Insurers Are Afforded Safe Harbor Protection From Attorney Fees Even if the Insured Claims that the Insurer’s Failure to Settle was Unreasonable or in Bad Faith

From the desk of Josh Hayward: In UM and UIM claims, attorney fees may be recoverable by the insured. However, there is a statutory safe harbor provision that prevents an insured from being awarded fees if certain criteria are met. Part of the criteria is that the insurer must accept coverage and only contest liability of the uninsured and damages. However, what happens if the insured claims that the insurer acted in bad faith in contesting liability or damages, or in not reaching a settlement? Read on to find out.

Claims Pointer: The insurer cannot be deprived of the statutory safe harbor even if the insured claims that the insurer acted unreasonably, or in bad faith, in contesting liability, damages, or in failing to settle earlier. UM/UIM; Bad Faith; Personal Lines.

Rice v. State Farm Mut. Auto. Ins. Co., 307 Or. App. 238 (October 14, 2020)

FACTS

This case involved an automobile accident, where the plaintiff was injured by an uninsured motorist. The plaintiff then filed proof of loss with her insurer, the defendant. The defendant notified the plaintiff, in writing, within 6 months of receiving the proof of loss, that it was accepting coverage, stating that the only remaining issues to resolve were the uninsured motorist’s liability and damages. Additionally, the defendant consented to binding arbitration.

The defendant and plaintiff engaged in settlement negotiations. The plaintiff demanded the uninsured motorist policy limit of $100,000, and the defendant offered $44,736. The plaintiff requested a higher offer but refused to move off of her demand for the policy limits. Eventually, the defendant sent the plaintiff a check for the uncontested amount of $44,736. The plaintiff then filed suit for the remaining $55,264. The plaintiff alleged breach of contract, and breach of the implied covenant of good faith and fair dealing. Prior to the case going to trial, the defendant agreed to pay the remaining limits of $55,264, leaving the issue of attorney fees to the court.

The plaintiff argued that the defendant did not come within the protection of the statutory safe harbor provision of ORS 742.061(3) because the defendant had breached the covenant of good faith and fair dealing in unreasonably contesting the damages. The defendant argued that it had done everything required to be afforded the protection of the safe harbor. The trial court agreed with the defendant, ruling that the plaintiff was not entitled to recover her attorney fees and the plaintiff appealed.

LAW AND ANALYSIS

ORS 742.061(3) provides that attorney fees are not recoverable in actions for uninsured motorist (“UM”) or underinsured motorist (“UIM”) claims, if, within six months from when proof of loss is filed, the insurer, in writing, consents to binding arbitration and accepts coverage with the only outstanding issues being the uninsured motorist’s liability and damages. The court characterized the plaintiff’s arguments as asking the court to read into the statute a requirement that the disputes about liability and damages had to be reasonable and in good faith. However, the statute does not contain those words; thus, the court refused to infer that the statute contained any such requirements. Even if the plaintiff believed that the issues of liability and damages should not be contested due to the strength of the plaintiff’s claim, the statute only states that the issues of liability and damages may be contested. The statute mentions nothing about the reasonableness of disputing those issues. Therefore, if the only issues the defendant is disputing are liability and damages, the defendant falls within the safe harbor and there is no relevance to the plaintiff’s argument that those issues should not reasonably have been contested.

The court further clarified that it is not suggesting that insurers should act in bad faith or unreasonably when contesting claims of uninsured motorist’s liability or damages. Rather, the narrow question of this case was: whether a trial court needs to make a factual determination as to why the claim was not settled earlier, or if the defendant was reasonable in contesting issues of liability and damages when determining if attorney fees are recoverable. The court of appeals clearly determined that is not an inquiry that the trial court should undertake in this context.

THE BIG PICTURE POINT

Ultimately, the court of appeals determined that when a trial court is deciding if the statutory safe harbor provision, ORS 742.061(3), applies, the only facts the court needs to focus on are if the insurer notified the insured, in writing, within 6 months of proof of loss, that the insurance company consented to binding arbitration, and accepted coverage with the only outstanding issues being the uninsured or under insured motorist’s liability and damages. The statute, as written, does not allow a trial court to deprive the insurer of the protection of the safe harbor from attorney fees, even if an insured claims that the insurer acted unreasonably or in bad faith in contesting liability or damages, or in not reaching a settlement agreement earlier.

Thus, the Oregon Court of Appeals determined that the defendant insurer in this case came within the statutory safe harbor of ORS 742.061(3) and the trial court’s denial of attorney fees was affirmed.