Oregon Court of Appeals determines whether an insurance company can allege comparative fault in a UIM claim and still enjoy the protection of its safe harbor letter.

From the desk of Joshua P. Hayward: To avoid attorney’s fees in a UIM case, an insurer must agree to binding arbitration and limit the issues to the liability of the uninsured/underinsured motorist and damages. If a proper safe harbor letter is sent, can an insurer allege that its own insured was at fault for causing the collision without injecting an impermissible issue into the litigation? Read on to find out.

Case Pointer: ORS 742.061 allows an insured to recover attorney fees in actions brought against their own insurer for benefits in certain situations. If settlement is not made within six months from the date an insured files their proof of loss and the insured’s recovery exceeds the amount previously tendered, the insured is typically entitled to attorney fees. The statute contains two “safe harbor” provisions, which if complied with, insulates the insurer from attorney fee exposure. In the UIM context, the insurer must accept coverage and agree to resolve the dispute through binding arbitration limited to the liability of the uninsured motorist and damages only. In this case, Plaintiff argued that he was entitled to attorney fees, despite the fact that his insurer sent a proper safe harbor letter, because the insurer raised the issue of comparative fault. The Oregon Court of Appeals disagreed. The potential comparative fault of the insured is relevant to the liability analysis of the uninsured motorist’s fault and is therefore an issue that can be litigated without running afoul of ORS 742.061’s safe harbor provisions.

Berger v. Safeco Ins. Co., 305 Ore. App. 380 (July 8, 2020).

In August of 2013, Plaintiff was operating his vehicle in a parking lot when he was struck by an underinsured motorist. Plaintiff submitted a UIM claim to Safeco, his insurer, requesting benefits. Defendant responded shortly thereafter in October of 2013 with a letter consenting to binding arbitration limited to the liability of the UIM driver and the damages due to Plaintiff. Under the applicable language of ORS 742.061, this correspondence constituted a valid safe harbor letter. The statute mandates that to comply, an insurer must accept coverage and consent to binding arbitration limited to the issues of (1) the liability of the underinsured motorist and (2) the damages due to the insured. ORS 742.061(3)(a)-(b).

Plaintiff filed suit instead of resolving the matter through arbitration. In a trial memorandum, Defendant stated that it would dispute that Plaintiff was without fault for the underlying collision. Plaintiff ultimately won at trial and submitted a judgment for nearly $32,000 in attorney fees pursuant to ORS 742.061(1). Defendant objected on the grounds that its October 2013 letter had properly invoked the statute’s safe harbor provisions and argued that it did not go beyond the scope of permissible issues at any point in the litigation. The trial court rejected Defendant’s argument and awarded Plaintiff his requested attorney fees because the Defendant had raised the issue of comparative fault. Defendant appealed.

On appeal, Defendant argued that its argument regarding comparative fault fell squarely within “the liability of the underinsured motorist,” thereby insulating it from attorney fee exposure. Plaintiff argued that Defendant could not litigate the issue of its own insured’s fault because the statute only allows an insurer to litigate the fault of the underinsured motorist. The central issue was whether determining Plaintiff’s fault was integral to litigating the fault of the underinsured motorist.

The Court first noted that ORS 31.600 reduces any damages owed to a plaintiff by a defendant by the proportion the plaintiff was at fault. In the context of an underinsured motorist’s liability, the extent to which the plaintiff contributed to the accident necessarily is an argument about the degree to which the underinsured motorist was liable. Turning to ORS 742.504, Oregon’s UIM policy requirements, the Court noted that insurers are required to pay for all amounts a plaintiff would have been entitled to recover from the underinsured motorist after determination of fault or comparative fault. It was therefore clear that the legislature had intended for comparative fault to be included in the analysis of an underinsured driver’s obligations to an injured insured. Put another way, a UIM claimant’s comparative fault in causing an accident is an issue squarely within the overarching issue of the underinsured motorist’s liability. Litigating this issue does not therefore raise an impermissible issue and expose the insurer to attorney fees under ORS 742.061(1).

Plaintiff then made a number of alternative arguments, each of which failed. First, Plaintiff pointed to a paragraph in Defendant’s Answer where Defendant did not admit that the underinsured driver was underinsured. Plaintiff also argued that Defendant’s denial that it had given Plaintiff consent to settle in a request for admission meant that Defendant had raised a coverage issue. The Court determined that the mere fact that responsive pleadings referred to matters outside of the scope of a safe harbor letter did not equate to actual litigation of those matters. Simply failing to admit a fact that could potentially implicate coverage issues was not the same as litigating the issues.

Ultimately, the Court of Appeals agreed with Defendant and reversed the trial court’s attorney fee award. A UIM claimant’s comparative fault in an underlying accident is central to the issue of the underinsured motorist’s liability and can therefore be raised in claims for UIM benefits without fear of losing safe harbor protections.