Lachenmeier, Enloe & Rall - February, 2004 Publication

Attorney Fees in Insurance Claims Expanded
Six month clock starts ticking even before written claim is filed

For anyone who handles insurance claims in Oregon, a December 24, 2009 opinion authored by Oregon Supreme Court Justice W. Michael Gillette is required New Years reading. The Oregon Supreme Court, on Christmas Eve, issued its En Banc opinion (meaning there were no dissenting opinions and the entire court participated), in the case of Parks v. Farmers Insurance. In so doing, the court pushed back the start of the six month clock for evaluating and making an offer of insurance benefits sufficient to cut off attorney fees, to an imprecise date far earlier than would be expected from reading the statutory language of ORS 742.061.

This opinion was in the context of a claim for damage to real property under a “Landlord Protector Package”, but would apply equally as well to claims for UM or UIM benefits. The effect of this opinion is that, unless an insurer treats any communication from an insured or an insured’s attorney, relating to any possible first party claim (even if that communication is merely a phone call), the insurer runs a very real risk of a court concluding that such a communication equaled the “filing” of a “claim”, thus giving the insurer only six months from the date of the communication to make an offer which settles the claim, or at least establishes a high water line which a verdict must exceed before attorney fees will be awarded in addition to benefits.

As everyone knows, claims for attorney fees in the context of insurance claims in Oregon are controlled by ORS 742.061, which states, in relevant part:

"[I]f settlement is not made within six months from the date proof of loss is filed with an insurer and an action is brought in any court of this state upon any policy of insurance of any kind or nature, and the plaintiff's recovery exceeds the amount of any tender made by the defendant in such action, a reasonable amount to be fixed by the court as attorney fees shall be taxed as part of the costs of the action and any appeal thereon." [emphasis supplied]

In Parks, the Supreme Court was interpreting statutory language which has been around since 1919 and which has been the subject of many court decisions over the past 90 years. In fact, in the Parks case, both the trial court and the Court of Appeals had rejected the claim for attorney fees, based on their reading of the prior case law.

This intent of this statute is to encourage insurers to fairly and expeditiously resolve claims, rather than delay processing. Of course, no current Oregon insurer would intentionally do anything other than expeditiously process a claim once its insured has presented enough information to evaluate the claim. A problem develops, however, when an insured has not supplied the information necessary to evaluate a claim, or perhaps has not even made a claim, yet the insurer is expected to try to evaluate the claim and make an offer anyway. Insurers are finding themselves with their six months clock winding down to zero, when they may not even know the clock had started running!

In Parks, a “proof of loss”, in the sense of a piece of paper providing information with which the claim could be analyzed, had not been “filed” by the insured until very close to when the claim was settled. The insureds owned rental property where a meth lab had been discovered. The police seized the house and placed it under quarantine. A decontamination contractor hired by the insureds suggested that insurance companies sometimes help with such losses, which prompted the insureds to place two phone calls to their agent.

In the first call, the insured Ms. Parks asked the agent if Farmers could help with her loss. She told the agent about seizure of the property by the police and the quarantine and gave the agent contact information for the contractor. The conversation then turned to the possibility that there might not be coverage for such a loss and the agent told Ms. Parks to call back if she received more information. She never called back.

About a month later, Ms. Parks’ husband called the agent and provided some repair cost information and, according to Mr. Parks, asked if there would be coverage for such repairs. The agent recalled the conversation differently, to the effect that the insureds did not want to file a claim because the cost to repair the damages covered under the policy was less than the deductible. That was the end of the communication. No paperwork was filled out, no letter was written, and no proof of loss form was sent to the insureds by the agent to be completed. The insureds were not referred by the agent to the claims department and no claim was opened. Farmers did not know the clock was running.

There was no further contact by either the insureds or an attorney on their behalf until litigation was commenced against Farmers, about three weeks after the second call. Farmers did ultimately make a settlement offer, which offer was immediately accepted by the insured, with the issue of attorney fees reserved for decision by the court. The accepted offer was made less than two months after Farmers received from the attorney a written settlement demand, from which it was finally able to evaluate the claim. Since the offer was made about three weeks later than six months after the second phone call, however, the offer did not cut off attorney fees, even though Farmers had acted diligently in making an acceptable offer once the insureds’ attorney provided the necessary information it needed to evaluate the claim. The court looked to the phone calls as the “proof lf loss”.

Where is the fairness in this decision? It seems clear that fairness had nothing to do with the decision. The question came down to what the Oregon Supreme Court felt was the type of information the insurer needed to estimate its obligations under the policy. The court concluded that the two phone calls were enough to put the insurer on notice of the claim. The court’s opinion did not explain how Farmers was supposed to have estimated its obligations from these phone calls before the insureds’ attorney supplied the written demand which was, in fact, used by Farmers to estimate its obligations and to formulate a prompt offer, which offer (within 60 days of the written demand) was immediately accepted by the insureds. Obviously, if the insureds or their attorney had supplied this information earlier, the claim could have settled earlier, and probably within six months of the phone calls. This opinion did not mention the fact that this accepted offer was made less than eight months after Ms. Parks had placed her initial phone call—which timeframe seems quite expeditious, all things considered.

What seems clear from this decision is that the Oregon Supreme Court has put all insurers who do business in Oregon on notice that whenever an agent, a claims person, or even an animated insurance mascot hears, from an insured or anyone associated with an insured, that an insured may want to make a claim of any sort under a policy (but not a third party claim under a liability policy—since third party claimants are not “insureds”), they must assume they have six months from when they first heard of a possible claim to gather all available information, evaluate any possible claim, and extend a written offer of the expected obligation under the policy, or that offer will not cut off attorney fees. If no offer is made within that six months, despite what may be apparent fairness on the part of the insurer in acting promptly to evaluate a claim, and to make an offer which is accepted, the insurer will likely owe an attorney fee in addition to benefits under the policy, which fee could easily exceed the benefits paid.

Do not hold your breath that anytime soon the courts or the legislature will incorporate a “fairness” feature into ORS 742.061, or will make attorney fees reciprocal, such that an insured would owe attorney fees to the insurer if the decision at trial is for less than the insurer’s offer. Since we will be coming up on the 100th anniversary of the statute, however, in just nine years, perhaps it is not too early to start promoting an anniversary gift to the system of justice in Oregon.

If you have any questions about this issue, please feel free to contact the undersigned, Jay Enloe, at jay@lerlaw.com.