Lachenmeier, Enloe & Rall - February, 2004 Publication

Avoiding Attorney Fees in Washington UM/UIM Cases Arising from Oregon Accidents

After an insured makes a valid proof of loss to his UM/UIM insurer under an Oregon policy, the insurer will typically offer to participate in binding arbitration within six months. This will allow the insurer to prevent the insured from asserting a claim for attorney fees under ORS 742.061, if the insured files suit.

However, when an insured has a Washington UM/UIM policy and has notified the UIM insurer of a claim against a tortfeasor in Oregon, an insurer may have a more difficult time deciding the best course of conduct, due to the development of UM/UIM insurance law in Washington.

Under a number of Washington cases, it has been held that a UIM insurer may be bound by the findings of liability and damages in a lawsuit filed in Washington between a UIM insured and the underlying tortfeasor. In Finney v. Farmers Ins. Co. of Wash., 21 Wn. App. 601, 617 (1978), the plaintiff’s UIM insurer was fully apprised of its insured’s efforts to pursue a lawsuit against the underlying tortfeasor and failed to intervene in that lawsuit, even though it acknowledged that it had a right to do so. The Washington Supreme Court held that certain determinations in the underlying lawsuit were crucial to the UIM insurer’s liability, and decided the UIM insurer should be bound by the findings, conclusions, and judgment in the liability case. The court held that although the UIM insurer had an arbitration provision in its policy, it had waived the right to arbitrate by not actively pursuing arbitration.

In Fisher v. Allstate Ins. Co., 136 Wn. 2d 240, 245 (1998), the court re-affirmed the Finney decision. In Fisher, the court weighed the pros and cons of a having a UIM insurer intervene in a case by its insured against the underlying tortfeasor and concluded that “the benefits of joining the UIM insurer and tortfeasor in a single action outweigh any conflict between an insurer and insured as well as the interjection of insurance into the trial.” Id. at 248.

Arbitration of UIM claims is still permissible in Washington following the above cases. See McIllwain v. State Farm, 133 Wn. App. 439 (2006) (parties are free to decide by contract whether to arbitrate and what issues to arbitrate). However, a number of insurers writing in Washington no longer use or enforce arbitration provisions in their UIM policies. Rather, in response to the above cases, they choose to intervene in actions where their insureds sue an underlying tortfeasor so that they will not be bound by the findings in a lawsuit that they did not participate in. Some insurers have included language in their UIM endorsements that requires their insured to join them in any lawsuit against the underlying tortfeasor.

Although there may be benefits to this procedure in Washington, in Oregon, unless a UM/UIM insurer offers to arbitrate a UM/UIM claim, it may be on the hook for a claim for attorney fees by its insured under ORS 742.061. Even if the insurance policy is from Washington, if the insured sues in Oregon, ORS 742.061 may apply. See Vancouver Furniture Co., Inc. v. Industrial Indemnity Co. of the Northwest, 74 Or App 642, 648 (1985), rev. denied, 300 Or 477 (1986) (the court interpreted the predecessor statute to ORS 742.061 and held that provision regarding award of attorney fees in actions upon insurance policies was a procedural matter, and since the lawsuit was filed in an Oregon court, the court would award attorneys fees under the statute, even though the loss occurred in Washington).

Therefore, the Washington UIM insurer is given a choice when its insured files a lawsuit against the underlying tortfeasor in Oregon. It may attempt to join an action between its insured and the underlying tortfeasor so that it will not risk becoming subject to factual determinations in that lawsuit. However, the UM/UIM insurer runs the risk of incurring an attorney fee claim. Alternatively, the insurer can offer to resolve the UM/UIM claim through binding arbitration, and cut off a claim for attorneys fees. Although there is some risk of becoming subject to the findings in a lawsuit against the underlying tortfeasor if the insured accepts the offer to arbitrate, this is not a likely prospect if the arbitration proceeds in a timely manner. (Note that ORS 742.504(1)(b) specifically provides that Oregon UM/UIM policies may state that judgments against the underlying tortfeasor are not conclusive against the UM/UIM insurer on issues of liability and damages). If the insured agrees to arbitrate the UM/UIM claim, to be safe, it might be a good idea to have the insured expressly agree that coverage and damages will be determined by arbitration rather than in some separate proceeding.

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