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
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
If you have any questions,
please feel free to contact the authors: Martin M. Rall (firstname.lastname@example.org)
and Flavio A. Ortiz (email@example.com) at 503-768-9600.