Lachenmeier, Enloe & Rall - February, 2004 Publication

HOLDING PIP IN TRUST

     A recent Court of Appeals decision, State Farm v. Hale, 215 Or App 19 (September 12, 2007) should give adjusters pause before agreeing to allow an insured’s attorney to “hold in trust” PIP benefits pending resolution of a UIM claim. Although that case is limited to its specific facts, it will likely be cited by insureds’ attorneys as authority for not repaying your PIP.

     In Hale, State Farm paid PIP benefits on behalf of its insured, Hale. It then sought direct reimbursement from the liability carrier, Farmers, telling Hale to take no action to recover the PIP. Hale, through his attorney, reached an agreement with Farmers for the policy limit. State Farm gave its approval, on the condition that Hale reimburse the PIP. Hale’s attorney replied that State Farm could not impose this condition, to which State Farm responded that it would seek reimbursement directly from Hale, under ORS 742.538. State Farm and Hale’s attorney eventually agreed that the PIP “would be held in trust until the dispute regarding our right to recover from the underlying limit has been resolved.” State Farm then withdrew its subrogation demand against Farmers.

     Although the trial court found for State Farm, the Court of Appeals reversed. State Farm relied on ORS 742.538, which provides that the PIP insurer is entitled to reimbursement from the liability settlement if “the interinsurer reimbursement benefit of ORS 742.534 is not available.” The Court of Appeals ruled that the interinsurer reimbursement benefit of ORS 742.534 actually had been available:

“It is undisputed that those three conditions were met in this case. First, (State Farm) was entitled to proceed under ORS 742.534 pursuant to the terms of its policy (and in fact notified (Hale) it would do so). Second, (State Farm) had not given notice that it would elect recovery via a lien pursuant to ORS 742.536. Finally, (State Farm) did, in fact “request[ ] such reimbursement” from Farmers.”

     The Court concluded that at the time State Farm “dropped its efforts to seek reimbursement of PIP benefits under ORS 742.534 and announced its intention to pursue reimbursement from (Hale) pursuant to ORS 742.538, no settlement had yet occurred” so the reimbursement mechanism under ORS 742.534 was still available at that time. In short, the interinsurer reimbursement benefit became unavailable only because State Farm “chose to drop its claim.”

     The Court went out of its way to say that the opinion is limited to these facts and that it was not deciding whether ORS 742.538 is generally available to allow reimbursement when the other insurer has paid its policy limits directly to the insured. In fact, the parties in Hale agreed that the dispute was whether State Farm would be entitled to any reimbursement, pursuant to ORS 742.538, not the extent to which the PIP would offset any UIM award.

     Even so, you can expect the opinion to be raised in many cases in which the insured’s lawyer is holding your PIP money “in trust.” Although you may eventually win that battle, it will come with higher litigation costs. Rather than inviting this by allowing your insured’s attorney to hold the PIP “in trust,” it may be better to tell him or her to, in the words of Jerry Maguire, “show me the money!” when settling with the liability carrier. Short of that, be sure to document your agreement so that there will be no room for disagreement at the conclusion of the UIM claim.

     Please direct any questions in this area of law to the author, Tim Heinson, at 503-768-9600, or by email to tim@lerlaw.com.