Dwain Clifford | The Policyholder Report | February 8, 2017
Last week, the Oregon Supreme Court made it just a little easier for an insured to recover the attorney fees that it has been forced to spend in compelling an insurer to pay up. In Long v. Farmers Ins. Co. of Oregon, the Supreme Court resolved an old ambiguity about what “recovery” means under the fee-shifting rule in Oregon’s insurance statutes. This decision should put to rest at least one opportunity for gamesmanship by insurers in Oregon.
Under ORS 742.061, an insurer must pay its insured’s attorney fees if the insured’s “recovery” is greater than any offer made by the insurer within six months after the insured submitted a proof of loss. This rule is meant to encourage quick investigations and settlements of coverage claims, an obligation that insurers violate at their peril for dragging their heels or low-balling the insured with take-it-or-leave-it settlement offers. Take longer than six months to make a justifiable offer? Then pay the freight for the insured’s attorney fees in taking the dispute to court.
Long well illustrates how insurers try to game this requirement for a “recovery” by delaying, delaying, delaying, and then paying on the eve of a bad judgment — without paying the insured’s attorney fees. The insured in Long was a homeowner whose leaky sink damaged her home. She discovered the damages in December 2011 and submitted a proof of loss for the “actual cash value” the next month (which “far exceeded the sum that Farmers” had determined and paid). A year later, Farmers had still not paid the claim, so she sued and forced Farmers to submit the claim to appraisers, who determined that Farmer’s initial offer and payment had been far too low. Farmers finally paid this additional liability (for the “actual cash value” part of the claim only) in July and August 2013 — over 18 months since the claim was reported and the proof of loss submitted.
The case went to trial in February 2014. The insured, of course, was no longer seeking a money judgment for the “actual cash value” of the damages because, by that time, Farmers had already paid it. Farmers then convinced the trial court that “recovery” under ORS 742.061 could mean only a money judgment, which led to the court’s decision not to award the insured’s attorney fees because the final judgment — two years later — was not for an amount greater than the low-ball offers made by Farmers within six months of the proof of loss in January 2012.
The Oregon Supreme Court refused to countenance this nonsense. The LongCourt recognized that the purpose of the fee-shifting statute is to “discourage expensive and lengthy litigation.” By the time that Farmers paid the fair “actual cash value” of its insured’s loss in July and August 2013, the insured had already been litigating the case for eight months. The Court interpreted “recovery” in light of this purpose, holding that “mid-litigation payments” choked out of an insurer count as a “recovery” that comes too late for the insurer to avoid paying the insured’s attorney fees:
The statute ensures that, when insureds file suit to obtain what is due to them under their policies, they do not win the battle but lose the war by expending much or all of what they obtained in the litigation on attorney fees.
Careful readers of this blog will remember this post from October 2014, which discusses the Triangle Holdings case, an Oregon Court of Appeals opinion refusing to award attorney fees to the insured because it had accepted “mid-litigation payments” from the insurer that made the coverage dispute “moot.” Under Long, insureds should no longer have to worry about refusing an insurer’s settlement offer just to preserve the right to chase that insurer for the attorney fees that it took to get the offer on the table.
Finally, Long offers a wrinkle about payment that insureds ought to mind carefully. According to the Court, the insured submitted “proof of her replacement costs” just before trial. The Court treated this proof as a second “proof of loss” for the “replacement cost” of the repairs that the insured made, holding that the insured could not recover fees incurred in obtaining this payment. It is unclear when the repairs were made and what “proof” the insured had submitted long before this point, but insureds ought to claim and document all damages as soon as possible to start the six-month clock ticking.