In an action based on an uninsured/underinsured (UM/UIM) motorist policy, does a “safe harbor” letter sent by the insurance company guarantee that some amount of damages must be awarded to its insured? Find out in this week’s case update.
Claims Pointer: According to the Oregon Court of Appeals, the Oregon UM/UIM safe harbor statute specifically contemplates an insurer’s ability to dispute the amount of damages owed to an insured. Thus, unlike a PIP claim, an insurer will continue to be within the scope of the safe harbor even if its challenge to the nature and extent of damages to an insured may result in zero recovery to the insured in his UM/UIM action.
Spearman v. Progressive Classic Ins. Co., 276 Or App 114 (January 27, 2016).
Alex Spearman (“Spearman”) was injured in a collision with an uninsured motorist and submitted a claim for UM benefits to his insurer, Progressive Classic Insurance Company (“Progressive”). Spearman filed the present action after the parties were unable to resolve the UM claim. His complaint sought recovery only for “unreimbursed” accident-related medical expenses, or expenses not already reimbursed under other coverage. Progressive admitted that Spearman sustained some injury in the collision, but disputed the nature and extent of Spearman’s injuries as well as the reasonableness and necessity of his accident-related medical expenses. The case was transferred to arbitration as the claim was under $50,000. The arbitrator found that Spearman was entitled to $6,022.80 under the UM policy and denied Spearman’s petition for attorney fees. The trial court upheld the arbitrator’s denial of attorney fees. Spearman appealed to the Oregon Court of Appeals alleging error in the denial of fees.
The Oregon Court of Appeals agreed with the trial court, concluding that Spearman was not entitled to attorney fees as Progressive’s pleadings disputed only the amount of Spearman’s damages and, therefore, were within the scope of the uninsured/underinsured (UM/UIM) safe harbor. In its analysis, the Court provided an overview of the relevant statutes for actions based on an insurance policy. ORS 742.061(1) provides that the insured is entitled to recover an award of reasonable attorney fees where a settlement of an insurance claim is not timely made and the claimant’s recovery exceeds the amount of any tender made by the insurer. ORS 742.061(3) provides a “safe harbor” from the insurer’s obligation to pay attorney fees. This safe harbor applies in actions to recover UM/UIM benefits if the insurer provides timely written notice of its acceptance of coverage and the only issues in dispute are the liability of the uninsured or underinsured motorist and the damages due to the insured. The writing must also provide that the insurer consents to submit the case to binding arbitration. Progressive sent the timely written notice described in the safe harbor statute. The only question posed to the court was whether Progressive lost the protection of the safe harbor letter by challenging the extent of Spearman’s injuries.
According to Spearman, Progressive raised issues beyond the scope of the UM/UIM safe harbor by suggesting Spearman had no unreimbursed accident-related medical expenses. This position would permit a finder of fact to determine that Spearman was not entitled to any award in the UM action. Spearman urged the Court to regard the scope of issues raised under the UM/UIM safe harbor to be equivalent to the scope of issues raised under the PIP safe harbor; a scope the Oregon Supreme Court previously said precludes disputes that could result in the insured recovering no benefits. The Court rejected these arguments, indicating that Progressive’s allegations disputed only the amount of damages owed to Spearman, which the UM/UIM safe harbor specifically permits. The Court’s determination that Progressive was within the scope of the safe harbor provision was not altered by the possibility that Progressive’s pleadings could permit a finding that Spearman was entitled to zero dollars. The dispute, on its face, was a dispute regarding the damages owed Spearman, which the safe harbor plainly contemplates.
In its analysis, the Court also refuted Spearman’s argument that the scope of the PIP safe harbor is the same or similar to the scope of the UM/UIM safe harbor. Rather, the two safe harbors have textual differences. Unlike the PIP safe harbor, in actions to recover UM/UIM benefits, an insurer is able to challenge the amount of damages owed to an insured, even if the result is no recovery to the insured. The Court also disavowed its previous suggestion that “damages due to the insured” in the UM/UIM safe harbor has the same scope as “amount of benefits due to the insured” in the PIP safe harbor. According to the Court, “benefits” and “damages” do not have the same meaning. The Court concluded that the issues within the UM/UIM safe harbor include liability and damages that an insured would need to establish against the uninsured/underinsured motorist. Accordingly, for the attorney fee exemption to apply, the insurer is not required to guarantee payment of some amount to the insured.
The concurring opinion agreed with the Court’s holding that an insurer in a UM/UIM claim may dispute, as a factual matter, a claimant’s damages and still be within the scope of the safe harbor. The cause or extent of damages is a permissible dispute within the statute’s scope. However, the concurring opinion disagreed with the Court’s analysis which leaves insurers uncertain as to how to respond to a claim, and could wrongly impose attorney fees on an insurer.
The Court of Appeals affirmed the ruling of the trial court.
Case updates are intended to inform our clients and others about legal matters of current interest. They are not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.