Lachenmeier, Enloe & Rall - February, 2004 Publication

New Decision Regarding Effect of Offer to Allow Judgment

     The Oregon Court of Appeals recently issued a decision addressing the effect of an offer to allow judgment on a claim for attorney fees under ORS 742.061. This decision raises a general question about the effect of offers to allow judgment on statutory claims for attorney fees.

     The new decision, Wilson v. Tri-County Met., -- Or. App. -- (2009), involves a claim for statutory attorney fees under ORS 742.061. Under that statute, an insured who makes a direct claim against his or her insurer may be entitled to attorney fees. ORS 742.061 states that if an insurer does not settle a claim within six months of the proof of loss and the insured’s recovery exceeds any tender by the insurer, the insured will be entitled to recover attorney fees. In Dockins v. State Farm Ins. Co., 329 Or. 20 (1999), the Oregon Supreme Court held that a tender (i.e. offer) made to prevent an attorney fee claim under ORS 742.061 must be made within six months of the proof of loss. (The statute also contains special provisions regarding PIP and UIM claims).

     For a number of reasons, an insurer may want to make an offer after six months have passed since the proof of loss. As noted above, such an offer would not prevent an attorney fee claim under ORS 742.061. The question has often arisen, however, whether the insurer can cut off or limit a claim for additional attorney fees by serving an offer to allow judgment pursuant to Oregon Rule of Civil Procedure (ORCP) 54 E. ORCP 54 E provides that an offer to allow judgment may be served on an opposing party up to 10 days before trial. According to the rule, if the offer to allow judgment is not accepted and the offer exceeds the opposing party’s recovery, the opposing party would not be entitled to costs or attorney fees incurred after the date of the offer to allow judgment.

     In Wilson v. Tri-County Met., -- Or. App. – (2009), the Oregon Court of Appeals held that an offer to allow judgment, filed more than six months after proof of loss, will not cut off or limit an insured’s attorney fee claim under ORS 742.061. The decision relied heavily on a recent Oregon Supreme Court opinion, Powers v. Quigley, 345 Or. 432 (2008), which also addressed the effect of an offer to allow judgment.

     In Powers, the Oregon Supreme Court held that an offer to allow judgment does not cut off attorney fees that are based on ORS 20.080. The rationale was that ORS 20.080 was designed to pressure defendants and their insurers to settle small claims prior to litigation when written demand is made at least 10 days before filing a lawsuit. (The statute now requires that written demand be made 30 days before filing a lawsuit). The court felt that if defendants were allowed to reduce or limit attorney fee claims by filing offers to allow judgment after a lawsuit had been filed, the purpose of ORS 20.080 would be undermined. The court decided that ORS 20.080 and ORCP 54 E were in conflict, and it chose to enforce ORS 20.080 because it was considered to be more specific.

     Similarly, in Wilson, the Court of Appeals held that the purpose of ORS 742.061 was to pressure insurers to settle claims within six months of proof of loss. The court held that allowing an insurer to reduce or limit an attorney fee claim by serving an offer to allow judgment more than six months after proof of loss would undermine the purpose of ORS 742.061. The court went to conclude that ORS 742.061 was considered an exception to ORCP 54 E and that an offer to allow judgment (served more than six months after proof of loss) could not be used to cut off fees or limit fees in an ORS 742.061 claim.

     The defendant in the Wilson case may petition the Oregon Supreme Court for review of the appellate court’s decision. But for now, the Wilson decision emphasizes the need to promptly investigate, evaluate, and negotiate first party insurance claims that may be subject to ORS 742.061.

     Because the above cases indicate that an offer to allow judgment will not cut off or limit attorney fees under ORS 20.080 or ORS 742.061, a question may arise whether an offer to allow judgment can cut off attorney fee claims based on other statutes, such as the Oregon Landlord Tenant Act. It should be noted that both ORS 20.080 and ORS 742.061 both have a distinct characteristic – both statutes specify how much time a defendant has to make an offer which can prevent an attorney fee claim. But it is at least possible some courts might nevertheless hold that an offer to allow judgment will not cut off attorney fee claims based on statutes other than ORS 20.080 or ORS 742.061. There is some potential uncertainty in the law and it would be helpful to have the legislature clarify exactly when an offer to allow judgment may be used to cut off claims for attorney fee based on statute.

     If you have any questions, please feel free to contact the author: Flavio A. Ortiz (alex@lerlaw.com) at 503-768-9600.