The issue of attorney’s fees in cases involving uninsured/underinsured motorist (“UM” or “UIM”) benefits has been a hot topic in Oregon recently, with the Oregon Court of Appeals issuing a decision on this issue once a month for first three months in 2016. In Oregon, an insurer is entitled to a so-called “safe harbor” from the obligation to pay attorney’s fees in UIM cases if “the only issues are the liability of the uninsured or underinsured motorist and the damages due the insured.” ORS 742.061(3). However, if an insurer raises any issues beyond the scope of ORS 742.061(3), the insured is entitled to attorney’s fees.

In January of 2016, the Oregon Court of Appeals addressed what is meant by the phrase “damages due the insured” in ORS 742.061(3). In Spearman v. Progressive Classic Ins. Co., 276 Or. App. 114 (2016), the insured was involved in an accident with an uninsured motorist and sought recovery from his UIM insurer for only “unreimbursed accident-related medical expenses,” i.e. only those expenses for which the insured had not already been reimbursed under other coverage. In its Answer to the Complaint, the insurer admitted that the insured sustained “some” injury in the collision but disputed the “nature and extent” of the insured’s alleged injuries and disputed the “reasonableness and necessity” of some of the insured’s accident-related medical expenses.

The insured argued that he was entitled to attorney’s fees because the phrase “damages due to the insured” meant “the amount of the benefits due the insured,” and a dispute suggesting that the insurer owes no benefit, or that the insured had no unreimbursed accident-related medical expenses, exceeded the scope of the safe harbor in ORS 742.061(3). In other words, the insurer’s challenge to the “reasonableness and necessity” of medical expenses, and the resulting argument that the insured was otherwise fully compensated for his injuries, would allow the fact finder to determine that the insured was not entitled to any award in the UIM action, thereby raising an issue beyond those permitted by ORS 742.061(3).

However, after examining the purpose of UM/UIM benefits and the statutory context of ORS 742.061, the Court of Appeals rejected the insured’s contention and held that the phrase “damages due the insured” refers to what the insured could recover from the uninsured motorist, not from the insurer. Consequently, even though the insurer’s pleadings put at issue the possibility that plaintiff would recover no benefit in the UIM action, such allegations raised issues only as to the damages that the insured would be entitled to recover from the uninsured motorist, as permitted by ORS 742.061(3). As a result, the insured was not entitled to attorney’s fees.

Then, in February of 2016, the Oregon Court of Appeals again held that where an insurer challenged the existence of an insured’s alleged injuries caused by an underinsured motorist, the safe harbor provision applied. Kelley v. State Farm Mutual Automobile Ins. Co., 276 Or. App. 553 (2016). The court noted that in Spearman, it had concluded “that the issues that are within the scope of ORS 742.061(3) are the issues of liability and damages that an insured would have to establish in an action against the uninsured or underinsured motorist.” Therefore, the insurer’s denial that the insured injured his shoulder in the collision raised only an issue “of liability and damages that an insured would have to establish in an action against the uninsured or underinsured motorist.” The Court concluded that the insured was within the safe harbor scope of ORS 742.061(3) and the insured was not entitled to attorney’s fees.

Finally, in March of 2016, the Oregon Court of Appeals issued yet another decision favorable to insurers on the safe harbor provision. Robinson v. Tri-County Metropolitan Transportation Dist. of Oregon, 277 Or. App. 60 (2016). In Robinson, the plaintiff suffered injuries as passenger in a Tri-County Metropolitan Transportation District (“Tri-Met”) vehicle when it stopped suddenly to avoid a collision with a “phantom vehicle.” In her subsequent lawsuit, the plaintiff argued that she was entitled to attorney’s fees from Tri-Met, a self-insurer, because Tri-Met asserted affirmative defenses that went beyond the scope of ORS 742.061(3). Specifically, Tri-Met allegedly went beyond the safe harbor provision by (1) asserting the possibility of the insured recovering nothing based on offset; (2) alleging the collateral source offset issue; and (3) alleging the insured had failed to state a claim for Tri-Met’s negligence.

The Court of Appeals rejected the first argument based on Spearman, holding that “[i]n the determination of damages, a zero recovery can be a permissible outcome in a UM/UIM claim as a simple matter of fact or evidence, and, as such, it is a permissible outcome within the bounds of the fee exemption in ORS 742.061(3).”

With respect to the second issue, plaintiff argued that Tri-Met’s allegation of collateral source offset automatically disqualified Tri-Met from the fee exemption. However, the affirmative defense was pled as a matter of course, as a contingency, and there was no actual dispute about the existence, enforceability, or applicability of an offset. By looking to the dictionary definition of the term “issue,” the court noted that “[b]ecause the word is used here in the adversarial context of arbitration or litigation, an ‘issue’ is a matter of live controversy, active contest, or actual dispute.” The Court of Appeals concluded that “an insurer’s boilerplate reference to such a matter is a nonissue.” Because nothing in the record showed that the collateral source allegation was actually developed, disputed, or decided, Tri-Met’s reference to a “nonissue” did not disqualify it from the fee exemption.

The Court of Appeals dispensed with the insured’s third argument by stating that UIM claims turn on the fault of the uninsured driver, not Tri-Met. As a result, any response by Tri-Met regarding the negligence of its driver was a “non sequitur” in a UIM claim.

The Court of Appeals attempted to reconcile the Robinson decision with its prior decision in Kiryuta v. Country Preferred Insurance Co., 273 Or. App. 469 (2015), where the court ruled that the affirmative defenses of “Offset” and “Contractual Compliance” destroyed the insurer’s safe harbor protection. The court explained that in Kiryuta, the insurer accepted coverage in the safe harbor letter but then reserved the prospect to deny coverage by asserting that UIM benefits “are subject to all terms and conditions of the policy of insurance.” The Robinson court observed that the Kiryuta decision “did not consider the question here involving an insurer’s reference to a particular provision, one which did not develop into an actual dispute and especially one that was potentially necessary to calculate sums ultimately payable, such as a policy limit or an offset against damages.” The court so held, despite the fact that the insurer argued that the affirmative defenses were not in dispute, i.e. the affirmative defenses were not intended to assert that some term in the policy prevented plaintiff from recovering any damages and only the damages due to the insured was raised and litigated in the arbitration.

The Kiryuta decision has been accepted for review by the Oregon Supreme Court.