Oregon Court of Appeals Refuses to Apply Liability Limits Increase Retroactively

Several months after a restaurant customer killed two people in a drunk driving accident, the insured restaurant sought and received an increase in their liquor liability limits from $1 to $3 million. The insurer issued an endorsement to make this change, and the endorsement stated that the change was effective as of the date it was issued. The decedents' estates later filed wrongful death claims against the insured restaurant and asserted that the new $3 million limits applied to their claims because the change endorsement also noted a full one year policy period.

In a declaratory judgment action to resolve the issue, Capital Specialty Ins. Corp. v. Chan & Lui, Inc., #A146888 (March 14, 2012), the Court of Appeals affirmed summary judgment in favor of the insurer. In support of its decision, the court found that the "effective date" language unambiguously indicated that the increased limit applied prospectively only. The court also observed that the increased premium charged for the change had been prorated to cover only the time remaining on the one year policy period. In addition, the court commented that, if change endorsements were to apply retroactively as the estates contended, then that could often work a hardship on an insured such as when a change endorsement reduces or eliminates coverage.

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