Oregon Case Law Update: Insurer’s Safe Harbor Letter Insufficient to Express Consent to Binding Arbitration
From the Desk of Joshua P. Hayward: ORS 742.061(1) entitles a first-party plaintiff to attorney fees if the plaintiff’s ultimate recovery exceeds the amount previously tendered by the insurer. However, in the context of UM/UIM claims, ORS 742.061(3) provides that the insurers can protect themselves from exposure to attorney fees by sending the first-party plaintiff a “safe harbor” letter, which accepts coverage and agrees to binding arbitration on liability and damages. Read on to see how courts determine whether a “safe harbor” letter complies with the statutory requirements set out in ORS 742.061(3).
Claims Pointer: In this case arising out of an accident with an uninsured motorist, the Oregon Court of Appeals determined that the insurer’s letter was insufficient to invoke the “safe harbor” protection because the letter merely instructed the plaintiff that he could ask to have his claim be submitted to an arbitrator. This case serves as a reminder of the importance of erring on the side of caution by using a letter that mimics the precise wording set out in ORS 742.061(3).
Lizama v. Allstate Fire and Casualty Ins. Co., 292 Or App 611 (2018)
Plaintiff Luis Munoz Lizama (“Plaintiff”) was injured in a car accident with an uninsured driver. Following the accident, Plaintiff sought UM/UIM from his insurer, Allstate Fire and Casualty Insurance Company (“Allstate”). In response, Allstate sent Plaintiff a safe harbor letter, which included the following paragraph:
Once we have sufficient information that supports your client’s claim, we will make every attempt to reach a fair agreement on the amount of Uninsured or Underinsured Motorist benefits due under the policy. If for some reason we are not able to reach an agreement on the amount due, your client may request that [defendant] submit the claim to a third-party arbitrator who can determine the amount of benefits to which your client is entitled. Keep in mind that the arbitrator’s decision is final and cannot be disputed or appealed.
(emphasis in original). Allstate and Plaintiff could not agree on the amount of UM benefits due and Plaintiff filed suit. The trial court transferred the case to arbitration, where Plaintiff was awarded damages and attorney fees. After arbitration, the parties were able to settle with respect to damages, and the only remaining issue for the trial court was Plaintiff’s request for attorney fees. Allstate moved for summary judgment on the basis that its safe harbor letter prevented Plaintiff from being entitled to attorney fees. The trial court agreed with Allstate and dismissed Plaintiff’s claim for attorney fees. Plaintiff appealed.
The Oregon Court of Appeals looked to ORS 742.061(1), which entitles first-party plaintiffs to attorney fees if (a) settlement is not made within six months form the date proof of loss is filed with an insurer and (b) the amount the plaintiff recovers exceeds the amount tendered by the insurer. The court also looked to ORS 742.061(3), which provides the “safe harbor” exception, and states that:
Subsection (1) of this section does not apply to actions to recover uninsured or underinsured motorist benefits if, in writing, not later than six months from the date proof of loss is filed with the insurer:
(a) The insurer has accepted coverage and the only issues are the liability of the uninsured or underinsured motorist and the damages due the insured; and
(b) The insurer has consented to submit the case to binding arbitration.
(emphasis added). The court stated that whether the letter satisfies the statutory requirements in ORS 742.061(3) was a legal question.
Plaintiff argued that the Allstate’s letter did not comply with subsection (b), as it did not show that Allstate consented to submit the case to binding arbitration. Specifically, Plaintiff argued that Allstate’s letter was “nothing more than an invitation to Plaintiff to ask for arbitration.” The court agreed with Plaintiff. The court looked to the plain meaning of the term “request,” as used in Allstate’s letter, and noted that the language used by Allstate merely informed Plaintiff that he could ask for his claim to be submitted to arbitration. The court pointed out that in contrast, “consent” was defined as “to accept” or “agree.” According to the court, nothing in Allstate’s letter obligated Allstate to agree to Plaintiff’s request for binding arbitration.
Allstate responded by arguing that its letter substantially complied with the statutory requirements set out in ORS 742.061(3). Allstate argued that both the Oregon Court of Appeals and the Supreme Court previously ruled that a safe harbor letter does not need to “mimic the precise words of the statute.” The court agreed with Allstate, but noted that such principle could not save Allstate’s letter. For example, in Zimmerman v. Allstate Property and Casualty Ins., 354 Or 271 (2013), instead of using the term “consent,” the insurer’s letter provided that the insurer was “willing” to submit to binding arbitration. In that case, the Oregon Supreme Court determined that while the letter did not “track the exact wording of the statute,” the letter complied with the statute as it “adequately expressed” the insurer’s consent to binding arbitration. The Court of Appeals noted that in contrast to Zimmerman, Allstate’s letter did not convey any willingness to arbitrate the case. Accordingly, the Court of Appeals found that Allstate’s letter did not satisfy the requirements of ORS 742.061(3) and reversed the trial court’s decision.
View full opinion at: https://cdm17027.contentdm.oclc.org/digital/pdf.js/web/viewer.html?file=/digital/api/collection/p17027coll5/id/15278/download#page=1&zoom=auto
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