her remedies included garnishing State Farm under what is now ORS 18.352. Id. (discussing ORS 23.230 (1989)). The problem was, the court continued, that if she did that, then "Bullen's rights against State Farm are no greater than that of Reuter. As garnishor, she stands in the shoes of the subrogor." Id. at 166, 700 P.2d 236. The court noted that,
Id. at 167, 700 P.2d 236 (emphasis added).
Returning to this case, that means that Brownstone, in bringing the garnishment action against Capitol, stands in the shoes of the insured, A&T, and is subject to any defenses that Capitol could assert against A&T, including Capitol's defense that Stubblefield applies to eliminate Capitol's obligation to pay. In short, Brownstone's argument that Stubblefield is inapplicable in the present garnishment proceeding under ORS 18.352 is not well taken.
Brownstone argues that, in any event, Stubblefield was legislatively "overruled" in 1989 when the legislature enacted ORS
Plaintiff contends that, insofar as the statute provides that a release or covenant given in exchange for an assignment "shall not extinguish the cause of action against the insurer," it strikes at the very heart of the Stubblefield decision.
Capitol argues that, by its terms, the statute applies only to a settlement by a "defendant in a tort action against whom a judgment has been rendered." According to Capitol, the tense of the emphasized phrase makes clear that the statute applies only to a particular sequence of events: First, a judgment is rendered, and then, once that has occurred, an assignment and covenant not to execute are given. That, Capitol notes, is not what happened in this case; rather, the parties first negotiated the assignment and covenant and only later obtained a judgment.
Brownstone acknowledges that the tense of the statute's wording "might suggest" such a sequence. But it insists that the statute should not be constrained by what it views as a technicality. In Brownstone's view, the statute is at least ambiguous, and that ambiguity is resolved by legislative history showing the legislature intended no such temporal restriction.
Capitol replies that, if Brownstone were correct, then ORS 31.825 would have the effect of abrogating Stubblefield entirely, and there is a complete absence of evidence of any such intention in the legislative history. To the contrary, Capitol contends, that history shows that the legislature intended the statute to address not Stubblefield generally, but rather the application of Stubblefield to a particular type of case.
Again, we agree with Capitol. We first note that the wording of ORS 31.825 suggests a particular sequence of events in which assignments, releases, and covenants "shall not extinguish" the cause of action against the insurer. In stating that "a defendant in a tort action against whom a judgment has been rendered" may assign his or her claims, and in thereafter referring to the plaintiff "in whose favor the judgment has been entered," the statute appears to describe circumstances in which a judgment resolving a claim against the defendant precedes the defendant's assignment of his or her claims against the insurer to the plaintiff. As this court explained in Martin v. City of Albany, 320 Or. 175, 181, 880 P.2d 926 (1994), "[t]he use of a particular verb tense in a statute can be a significant indicator of the legislature's intention." See also Washburn v. Columbia Forest Products, Inc., 340 Or. 469, 479, 134 P.3d 161 (2006) (verb tense may be dispositive of statutory construction); V.L.Y. v. Board of Parole, 338 Or. 44, 50, 106 P.3d 145 (2005) (same).
In a related vein, we also note that the statute limits the defendant's power to assign causes of action "that the defendant has against the defendant's insurer as a result of the judgment." The cause of action that may be assigned is one that "result[s]" from the judgment, which again suggests a particular sequence and a particular type of claims. If, for example, an insurer refused in bad faith to settle within the applicable policy limits, leading to a judgment against the insured in excess of the policy limits, such a claim could be said to be "as a result of a judgment." In this case, however, the claims at issue are directed at Capitol's asserted breach of a contractual duty to defend and indemnify A&T: They do not appear to "result" in any direct sense from a judgment.
The legislative history confirms what the text of ORS 31.825 suggests. The statute was enacted in 1989 as SB 519 (1989). The original bill, introduced at the request of the Oregon Trial Lawyers Association (OTLA), provided injured plaintiffs with a direct claim against a defendant's insurer in the sort of "excess judgment" cases that we have just described:
That focus on excess judgment claims also is evident from the testimony of Mick Alexander, who represented OTLA. He testified to the Senate Judiciary Committee that the bill "allows a plaintiff in a tort action to directly commence an action against an insurer of a defendant to recover an excess judgment." Testimony, Senate Judiciary Committee, SB 519, Mar. 27, 1989, Ex. D (statement of Mick Alexander). He explained that the bill was prompted by a Court of Appeals case, Oregon Mutual Ins. Co. v. Gibson, 88 Or.App. 574, 746 P.2d 245 (1987), which applied Stubblefield to an "excess judgment" case, thereby "ma[king] it very difficult for a plaintiff to be able to proceed to recover an excess judgment and also release the insured defendant from the litigation." According to Alexander,
Id. He also explained that the bill would provide the same kind of direct action against insurers in excess judgment cases that ORS 743.772 (1989) (now codified at ORS 742.031)
The Oregon Association of Defense Counsel, represented by John Buehler, objected to the bill. Buehler explained to the Senate Judiciary Committee that providing third-party claimants with a direct cause of action against a defendant's insurer in "bad faith" and negligence cases was contrary to public policy principles that this court had recognized in Pringle v. Robertson, 258 Or. 389, 483 P.2d 814 (1971).
After Buehler testified, the committee discussed a proposed amendment to the bill that
Tape Recording, Senate Judiciary Committee, SB 519, Mar. 27, 1989, Tape 82, Side A (emphasis added).
The Senate Judiciary Committee passed the amended bill and sent it on to the Civil Law Subcommittee of the House Committee on the Judiciary. There, the bill's OTLA proponents continued to describe the bill's purpose in terms of "excess judgments." Tape Recording, House Committee on Judiciary, Civil Law Subcommittee, SB 519, May 22, 1989, Tape 103, Side B (Testimony of Charles Williamson). Also in that subcommittee, OTLA proposed a further amendment to the bill to clarify that not only an assignment of a defendant's claims against his or her insurer, hut "any release or covenant given for the assignment," would not extinguish the cause of action against the insurer. The subcommittee passed the bill with the proposed amendment. The staff measure summary prepared at the time again described the bill (which, at that point, was in the form that the legislature would enact into law) in terms of an insurer's bad faith refusal to settle within policy limits. Exhibit K, House Committee on Judiciary, Civil Law Subcommittee, SB 519A, May 22, 1989 (staff measure summary) ("The measure would allow a defendant to assign a bad faith claim to the plaintiff without extinguishing the cause of action by the act of assignment.").
The foregoing legislative history dispels any doubt about what the legislature intended by enacting ORS 31.825. It intended to allow insured defendants to assign a specific type of claim against their insurer—claims that the insurer's negligent or had faith failure to settle within policy limits had resulted in an "excess judgment"—to the plaintiff, in exchange for a covenant not to execute against the defendant, without extinguishing the underlying liability. And it intended to permit that outcome only when the excess judgment is in place before the assignment is given. Contrary to Brownstone's theory, there is no evidence that the legislature intended to abrogate Stubblefield in its entirety.
There remains Brownstone's argument that Stubblefield was wrongly decided and should be overruled. Our consideration of that argument is constrained by the doctrine of stare decisis, which requires that we "begin with the assumption that issues considered in our prior cases are correctly decided." Farmers Ins. Co. v. Mowry, 350 Or. 686, 698, 261 P.3d 1 (2011). At the same time, however,
Id.
In this case, Brownstone argues that the court in Stubblefield failed to apply the usual framework for interpreting policies of insurance and failed to offer any reasoned explanation for its conclusion about the effects of the settlement agreement. According to Brownstone, the court simply declared, ipse dixit, that, when a policy covers damages that an insured is "legally obligated to
Capitol argues that Stubblefield has stood as precedent for more than four decades and should not be disturbed. The phrase "legally obligated to pay," the insurer argues, has a plain meaning—the meaning that the court identified in that decision. In Capitol's view, we should be undeterred by decisions of other state courts, however many of them there may be.
On this issue, Brownstone has the better of the argument. As it correctly notes, this court's reasoning in Stubblefield was sparse, to say the least. The entirety of its analysis of the meaning of the policy and its effect on the insurer's liability consisted of the four sentences that we have quoted above, without any reference to our usual approach to interpreting policies of insurance, see Hoffman Construction Co. v. Fred S. James & Co., 313 Or. 464, 470-71, 836 P.2d 703 (1992) (summarizing analysis), and indeed, without citation to any authority. The court engaged in no examination of the wording of the policy, no consideration of its context, no determination whether the policy was ambiguous, and no discussion of what considerations weighed in favor of resolving any ambiguity one way or the other. The court simply concluded summarily that an insured who has received a covenant not to execute a judgment for damages is not "legally obligated to pay" those damages.
As it turns out, however, there is much more to the issue than that. The court's bare conclusion in Stubblefield glosses over a number of issues that lead us to conclude that its holding must be reconsidered.
First, Stubblefield paid inadequate attention to the court's own prior case law, in particular, Groce v. Fidelity General Insurance, 252 Or. 296, 448 P.2d 554 (1968). In that case, Stayton was involved in an auto accident in which one person was killed and another injured. Fidelity, which insured Stayton, declined to settle for its insured's policy limits. Thereafter, the plaintiffs obtained a judgment against Stayton for well in excess of those policy limits. Stayton settled with the plaintiffs. Under the terms of the settlement agreement, he assigned his claims against Fidelity for wrongful refusal to settle in exchange for a release of liability. Fidelity meanwhile paid its policy limits, but no more. When the plaintiffs then proceeded against Fidelity, the insurer argued that the claim was not assignable. The court, however, rejected Fidelity's arguments.
Fidelity began by arguing that allowing assignability of such claims would "foster collusion and militate against settlements." The court found that argument "unconvincing." Id. at 304, 448 P.2d 554. "All an insurance company need to do to avoid the evils of collusion is to exercise good faith with reference to the rights of its insured." Id.
Fidelity then argued that, because Stayton had been released, there was no further liability for Fidelity to cover. The court rejected that argument as well, explaining that accepting it would "defeat the purpose of these assignments. An injured plaintiff would be reluctant to accept an assignment unless it provided that the insured would be released only upon full recovery from the insured," and the result would be a "needlessly complicated and unjust procedure." Id. at 310-11, 448 P.2d 554.
The court's rationale concerning the latter point would seem directly applicable to Stubblefield. But the court in Stubblefield
Second, apart from prior precedent, there is the doctrinal question whether a covenant not to execute constitutes a release that, of its own force, extinguishes any further liability. Courts in other jurisdictions that have considered that question have concluded, almost uniformly, that it does not. See generally Justin A. Harris, Judicial Approaches to Stipulated Judgments, Assignments of Rights, and Covenants Not To Execute in Insurance Litigation, 47 Drake L. Rev. 853, 858 (1999) ("The majority rule is that a covenant not to execute is a contract and not a release—tort liability on behalf of the insured still exists and the provider is still obligated to indemnify its insured. * * * The trend seems to lean overwhelmingly toward the majority rule."). They have concluded, instead, that, when a covenant not to execute is given in the context of a settlement agreement for valuable consideration (specifically, an assignment of claims), it is a contractual promise not to sue the defendant on the judgment and not a release or extinguishment of the defendant's legal obligation to pay it.
The Illinois Supreme Court's decision in Guillen ex rel. Guillen v. Potomac Ins. Co. of Illinois, 203 Ill.2d 141, 271 Ill.Dec. 350, 785 N.E.2d 1 (2003), serves to illustrate. In that case, the plaintiff initiated an action against her landlords for lead poisoning resulting from exposure to lead-based paint and dust in her apartment. The landlords' insurer denied any obligation to defend or indemnify. The plaintiff eventually settled with her landlords, who agreed to a judgment against them for $600,000 in exchange for a covenant not to execute that judgment and an assignment of their claim against the insurer. The plaintiff then initiated an action against the insurer under the assignment. The insurer argued that, in light of the settlement, there remained nothing that defendants were "legally obligated" to pay and, as a result, nothing for the insurer to indemnify. Id. at 142-46, 271 Ill.Dec. 350, 785 N.E.2d 1.
The court rejected the argument, explaining:
Other courts adopt the majority view, but for a slightly different reason: namely, that the phrase "legally obligated to pay," if undefined in the policy, is ambiguous and, as a result, must be construed against the insurer. See, e.g., Metcalf v. Hartford Accident & Indemnity Co., 176 Neb. 468, 126 N.W.2d 471 (1964); Coblentz v. American Surety Co., 416 F.2d 1059, 1062-63 (5th Cir.1969) (applying Florida law); American Mutual Insurance Co. v. Kivela, 408 N.E.2d 805, 812-13 (Ind.Ct.App.1980).
There is a minority view, which holds that even if, doctrinally speaking, a covenant not to execute does not extinguish liability, it nevertheless has that practical effect. Courts adopting that view invoke a competing public policy of avoiding the possibility of collusion between the plaintiff and the insured defendant. Freeman v. Schmidt Real Estate & Insurance, Inc., 755 F.2d 135 (8th Cir.1985), is the leading decision for that the minority view. In that case, the defendant confessed judgment and assigned his claim against his insurer to the plaintiff in exchange for the plaintiff's covenant not to execute the judgment. When the plaintiff brought the assigned claim against the insurer, the trial court entered summary judgment against the plaintiff, concluding that the covenant not to execute relieved the defendant of any obligation to pay the plaintiff and, as a result, relieved the insurer of any obligation to indemnify. Id. at 136-37.
The Court of Appeals for the Eighth Circuit affirmed. The federal court noted that the issue was one of first impression under Iowa state law, but that considerations of public policy weighed in favor of giving a practical construction to covenants not to execute and holding that they extinguishing further liability. Id. at 139. Specifically, the Eighth Circuit explained that existing Iowa case law reflected concern about encouraging "collusive settlements," which might result from allowing the assignment of claims against insurers under the circumstances of that case. Id.
Of course, the terms of a particular settlement agreement could make it clear that the parties to that agreement intended the covenant not to execute to have the effect of extinguishing further liability. Cf. James v. Clackamas County, 353 Or. 431, 441-42, 299 P.3d 526 (2013) (to determine intent of contract term, court looks at contract as a whole); Yogman v. Parrott, 325 Or. 358, 361, 937 P.2d 1019 (1997) (court determines meaning of contract term in the context of the parties' entire agreement). In that regard, this court's decision in Lancaster v. Royal Ins. Co. of America, 302 Or. 62, 726 P.2d 371 (1986), warrants careful attention. In that case, the plaintiff was injured in an auto accident. He brought an action against the defendant and the defendant's insurer, which had denied coverage and refused to defend its insured. Plaintiff ultimately settled with the defendant. Under the terms of that settlement, the defendant agreed to a stipulated judgment against him and to assign his rights against his insurer to the plaintiff. In return, the plaintiff agreed not to execute the judgment against the defendant "personally." When the plaintiff later sued the defendant's insurer as the defendant's assignee, the insurer invoked Stubblefield for the contention that the covenant not to execute had extinguished both the defendant's and the insurer's liability. The trial court granted summary judgment for the insurer on that ground. Id. at 64-65, 726 P.2d 371.
This court reversed, concluding that whether a settlement including a covenant not to execute extinguishes liability depends on the wording of the particular settlement agreement. "When an insured gives an injured party an assignment of rights in exchange for a `covenant not to execute,'" the court explained, "the agreements are a contract and their effect is determined by standard contract principles, i.e., interpretation of the language of the agreements." Id. at 67, 726 P.2d 371. The particular wording of the covenant—promising not to execute against defendant personally—led the court to conclude that "the covenant involved here is ambiguous as to whether the insured was legally obligated to the plaintiff." Id. Consequently, the court held, it was error for the trial court to have granted summary judgment to the insurer. Id. at 68-69, 726 P.2d 371.
Lancaster has been read by some to have overruled, implicitly, this court's earlier Stubblefield decision. See, e.g., Harris, 47 Drake L. Rev. at 858-59 n. 25 (citing Lancaster as "having the practical effect of overruling Stubblefield"). We need not determine whether that characterization of Lancaster is accurate because we conclude, expressly, that Stubblefield was wrongly decided. The decision stands unsupported by any explanation or analysis. It cannot easily be reconciled with then-existing precedents, in particular,
At the very least, we agree with other courts that have concluded that the phrase "legally obligated to pay"—at least as it is commonly used in liability insurance policies—is ambiguous, thus triggering the well-worn rule that such ambiguities in insurance policies are to be construed against the insurer. Hoffman Construction, 313 Or. at 469-70, 836 P.2d 703 ("[A]mbiguous terms contained within an insurance policy are to be construed against the insurer, who drafted the policy."); Chalmers v. Oregon Auto. Ins. Co., 262 Or. 504, 509, 500 P.2d 258 (1972) (same); Farmers Mut. Ins. Co. v. Un. Pac. Ins., 206 Or. 298, 305, 292 P.2d 492 (1956) (same).
As we have just noted, it certainly is possible that parties can frame settlements in such a way as to make clear an intention that a covenant not to execute has the effect of completely releasing the insured from liability. In this case, however, the parties do not refer to any particular provision of the settlement agreement that unambiguously evinces that intention. To the contrary, the terms of the settlement agreement spell out the parties' shared intent that Brownstone would be able to satisfy the judgment from A&T's insurance assets. The settlement agreement does contain a release, but the agreement also expressly excepts from that release claims by Brownstone against Capitol.
In overruling Stubblefield, we are mindful of the fact that it has remained the law of this state for more than 40 years. See Mowry, 350 Or. at 700-01, 261 P.3d 1 (noting the importance of reliance on existing precedents in the area of commercial transactions). But there is no indication that, during that time, the decision has been relied on extensively. In fact, this court has addressed Stubblefield in only two subsequent cases. The first was Collins v. Fitzwater, 277 Or. 401, 560 P.2d 1074 (1977), in which this court distinguished Stubblefield on the ground that the assignment and nonexecution covenant at issue had preceded the judgment against the defendant. The court declined to conclude that the covenant at issue, which had post-dated the stipulated judgment in the case, had released the insurer along with the defendant/insured. Id. at 409-11, 560 P.2d 1074. The second case was Lancaster, which, if it did not implicitly overrule Stubblefield, significantly limited it to cases in which the settlement agreement unambiguously and unconditionally eliminates insurance liability. In both cases, the court limited the reach of Stubblefield. In neither did the court have
Likewise, the Court of Appeals has applied Stubblefield in only a handful of cases over the past four decades. In Leach v. Scottsdale Indemnity Co., 261 Or.App. 234, 248, 323 P.3d 337, rev. den., 356 Or. 400, 339 P.3d 440 (2014), the Court of Appeals followed Lancaster and concluded that the ambiguity of the relevant settlement agreement rendered Stubblefield inapplicable. The court did the same thing in Terrain Tamers v. Insurance Marketing Corp., 210 Or.App. 534, 541, 152 P.3d 915, rev. den., 343 Or. 115, 162 P.3d 988 (2007), and Warren v. Farmers Ins. Co., 115 Or.App. 319, 323, 838 P.2d 620 (1992). In Portland School Dist. v. Great American Ins. Co., 241 Or.App. 161, 175-76, 249 P.3d 148, rev. den., 350 Or. 573, 258 P.3d 1239 (2011), the court concluded that Stubblefield did not apply because the underlying agreement expressly reserved claims against the insurer. In only two decisions of which we are aware, Far West Federal Bank v. Transamerica Title Ins. Co., 99 Or.App. 340, 345, 781 P.2d 1259 (1989), rev. den., 309 Or. 441, 789 P.2d 5 (1990), and Gibson, 88 Or. App. at 574-78, 746 P.2d 245, did the Court of Appeals conclude that Stubblefield controlled.
Moreover, Stubblefield did not announce the sort of rule that later became the basis for structuring common commercial transactions, as for example, the rule at issue in Mowry, on which insurers relied in drafting standard insurance policies. 350 Or. at 700-01, 261 P.3d 1. Under the circumstances, the passage of time does not weigh particularly heavily in our evaluation of the continuing vitality of the Stubblefield decision.
In short, we conclude that Stubblefield erred when it concluded that a covenant not to execute obtained in exchange for an assignment of rights, by itself, effects a complete release that extinguishes an insured's liability and, by extension, the insurer's liability as well. It necessarily follows that the trial court in this case likewise erred in concluding that the existence of such a covenant not to execute as a component of the parties' settlement agreement had the effect of extinguishing A&T's liability to Brownstone and, as a result, had the effect of extinguishing Capitol's liability as well.
The judgment of the circuit court and the decision of the Court of Appeals are reversed, and the case is remanded to the circuit court for further proceedings.
