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LONG v. FARMERS INS. CO. – Clarifying the Rules Concerning Attorney Fees in Insurance Cases and Eliminating Gamesmanship

By: Rick Lee

On February 2, 2017, Oregon’s Supreme Court decided Long v. Farmers Ins. Co., 360 Or 791 (2017), concerning an insured’s right to attorney fees under ORS 742.061. The court made three holdings:

  • A “recovery” under ORS 742.016 need not be a money judgment, it need only be the payment of benefits provided by the policy.
  • Following an initial claim for actual cash value (ACV) under a property policy, a claim for replacement cost (RCV) is a new proof of loss, which starts a new six-month period of time for an insurer to make payment.
  • An insurer’s payment of benefits, even if made more than six months after the insured files a proof of loss, acts to cut off attorney fees incurred after the date of payment – provided that the insured does not recover, at trial, more than what the insurer paid.

The first holding departed from Court of Appeals precedent; it did not really depart from the practical reality of insurance practice. The second holding applied existing precedent involving Personal Injury Protection (PIP) claims and underinsured (UIM) and uninsured (UM) motorists claims to a different type of policy, a property policy. The third holding departed from existing precedent and has provided insurers with a new avenue to limit its exposure to fees. Combined, these three holdings have the potential to eliminate the gamesmanship that has stood in the way of resolving claims. The balance of this article explores the holdings in Long v. Farmers, compares the holdings to previous practice, explains how the holdings may eliminate some of the gamesmanship that had been rife in insurance claims, and concludes by offering some suggestions for insurers to limit fee exposure – for the mere price of paying benefits owed.

1. The insured’s right to attorney fees is set by statute. ORS 742.061 provides, in relevant part, as follows:

742.061 Recovery of attorney fees in action on policy or contractor’s bond. (1) Except as otherwise provided in subsections (2) and (3) of this section, if settlement is not made within six months from the date proof of loss is filed with an insurer and an action is brought in any court of this state upon any policy of insurance of any kind or nature, and the plaintiff’s recovery exceeds the amount of any tender made by the defendant in such action, a reasonable amount to be fixed by the court as attorney fees shall be taxed as part of the costs of the action and any appeal thereon.

Under this statute, the insured is entitled to attorney fees if the amount recovered exceeds the amount of any timely tender, which is six months from the date of the proof of loss. Dockins v. State Farm Ins. Co., 329 Or 20 (1999).

2. Long v. Farmers Ins. Co. makes three key rulings.

a. The facts of Long are critical to understanding the holdings and the implications of the holdings.

On December 10, 2011, the insured found a leak which had caused extensive damage to her home and promptly notified the insurer. On January 17, 2012, the insurer paid the insured what it determined to be the ACV of the loss, less the deductible, and other covered expenses.

On January 17 and 31, 2012, the insured submitted proofs of loss that far exceeded what the insurer had paid. The insured had not replaced or rebuilt anything yet; she had not submitted a proof of loss that included the RCV of her losses.

A year passed by without resolution. The insured filed suit in January 2013. She sought monetary damages and also demanded that the insurer submit to an appraisal process as previously demanded. In its answer, the insurer admitted that the insured is entitled to appraisal. The court ordered the parties to appraisal. After the appraisal, in July and August, 2013, the insurer paid the sum the appraisers had assigned to the loss.

Six months later, in February 2014, and less than a week before trial, the insured submitted a proof of loss for the RCV of her damaged property. Three days later, the insurer paid what it believed to be the RCV. The next day, trial started. The jury did not award the insured more than what the insurer has already paid. As a result, the judgment was in the insurer’s favor. The court denied the insured’s petition for attorney fees and the Court of Appeals affirmed without opinion.

b. The court holds that the insurer obtained a recovery entitling her to obtain attorney fees.

To obtain fees under ORS 742.061, the insured must obtain a recovery that exceeds the amount of any timely tender. The court held that an insured does not need to obtain a money judgment in order to have a recovery. The insured obtains a “recovery” within the meaning of ORS 742.061 whenever the insured obtains the payment of benefits that exceeds the amount of the timely tender.

The court gave the word recovery a functional meaning based upon the purpose of the statute. The purpose of the statute was to avoid a situation where an insurer contests its obligation to pay benefits with “such persistence and vigor that the benefit of an insurance policy is either largely diminished or entirely lost.” Id. at 801, quoting Dolan v. Continental Casualty Co., 133 Or 252, 255-256, 289 P. 1057 (1930). Here, it appears that the insurer had resisted the appraisal and the filing of the lawsuit obtained the appraisal.

Although the Long court did not mention the case, Long effectively overruled Triangle Holdings, II v. Stewart Title Guaranty, 266 Or App 531 (2014). In Triangle Holdings, the insured paid two liens and demanded reimbursement from the title insurer. The insurer agreed to pay the two liens and told the insured it had ordered the checks on June 20, 2011. The next day the insured filed suit. Almost a year later, the title insurer paid the two liens. The title insurer then moved for summary judgment, asserting the claim was moot. The court granted the motion. The insured then sought fees and the trial court denied the fee petition. The Triangle Holdings court affirmed, holding that the insured must obtain a monetary judgment.

The Supreme Court accepted the insured’s petition for review, Triangle Holdings, II v. Stewart Title Guaranty, 357 Or 164 (2015), but the parties then settled the case and the court dismissed the review. Triangle Holdings, II v. Stewart Title Guaranty, 357 Or 325 (2015). In light of this history of Triangle Holdings, the result in Long may have come as no surprise.

Under Triangle Holdings, an insurer could deny a claim, force the insured to file suit, drag that litigation out as long as possible, and then if things started to look bad, fork over the amount of the claim the day before trial, avoiding fees.

But Triangle Holdings provided little practical effect in the real world. In response to arguments raised by the insured, the Triangle Holdings court said that the insured could have avoided the result depriving it of fees by rejecting the offer and negotiating further. Id. at 540. It suggested that the insured could have insisted on an amount that included fees, or insisted on a stipulated judgment. Id.

In light of Triangle Holdings, any attorney representing an insured could not, consistent with due care, allow his client to simply accept a check from the insurer, because that might destroy his client’s ability to get his fees reimbursed. So, pursuant to these additional comments in Triangle Holdings, an insurer couldn’t pay money it thought was owing, because the insured wouldn’t accept it until the attorney fee issued was resolved. As a result, the insured had to wait to get money until the attorney fee claim resolved. Attorney fees drove the case and prolonged litigation, even when the parties would probably have been able to resolve the basic claim.

The Long decision solved that problem and eliminated gamesmanship on both ends. Now an insurer can’t string things out and pay money at the last minute and avoid fees. And the attorney fee disputes could no longer serve as an impediment to an insurer paying what it thinks might be due and the insured accepting that money.

c. The insurer’s payment of money cut off further entitlement to fees when the insured did not recover more than the payment.

After the court held that the insured was entitled to some fees, it ruled that the insured was not entitled to recover any fees after the August 2013 payment, because she did not recover any additional amounts – putting aside the replacement cost payment, which was timely. As a result, even though the insurer did not make a timely payment within the six-month window allowed by ORS 742.061, it was allowed to cut-off further entitlement to fees by making the untimely payment.

This part of the decision is somewhat surprising. A series of cases from the Court of Appeals suggested that once the insurer failed to make a timely payment within the six-month window provided by ORS 742.061, nothing could be done to cut off further entitlement to fees:

  • Petersen v. Farmers Ins. Co., 162 Or App 462 (1999). There, the insurer offered to settle more than six months after the filing of the proof of loss. The court ruled that the recovery of a verdict entitled the insured to recover attorney fees, even though the recovery was less than the offer.
  • Wilson v. Tri-Met; 234 Or App 615 (2010). There, the insurer made an offer of judgment, which the insured did not “beat” at trial. The court held that the offer of judgment did not cut off further fees under ORS 742.061. Only a tender made within six months could cut off fees.
  • Jones v. Nava, 264 Or App 235 (2014). There the insurer did not make any offer within six months of the proof of loss. After six months, but before the lawsuit was filed, the insurer offered $6,000. The end result, after an arbitration and a trial de novo, was an award less than $6,000. The insured was entitled to fees. The fact that no offer was made within six months was determinative, not that an offer was made before the case was filed.

Under the line of cases cited above, attorney fees ended up driving the case. An insured could reject reasonable offers and hold out for a higher sum, because it knew that there was going to be an ongoing, and increasing, entitlement to fees. Insureds were deprived of the receipt of money and insurers were held hostage to the events of the past.

Long provides the parties an opportunity to resolve, completely or partially, the claim for benefits. While the insurer can potentially resolve the case by paying money, it will be obliged to pay the fees that are owing at that date, ensuring that the insured is made whole. But if the insured doesn’t get more than the payment, it receives no further fees. There is no longer an incentive to keep litigating, which didn’t necessarily help clients.

But the method Long provides to cut-off an insured’s further entitlement to fees poses risks for the insurer. In the series of cases from the Court of Appeals cited above, the insurers did not pay money. They only offered to do so if the insureds accepted the money as sufficient. When the insurer simply pays money, the insured is not required to acknowledge that the payment satisfies the claim. The insured can proceed and attempt to recover more, so there is risk of further payment both on the claim and for fees. And there is another risk as well. Perhaps the jury may have decided, or in some circumstances does decide, that the claim is actually less than what the insurer paid. In that case, the insurer does not get its money back.

d. The insured’s RCV claim was a new proof of loss, which started a new six-month period under ORS 742.061.

Long held that the insured’s proof of loss for RCV coverage started a new six-month period running under ORS 742.061. Thus, while the insurer’s payments for RCV may have been a recovery, the payments were within the six-month window under ORS 742.061 and were timely. There was no basis to award fees for obtaining that recovery.

Before Long, Dockins v. State Farm Ins. Co., 329 Or 20 (1999), held that a proof of loss sufficient to start the six-month period running is made if there is any event or submission that would permit an insurer to estimate its obligations, taking into account the insurer’s obligation to investigate and clarify uncertain claims. This seemed to be a very broad standard and many insurers were resigned to the argument that virtually any notice would be sufficient for any coverage under the policy, which glosses over the realities of different coverages within a single policy.

Nonetheless, the courts had recognized that there were different coverages available and that a proof of loss under one would be insufficient under others. In the context of motor vehicle liability policies, an application for PIP benefits, without mention of the tortfeasor’s insurance or a UIM claim was an insufficient proof of loss concerning an UIM claim. Zimmerman v. Allstate Property Casualty Ins., 354 Or 271 (2013) and Hall v. Speer, 267 Or App 639 (2014). Long recognizes these types of distinctions in the property insurance arena.

Maintaining and recognizing the differences in coverages allow insureds and insurers to process the different types of claims separately without regard for fee disputes under other coverages. The parties are given more opportunities to get parts of claims resolved, without the threat of attorney fees. It allows the parties to focus their energies on the actual disputed coverage.

3. Tips for avoiding fees.

A. The best way to avoid fees is still the same. The insurer should promptly evaluate the claim and make a tender within six months. If the insurer makes no tender and the insured files suit and obtains anything, the insurer is going to pay some fees.

B. The insurer should not hold back; it should make its best tender within six months. That sets a higher bar for the insured to clear to recover fees.

C. If the insurer recognizes, after six months and while the lawsuit is pending, that it owes a higher sum, it should pay it. The insurer will still remain liable for fees through that date, but it resets the bar that the insured must clear in order to recover additional fees even higher. This might eliminate fees from that date forward. Because it might cut off further entitlement to fees, any additional tender should be made as soon as the insurer recognizes that it owes the money.

D. If the insured makes a claim under a new coverage part, go back to the beginning. Promptly evaluate the claim and make a tender within six months. Don’t hold back on that initial tender. And if during the course of the case the insurer recognizes more is owing, pay it without delay.