August 2011
Recently, the Oregon Court of Appeals, in Hall v. Speer, ruled than a claimant injured in an automobile accident provided her insurance company “proof of loss” for an underinsured motorist (“UIM”) claim even though the insurance company did not yet know the at-fault driver’s liability limits. As a result, the Court of Appeals awarded the claimant attorney fees under ORS 742.061 because the insurance company did not accept coverage and consent to binding arbitration within six months of the proof of loss. This holding is likely to result in an increased number of claims against insurers for attorney fees in UIM cases.
ORS 742.061 provides that if an insured provides its insurer with a proof of loss and settlement is not reached within six months—and the insured’s recovery exceeds the tender—the insurer is liable for the insured’s attorney fees. However, there is a “safe harbor” provision, where an insurer can avoid exposure for fees by accepting coverage and agreeing to binding arbitration to resolve the claim within six months of receiving the proof of loss.
In Hall, the insurer waited more than a year and a half after learning of the claimant’s injuries before sending a “safe harbor letter” accepting coverage. The claimant had submitted an application for Personal Injury Protection (“PIP”) benefits, but not UIM benefits, and was examined by an orthopedist to evaluate her injuries at the insurer’s request. The insurer argued that these circumstances did not constitute a proof of loss—and that its delay in accepting coverage was therefore reasonable—because it did not know the liability limits of the at-fault driver. Without that information, the insurer argued, it could not estimate whether the claimant’s damages would exceed the at-fault driver’s coverage limits. The Court of Appeals disagreed, finding that the information the claimant provided gave the insurer an “adequate opportunity for investigation” of its potential obligations. The Court mentioned that, had the insurer attempted to investigate the underlying liability limits, there might have been a basis for the insurer’s delay. However, because that did not happen, the Court ruled against the insurer.
This decision puts insurers in a precarious position in dealing with possible UIM claims. In effect, once the insured applies for benefits and the insurer is aware of the extent of the injuries, Hall places the duty on the insurer to investigate the underlying liability limits to determine whether the insured’s damages may exceed available coverage. Insurers who have not been following this practice can likely expect an increased number of claims for attorney fees under ORS 742.061.
