Insurer Voids UM/UIM Attorney Fee Safe Harbor in Pleading

On September 2, 2015, the Oregon Court of Appeals issued an opinion addressing Oregon’s ORS 742.061(3) attorney fee “safe-harbor” letter in uninsured/underinsured (UM/UIM) motorist claims in Kiryuta v. Country Preferred Ins. Co., 273 Or App 469, —P.3d— (2015) .  The court held that because the insurer made allegations in its responsive pleadings that raised issues other than the liability of the driver and “the damages due the insured,” the insurer was not eligible for the attorney fee safe-harbor provided in ORS 742.061(3).

By way of background, ORS 742.061(1) provides that an insured is entitled to an award of attorney fees if a settlement of an insurance claim “is not made within six months from the date [when] proof of loss is filed with an insurer” and the insured recovers more than any amount that the insurer has tendered. However, under ORS 742.061(3), the insured is not entitled to an award of attorney fees if, within six months of the filing of the proof of loss, “the insurer states in writing that it accepts coverage, that the only remaining issues are the liability of the [uninsured or the] underinsured motorist and the amount of damages due the insured, and that it consents to binding arbitration.”  This is known as the UM/UIM attorney fee “safe-harbor” letter and can effectively cut off attorney fee exposure to an insurer.

In this case, the insured was injured in an automobile accident and made a claim for underinsured motorist (UIM) benefits.  The insurer denied the claim and subsequently issued a letter that complied with the requirements of ORS 742.061(3).  The insured filed a lawsuit against the insurer alleging that its failure to pay UIM benefits breached the insurance policy.  In its answer,  the insurer set out affirmative defenses entitled “Contractual Compliance” and “Offset.” The insured prevailed in the arbitration and filed an attorney fee petition under ORS 742.061(1), arguing that the insurer’s answer and its response to certain requests for admissions raised issues for arbitration other than liability of the driver and the damages due to the insured. The arbitrator awarded the insured its attorney fees, and the insurer filed exceptions to the attorney fee award in the trial court, contending that its safe-harbor letter precluded an award of fees. The circuit court reversed the arbitrator’s award of attorney fees and the insured appealed the decision.

On appeal, the insured contended that the insurer raised issues in the lawsuit  other than the liability of the uninsured or underinsured motorist and the damages due to the insured that preclude eligibility for the safe-harbor protection under  ORS 742.061(3).  The insurer argued that that the affirmative defenses labeled “Contractual Compliance” and “Offset” were not intended to assert that some term in the policy prevented the insured from recovering any damages and that no issues other than the damages due to the insured were litigated in the arbitration.

The Court of Appeals agreed with the insured, stating that the insurer’s pleadings provided a foundation for the insurer to litigate an issue other than the amount of the insureds damages or liability of the underinsured driver.  In other words, through its answer, the insurer pursued a litigation strategy that was broader than that contemplated by the legislature in ORS 742.061(3). The fact that the insurer may not have followed through with that litigation strategy at the arbitration proceeding makes no difference. The Court noted that the insurer was in control of its own pleadings and was in a position to conform those pleadings to the limitations of the safe-harbor provision, by alleging only ultimate facts that pertained to the liability of the uninsured or underinsured motorist and the damages due to the insured. The Court noted that the insurer nonetheless opted to include issues in its pleadings other than those issues permitted by the safe-harbor provision, and it did not amend those pleadings before the arbitration hearing to limit the issues at the hearing to those allowed by the safe-harbor provision.  As a result, the insured had to be prepared at the arbitration hearing to meet any proof that the insurer might offer consistent with its pleadings.

The attorneys at Maloney Lauersdorf Reiner routinely represent clients in insurance coverage matters involving uninsured (UM) and underinsured (UIM) motorist coverage.  Please contact us with any questions about this case or any other matter you see addressed in the Insurance Coverage Blog.

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