The Oregon Court of Appeals delivered a decision in the Certain Underwriters v. Mass. Bonding and Ins Co, 287 Or App 279 (2017). The trial court’s decision to dismiss London’s contribution claims was affirmed. The Court of Appeals decided that the trial court properly concluded that there had been “no final judgment after exhaustion of all appeals” entered before the effective date of the 2013 amendments to the Oregon Environmental Cleanup Assistance Act, and therefore the 2013 amendments applied to the claims. The 2013 amendments applied retroactively, unless there was a final judgment after exhaustion of all appeals regarding the environmental claim. The Court of Appeals found that since the environmental claim by the common insured against London had not reached the point where all appeals had been exhausted at the time the 2013 amendments were enacted, the retroactivity clause applied and London was barred from seeking contribution.
Oregon’s Uninsured Motorist Safe Harbor Provision Undermined By Defense Pleadings
In Kiryuta v. Country Preferred Insurance Company, 376 P.3d 284 (2016), the Oregon Supreme Court found that an insurer’s defensive pleadings can render Oregon’s “Safe Harbor” provision, intended to insulate insurers from attorney fees if the insurer accepts uninsured/underinsured (“UIM”) coverage, inapplicable.
A plaintiff seeking UIM coverage is entitled to recover attorney’s fees if timely settlement is not made and the plaintiff’s recovery exceeds the insurer’s tender. However, ORS 742.061(3) provides insurers with a “Safe Harbor” from attorney fees if (1) the insurer accepts coverage in writing; (2) the only issues are “the liability of the uninsured or underinsured motorist” and “the damages due the insured;” and (3) the insurer agrees to binding arbitration.
In Kiryuta, the insurer sent plaintiff a letter that accepted UIM coverage, stated that the only issues were liability of the uninsured or underinsured motorist and the damages due the insured. However, after plaintiff filed suit, the insurer’s answer included two affirmative defenses, labeled "Contractual Compliance" and "Offset." The insurer argued that the affirmative defenses were not intended to assert that some term in the policy prevented plaintiff from recovering any damages and that no issues other than the damages due plaintiff were litigated in the arbitration.
The court disagreed with insurer. Under Oregon’s fact-pleadings rules, the court noted that a “party's pleadings matter” in that the pleadings declare and control the issues to be determined, the relations that the parties bear to each other and set the boundaries for evidence that can be admitted at trial. Generally, a defendant's responsive pleading has two functions: informing the plaintiff of facts that a defendant intends to prove at trial and providing the trial court a pleading foundation for taking testimony and instructingthe jury. Stated differently, a defendant's pleading can extend the boundaries of relevancy initially established by a plaintiff's pleadings.
The court found that the insurer’s pleadings provided a foundation for defendant to litigate an issue other than the amount of plaintiff's damages or liability of the underinsured driver. Through its answer, the insurer pursued a litigation strategy that was broader than that allowed under the Safe Harbor rules. The fact that the insurer may not have followed through with that litigation strategy at the arbitration proceeding makes no difference. The insurer was in control of its own pleadings and was in a position to conform those pleadings to the limitations of the Safe Harbor provision, by alleging only ultimate facts that pertained to the liability of the uninsured or underinsured motorist and the damages due plaintiff. As a result, plaintiff had to be prepared at the arbitration hearing to meet any proof that the insurer might offer consistent with its pleadings. The court concluded that insurer's conduct was inconsistent with the safe-harbor provision and that the trial court erred in not awarding plaintiff his reasonable attorney fees.
It has been more than two years since Washington’s Supreme Court issued its opinion in Cedell v. Farmers Ins. Co. of Washington, 176 Wash.2d 686, 295 P.3d 239 (2013), radically changing the attorney-client privilege for insurers in Washington.
When an insured’s liability is established at trial, the duty to indemnify is based on the facts proven at trial. Ledford v. Gutoski, 319 Or. 397, 403, 877 P.2d 80, 84 (1994). However, when the insured enters a settlement, the duty to indemnify is determined on the facts that form the basis for the settlement. Bresee Homes, Inc. v. Farmers Ins. Exch., 353 Or. 112, 126, 293 P.3d 1036, 1044 (2012). Unlike a trial, a settlement agreement may not be documented by a transcript of proceedings or pleadings. Accordingly, determining coverage for liability incurred in a settlement can present a unique challenge, which raises the question of whose challenge it is.