Background

The 1997 legislature legislatively overruled Vega v. Farmers Ins. Co., 323 Or 295,918 P2d 95 (1996) When it enacted Senate Bill 645. 1997 Or Laws 808. As amended in 1997, ORS 742.504(4)(d)(A) requires an injured person to first exhaust the tortfeasor's automobile liability insurance before proceeding against an underinsured motorist policies. The 1997 amendments did not, however, simply restore the pre-Vega world of automobile insurance. The amendments to ORS 742.504(d)(A) and (B) soften the exhaustion requirement.

The exhaustion requirement may be satisfied: (1) when multiple persons are injured and none are able to fully recover under the liability limits; (2) when the liability carrier tenders its limits and the UIM carrier refuses to consent to the liability settlement, so long as the claimant protects the UIM carriers subrogation rights (i.e., timely files suit against the tortfeasor); and (3) when the claimant is willing to accept less than the full liability limits but is willing to give the UIM carrier credit for the full amount of the tortfeasors liability limits, and has either obtained the UIM carrier's consent or protected the UIM carrier's subrogation rights.

The 1997 legislation also amended ORS 742.502(4) to provide that, as in uninsured motorist claims, PIP benefits reduce damages rather than UIM limits.

The 1997 legislation amended the statute of limitations for UM and UIM claims in ORS 742.504(12)(d). The insured has two years to file suit, but the statute is tolled during the pendancy of the case against the uninsured or underinsured motorist.

Arbitration of UM and UIM claims is no longer mandatory. There must be mutual consent between the carrier and its insured after the loss occurs. ORS 742.504(1)(a) & (10). The same rule applies in PIP disputes. ORS 742.520(6).

The 1997 amendments are discussed in detail in HANDLING UNINSURED AND UNDERINSURED MOTORIST CASES: AFTER VEGA AND THE 1997 LEGISLATIVE CHANGES (Oregon CLE 1997).

1999 Legislative Changes

The elimination of mandatory arbitration of UM and UIM claims by the 1997 legislation, resulted in a perceived increase in the number of UM and UIM lawsuits being filed. In response, the insurance industry obtained amendments to ORS 742.061 limiting an insureds rights to attorneys fees in first party cases. Senate Bill 504 immunizes an insurer from liability for attorneys fees in UM , UIM, and PIP claims where it consents to binding arbitration within six months of proof of loss and confirms that there are no coverage disputes. 1999 Or Laws Chap. 790.

The practical effect of the 1999 amendments is that counsel for the insured needs to make proof of loss as early as possible. Proof of loss can be in any form. "The statutory meaning of the term 'proof of loss' encompasses a range of events or submissions, including a complaint that commences an action against the insurer." Dockins v. State Farm Ins. Co., 329 Or 20,27 (1999). A proof of loss is "any event or submission that would permit an insurer to estimate its obligations (taking into account the insurers obligations to investigate and clarify uncertain claims) qualifies as a 'proof of loss' for purposes of the statute." Id. at 29. In UM and UIM claims, simple notice to the carrier is sufficient proof of loss unless the insurer furnishes the insured with a specific form of proof of loss within 15 days of receiving notice of the claim. ORS 742.504(5)(a). Written notice by certified mail is recommended.

Under the 1999 amendments, the insurer must consent to binding arbitration and confirm that there is no dispute about coverage within six months. If it does not timely do so in writing, the insured is entitled to an award of attorneys fees in any subsequent judgment. Where the insurer gives proper written notification within the six month period, the insured has the option of consenting to binding arbitration or proceeding with suit in court. The insured is then not entitled to attorneys fees whether or not the claim is adjudicated by binding arbitration or jury trial.

Other Post 1997 Issues

For the most part, without major questions, the 1997 amendments have worked well. This is, no doubt due to the active involvement of members of OADC and OTLA in crafting the language of the 1997 amendments.

One of the potentially most troublesome areas for the inexperienced practitioner is the requirement that the insured obtain the UIM carrier's consent for a liability settlement or protect the UM/UIM carrier's subrogation rights where the carrier does not consent. The UIM insured should not settle the liability claim without prior written approval of the UIM carrier.

Where the insured has negotiated an acceptable settlement with the liability carrier, counsel for the insured must seek, in writing, the UIM carrier's consent. The insurance company then has 30 days to consent. Consent is presumed if the carrier does not make a decision within 30 days. ORS 742.504(4)(e).

Another potential pitfall for the insured is the failure to protect the UM/UIM carrier's subrogation rights. Where the UM and UIM carrier refuses to consent to the liability settlement, the insured cannot simply settle the liability claim. ORS 742.504(4)(d). Instead, counsel of the insured needs to timely file suit against the tortfeasor and name the UIM carrier as an additional defendant. This is one of the few circumstances after the 1997 amendments whereas UIM carrier can be sued even though the liability terms have not yet been actually exhausted.

"Preprinted by permission of the Oregon State Bar. This paper was originally published in 49 Practical Solutions to Real Problems in Insurance Cases (Oregon CLE 1999) Chapter II. Copies of this publication are available from the Oregon State Bar, 5200 SW Meadows Road, Lake Oswego, OR 97035. (503330 684-7413."