Oregon Case Update: UM/UIM Insurer May Dispute Damages without Losing Safe Harbor
Oregon law provides for attorneys’ fees in PIP and UM/UIM claims if the insurer does not settle with its insured and the insured sues in court and recovers more than the insurer’s best offer. However, the insurer can avoid an attorneys’ fee award by sending a “safe harbor” letter accepting coverage and agreeing to binding arbitration on a limited set of issues. But where a UM/UIM insurer raises issues that could result in the insured receiving zero damages, do they lose the protections of the safe harbor? Read on to learn more.
Claims Pointer: In this case arising out of a UM dispute, the Oregon Supreme Court held that the UM/UIM insurer did not lose the safe harbor protections when it disputed the reasonableness and necessity of the insured’s damages because it did not raise issues beyond the damages due the insured. The case conclusively establishes the scope of the UM/UIM safe harbor, an important consideration for insurers and their attorneys alike.
Spearman v. Progressive Classic Insurance Company, 361 Or 584 (June 22, 2017)
After Alex Spearman (“Spearman”) was injured in a car accident with an uninsured motorist, he filed a proof of loss for UM benefits with his insurer, Progressive Classic Insurance Company (“Progressive”). Progressive responded with a letter accepting coverage and stating that the only remaining issues to be decided were liability of the uninsured motorist and damages due to Spearman. Progressive also consented to binding arbitration in the letter. Progressive paid some benefits, but the parties disputed the extent of the insurer’s UM liability. Spearman sued Progressive, alleging that he was stopped in traffic when the uninsured motorist struck him, and that he incurred medical expenses as a result of the accident that should have been reimbursed under his UM coverage. Progressive responded by admitting that the accident occurred, but it also stated that it did not know whether Spearman was stopped in traffic at the time of impact. Progressive also admitted that Spearman was injured as a result of the accident, but it disputed the nature and extent of Spearman’s injuries and the reasonableness and necessity of his medical expenses. Spearman then served Progressive with a request for admissions, and Progressive again disputed the nature and extent of the injury and denied the “reasonableness, necessity, relatedness, and extent” of Spearman’s claimed economic damages.
Because the claim was under $50,000, the case was subject to mandatory non-binding arbitration. At arbitration, the arbitrator awarded Spearman $6,022.80 under the UM provisions of the policy. Spearman requested attorney fees under ORS 742.061(1), an Oregon statute that provides for an award of attorney fees in certain claims if: (1) settlement is not made within six months from the date proof of loss is filed with an insurer, (2) an action is brought in court, and (3) the plaintiff’s recovery exceeds the insurer’s best settlement offer. Progressive asserted that it was entitled to safe harbor under ORS 742.061(3), which states that the attorney fee provision does not apply if: (1) a UM/UIM insurer accepts coverage in writing within six months of the date proof of loss is filed, (2) the insurer consents to binding arbitration, and (3) the only remaining issues are the liability of the uninsured motorist and the damages due the insured. The arbitrator agreed with Progressive and denied the fee request. Spearman challenged the arbitrator’s decision in circuit court, but the court also denied the fee request. Spearman appealed to the Oregon Court of Appeals, which affirmed the prior rulings. (See our prior case update here.) Spearman appealed again to the Oregon Supreme Court.
On appeal, Spearman argued that because Progressive had raised issues that could have resulted in an award of zero damages, it had raised issues beyond the scope of “damages due the insured” and thus it was not entitled to the safe harbor of ORS 742.061(3). Progressive contended that it had satisfied the safe harbor requirements because it had: (1) accepted coverage, (2) agreed to arbitration, and (3) challenged only the damages due Spearman.
The Supreme Court began its analysis by analyzing the statutory language and reviewing the legislative history of the statute. The Court noted that the statute provides two different safe harbors, one for claims for PIP benefits, and one for claims for UM and UIM benefits. To claim the benefit of either safe harbor, insurers must accept coverage and be willing to engage in binding arbitration on a limited set of issues. The Court also pointed out that the purpose of the PIP statues is to quickly provide reimbursement for some out-of-pocket costs resulting from motor vehicle accidents without regard to fault, while the purpose of the UM/UIM statutes is to place the insured in the same position he or she would have been in had the at-fault driver had sufficient liability insurance. To this end, the UM/UIM coverage looks to the fault of the uninsured or underinsured motorist.
In light of these differences, it was significant for the Court that the legislature phrased differently the issues that may be submitted to arbitration for PIP claims versus UM/UIM claims. Because PIP is a no-fault type of insurance coverage, the insurer may only dispute “the amount of benefits due the insured” to enjoy the statute’s safe harbor from attorney fees. In UM/UIM claims, however, the fault of the uninsured or underinsured motorist is considered, and the insurer may dispute the liability of the uninsured or underinsured motorist and “the damages due the insured.” Importantly, the Court determined that nothing in the UM/UIM provision suggests that “damages due the insured” must be some amount above zero. Because the provision contemplates the liability of the uninsured or underinsured motorist, the amount that an insured is legally entitled to recover from that motorist will be zero in some cases, because that motorist was not liable to begin with.
Returning to the facts of this case, the Supreme Court noted that in response to Spearman’s proof of loss for UM benefits, Progressive sent a letter to Spearman that fully complied with the safe harbor requirements: it stated that Progressive accepted coverage and agreed to binding arbitration, reserving only the issues of liability of the uninsured motorist and damages due to Spearman. Progressive was permitted to dispute the nature and extent of Spearman’s alleged injuries and the reasonableness and necessity of some of Spearman’s accident-related medical expenses without losing the protection of the safe harbor. As the Court explained, even if Progressive were to show that it owed Spearman nothing in UM benefits, that did not mean that Progressive raised issues beyond the “damages due the insured.” Because Progressive’s letter fell within the safe harbor, Progressive was not subject to the attorney fee provision of ORS 742.061(1). The trial court correctly denied Spearman attorney fees.
Case updates are intended to inform our clients and others about legal matters of current interest. They are not intended as legal advice. Readers should not act upon the information contained in this article without seeking professional counsel.