Lachenmeier, Enloe & Rall - September, 1999 Publication

Statutory Attorney Fees in Insurance Cases
September, 1999

In a case decided in July, the Oregon Supreme Court has expanded an insured’s right to attorney fees when suing for policy benefits. In reversing the Court of Appeals, the Supreme Court held in this case that an insurer’s offer will preclude an insured’s claim for attorney fees in Circuit Court cases filed under ORS 742.061 only if the offer is made within six months from the date of the insured’s “proof of loss”. This is a departure from prior interpretations of the statute. Previously, it had been held that an offer could be made at any time, even while the jury was deliberating, and thereby avoid an award of attorney fees if the jury did not return a verdict greater than the amount of the offer. Now, once the six-month point has been reached, the insured will be entitled to an attorney fee award if the verdict exceeds the highest offer that had been made by the six-month point, even if the insurer, subsequent to the six-month point, makes an offer which exceeds the amount of the verdict. It should be noted that Senate Bill 504, effective October 23, 1999, may avoid the attorney fee issue in certain PIP and UM/UIM cases, if the insurer “consents” to binding arbitration, in writing, within six months of the proof of loss. SB 504 is silent on what happens if the insured does not also choose binding arbitration.

As a result of this recent case, as well as SB 504, it is important to carefully track the date of the insured’s “proof of loss”, as well as the six month point thereafter. Oregon courts have held that a “proof of loss” is not limited to a proof of loss “form”. It can include an entire range of events or submissions, including a Complaint that commences an action against the insurer. Often, there is no proof of loss “form”, when an insured makes a claim for UM or UIM benefits. The court will find that a “proof of loss” has been made, however, whenever the purpose of a proof of loss has been accomplished. In a prior case, the Supreme Court had held that the purpose of a proof of loss is “to afford the insurer an adequate opportunity for investigation, to prevent fraud and imposition upon it, and to enable it to form an intelligent estimate of its rights and liabilities before it is obliged to pay”. Sutton v. Fire Insurance Exch., 265 Or 322, 325, 509 P2d 418 (1973). In more recent cases, the court has said that essentially “any event or submission that would permit an insurer to estimate its obligations (taking into account the insurer’s obligation to investigate and clarify uncertain claims) qualifies as a ‘proof of loss’ for purposes of the statute”. In the latest case, the court appears to have left open the possibility that there may be a case in which the insurer has not been provided with enough information by the insured to calculate the amount of its obligation, such that “proof of loss” was not given, but it would appear that this would need to be a very specific situation. For example, there may be cases involving very complex claims for earnings loss or earning capacity, in which the insured fails to provide adequate documentation to support the claim despite repeated requests for the information. Although that case has not yet been decided, the language of the recent case hints that such a situation may expand the ordinary six-month period in which an insurer has to make an offer.

ORS 742.061 applies only to cases which have been filed in court. It does not apply to arbitrations outside of the court system, although it does apply to court-annexed arbitrations. In other words, ORS 742.061 will give rise to a claim for attorney fees whenever an insured files the case in court, even if it is arbitration eligible. As a result, insurers would be well advised to treat any claim for benefits under the policy as one in which a right to attorney fees may also be claimed, and to pay careful attention to the six-month period following any event which may qualify as a “proof of loss”. LE&R has developed a Proof of Loss form, designed specifically for UM/UIM claims, to provide certainty in this area. Click here to view this form. It is recommended that a Proof of Loss form be provided to the insured within 15 days of the insurer receiving notice of the claim.

Ordinarily, there is no reciprocal right to attorney fees, in favor of the insurer and against the insured, even if the insured fails to recover a verdict in excess of the amount of a timely offer. The one possible exception to this appears to be court-annexed arbitrations. As a result of ORS 36.425(4)(a), if the insured requests a trial de novo following an arbitration and the insured’s position is not improved after judgment on the trial de novo, the insurer should be entitled to attorney fees incurred by the insurer after the filing of the arbitration decision and award. Keep in mind that, to date, this statute has not been applied in any appellate cases to reach such a result. This is, however, what should be the result of direct application of clear statutory language. In other words, if an insured is dissatisfied with a court-annexed arbitration award, takes an appeal to a jury trial, and does not improve upon the arbitration award at trial, the insurer should be entitled to attorney fees, costs and disbursements, incurred from the time of the arbitration award through the end of trial. This may cause some insureds to think carefully about whether or not they should file an appeal from an arbitration. This may be the only instance in which an insured will be forced to be fiscally responsible when asserting positions against an insurer. While insureds who do not prevail on their positions in court will always be required to pay “costs and disbursements” to the prevailing insurer, the insured is usually not responsible for the insurer’s attorney fees. We intend to assert ORS 36.425 in any appropriate case, so as to claim attorney fees on behalf of the insurer against the insured.