Claiming an Incorrect PIP Offset Does Not Bring a UM Insurer Out of ORS 742.061(3) “Safe Harbor”

From the Desk of Cliff Wilson: 

Oregon Courts will deny a claim for attorney fees under ORS 742.061 in UM/UIM claims if the insurer timely accepts coverage and consents to binding arbitration on the issues of liability and the amount of damages due. Insurers can, however, leave this so called “Safe Harbor” from attorney fees if they do something or argue something that is outside of the issues of liability and the amount of damages due. In this case, the Oregon Court of Appeals found that an insurer that asserted an incorrect PIP offset following binding arbitration of a UM claim did not leave the protection of the Safe Harbor and upheld the trial court’s decision denying the insured’s request for attorney fees.  

Claims Pointer:

The Oregon Court of Appeals examined a situation where Plaintiff alleged that Defendant’s insurer left the ORS 742.061 “Safe Harbor” when Defendant insurer incorrectly applied PIP benefits offset to its UM policy limit rather than the total amount of damages awarded at arbitration. The Court of Appeals held that because the issue of a PIP offset was related to the amount of damages due the insured, arguing it, even incorrectly, did not constitute sailing out of the statutory safe harbor protections, such that Plaintiff could pursue an award of attorney fees against Defendant’s insurer.

McNeil v.GEICO Casualty Company, Inc., 319 Or App 458 (2022).

Facts:

Plaintiff was injured in a motor vehicle accident with an uninsured driver. She made a claim against her automobile insurer, Geico, for $50,000, the total amount of her UM coverage limit. Geico timely sent Plaintiff a safe harbor letter, pursuant to ORS 742.061(3), which accepted coverage, consented to binding arbitration, and left open for resolving the issues of the liability of the uninsured driver and the amount of Plaintiff’s damages. At the arbitration, Plaintiff was awarded $100,274.73, which was more than the amount of her UM policy limit.

Geico had already paid Plaintiff $15,000 in PIP benefits from the accident. After arbitration, Geico asserted that it was entitled to offset the payment of PIP benefits against the UM policy limits. Thus, Geico paid Plaintiff $35,000 of the arbitration award. Plaintiff challenged that reduction, correctly arguing that any reduction for PIP benefits should come off of the total amount of the awarded damages, not the amount of the UM policy. Geico ultimately agreed with Plaintiff and acknowledged that the PIP benefit offset applied to the amount of the arbitration award and not the amount of policy limits. Defendant then told Plaintiff it would pay her the remaining $15,000.

Before Geico made that payment, Plaintiff filed suit against Geico alleging that she was entitled to attorney fees under ORS 742.061.  Geico moved to dismiss for failure to state a claim, arguing that it was protected from having to pay attorney fees because it had availed itself to ORS 732.062(3)’s “Safe Harbor” the trial court granted Geico’s motion. Plaintiff then amended her complaint, alleging breach of contract and a statutory violation claim. In the breach of contract claim, Plaintiff alleged that under the insurance contract, UM claims could be resolved through arbitration on issues of liability or damage amount, but could not be used to resolve disputes of contract interpretation or to recover attorney fees. In the statutory violation claim, Plaintiff alleged that Defendant violated its obligations under ORS 742.061(3) by failing to disclose that it would argue the PIP benefits should be deducted from the UM policy limits. Plaintiff alleged that by doing so, Geico had “sailed out” of the protections of the statutory Safe Harbor, and that she should be awarded her attorney fees. The trial court disagreed and granted Geico’s motion. Plaintiff appealed.  

Law:

In Oregon, prevailing plaintiffs in insurance policy actions are generally entitled to attorney fees.  ORS 742.061(1). However, the safe harbor provisions of the statute provide an exception that allows the insurer to avoid paying attorney fees if, within 180 days of proof of loss “[t]he insurer has accepted coverage and the only issues are the liability of the uninsured or underinsured motorist and the damages due the insured” and “[t]he insurer has consented to submit the case to binding arbitration.”  ORS 742.061(3).  Under current Oregon caselaw, if an insurer attempts to expand the scope of the arbitration to include anything other than the liability and the amount of damages due to the insured, it runs the risk of “sailing out” of the protection from attorney fees.

In Oregon, insurers can take an offset of PIP benefits they have previously paid a UM insured, but that offset should be taken from the amount of the claimant’s damages, not the amount of the UM coverage limit.  

Analysis:  

The main issue on appeal in this case was whether Defendant’s insurer left the statutory safe harbor when it incorrectly asserted that the PIP offset should be applied against the UM policy limits. Plaintiff argued that by applying the PIP offset to the UM policy limits, the insurer raised an issue of coverage (as opposed to the amount of damages due), in violation of ORS 742.061(3). Geico argued that the issue of how to apply the PIP offset was part of determining the amount of damages owed to Plaintiff, is within the scope of the safe harbor.

In upholding the trial court’s determination in favor of the insurer, the Oregon Court of Appeals turned to the PIP benefits offset statute and reasoned that the issue of the application of a PIP offset is an issue of “the damages due the insured” and not an issue of policy coverage. Accordingly, the insurer’s incorrect reduction application of the PIP offset did not change the nature of the issue, and by doing it, the insurer did not inject an issue into the case other than an issue relating to the damages due to Plaintiff. The Court of Appeals held that Defendant did not leave the ORS 742.061 safe harbor and, therefore, could not make a claim for attorney fees.

The Big Picture:

Safe Harbor protections are integral to the defense of UM/UIM claims and should not be taken lightly. An insurer must not only properly initiate Safe Harbor protections when defending against UM/UIM claims, but continually ensure that it remains within the bounds of the Safe Harbor by inadvertently injecting an issue outside of the scope of arbitration. Although an issue regarding coverage could take an insurer out of the protections of the ORS 742.061(3) so-called “Safe Harbor,” issues relating to the amount of damages due, including a dispute about the application of a PIP offset will not.