Insurers and Attorney Fees
Another Nice Mess - And a Practical Solution

     Those of us who remember the 20th Century well, and our cinematography history, will recall Oliver Hardy turning to Stan Laurel and declaring, “Well, here’s another nice mess you’ve gotten me into” (not “fine mess” as commonly misunderstood). Insurers in the State of Oregon might well be looking at the State of Oregon Supreme Court about now and saying the very same thing, as a result of its July 2008 decision in the case of Laura Scott v. State Farm.

     As this writer had forecast five years ago (click here), the Supreme Court has decided that it is relatively easy for an insurer to be presented with a UM or UIM “proof of loss”, whether or not the insurer knows it, such that the insured’s attorney fee clock starts running. The Oregon Legislature passed a crystal clear statute that makes it easy for insurers to avoid the unfair and one-sided attorney fee provisions of ORS 742.061. This statute provides that attorney fees are not available if, “in writing, not later than six months from the date proof of loss is filed with the insurer”, the insurer: (1) accepts coverage and states that the only issues to be decided are liability of the uninsured or underinsured motorist and damages due the insured, and (2) consents to submit the claim to binding arbitration.

     As was discussed in this space in July 2003, the problem comes with determining when the insured has “filed” a “proof of loss” with the insurer, especially when the insurer does not use a formal “proof of loss” form. As was recommended then, insurers should use a formal “proof of loss” form, both to try to mark a clear start of the six month clock and to obtain information useful to evaluation and payment of the UM/UIM claim. If insurers are in need of a form to use for this purpose, they are still invited to print and use this form.

     The Supreme Court’s July 2008 decision in Scott demonstrates the danger of not using a UM/UIM proof of loss form and even leaves open the door to a court deciding the six months starts running whenever the possibility of the insured making a UM or UIM claim exists, whether or not the insured has submitted a signed proof of loss form.

     In Scott, the insurer did not use a UM proof of loss form. It did, however, use a form which it called “Application for Benefits”, which it used exclusively for PIP claims. The form, on its face, did not limit its application to PIP benefits. At the time Ms. Scott filled out and signed this Application, she had not ever said she intended to make a UM claim. The only claim she had ever said she wanted to make was a PIP claim (although, after the fact, she contended that when submitting the Application it was her intent to apply for all benefits available under the policy, including PIP and UM). Nonetheless, despite the lack of an expressed intent to make a UM claim at the time the PIP claim was submitted, the Supreme Court held that the insurer was, at least as early as that date, able to estimate its obligations regarding Ms. Scott’s UM claim (which she had not yet made) or, at least, would be able to estimate those obligations “after a reasonable investigation”.

     The new Scott decision uses language which suggests it could stretch its definition of “filing” a UM “proof of loss”, beyond even submitting a written application for benefits, when it uses language in describing a “proof of loss” such as an “event or submission” that permits the insurer to “estimate its obligations” or investigate same. Arguably, such an “event” could be the mere occurrence of an accident with an uninsured motorist. Since most insurers educate their insureds to call their agents immediately when they have been in an accident, it is not inconceivable that a creative attorney representing an insured will contend that such a phone call constitutes the “filing” of a UM “proof of loss”, for the purpose of that attorney’s six-month attorney fee clock.

     Considering the possibility of a phone call reporting an accident being construed as “filing” a UM “proof of loss” demonstrates the ambiguity and awkwardness of treating anything other than a clear, written, submission, stating an intent to make a UM claim, as the “filing” of a “proof of loss”. An actual submission, of a written claim document, at least puts the insurer on notice that it needs to get moving on deciding if coverage exists, on consenting to binding arbitration with a proper letter if it is, and on processing the claim. A phone call, when perhaps it is not even clear the insured has been injured, seems particularly premature, but within the scope of imagination in light of the decision in Scott.

     All of these problems can be avoided. The unfair and one-sided attorney fee provisions of ORS 742.061 can be completely avoided, for all UM and UIM claims, by using the following procedures in all cases:

1. As soon as the insurer knows its insured has been injured in an accident with an uninsured or underinsured motorist, it should immediately decide whether it has UM/UIM coverage for that insured and, if yes, decide if it would prefer binding arbitration to a jury trial of any such claim if that cannot be resolved by agreement.

2.  If the answers to (1) are all “yes”, it should immediately send its insured a letter (and keep a dated copy) confirming coverage and telling the insured that it consents to binding arbitration of any UM or UIM claim the insured might make and that the only issues to be decided are liability of the UM or UIM driver and the amount of damages to which the insured is entitled.

3. To assist this process, and perhaps establish a firm date when the insured actually did file a proof of loss, the insurer should send its insured a proof of loss form, similar to if not the exact same form as here.  The insured’s filling out and returning this form will also provide the insured with information with which the insurer can begin evaluating the claim and working toward a reasonable resolution of the claim. In addition, the insurer should send the insured a proper medical authorization to be signed, initialed, dated, and sent back to the insurer, so medical records can be requested.

This writer welcomes any and all questions concerning this subject or any other aspect of UM and UIM claims, by calling Jay Enloe at 503-768-9600 or contact by email to jay@lerlaw.com.

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