National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

In Certain Underwriters at Lloyd’s London v. Mass. Bonding & Ins. Co., the insureds in an underlying coverage action had obtained a judgment against the plaintiff insurers, London, for the insureds’ attorney fees pursuant to ORS 742.061.  London then filed this action for inter-insurer contribution against the defendant insurers who had also provided policies to, but subsequently settled with, the insureds. In granting the defendant insurers’ motion for partial summary judgment, the trial court ruled that London was not entitled to inter-insurer contribution from the defendant insurers for the attorney fees awarded to the insureds, and London appealed that ruling. In August 2011, in Certain Underwriters at Lloyd’s London v. Mass. Bonding & Ins. Co., 245 Or App 101 (2011), the Oregon Court of Appeals affirmed the trial court’s ruling by finding that London’s liability for a statutory award of attorney fees did not arise out of a contractual obligation it shared with the other insurers.  Rather, the statutory obligation arises only after the insured prevails at trial and obtains a recovery that exceeds the insurer’s highest tender. The Court of Appeals noted that in the underlying coverage action the insureds settled with the defendant insurers and thus never satisfied the statutory prerequisite that it obtain a recovery that exceeded the defendant insurers’ highest tenders. As the insureds accepted the defendant insurers’ highest tenders, the insureds never met the terms of the statute regarding the defendant insurers, and thus the defendant insurers did not share the liability for the insureds’ attorney fees with London.

In October 2011, in the underlying coverage action noted in the opinion addressed above, the Oregon Supreme Court considered whether a 2005 amendment to ORS 742.001 that excepts “surplus lines insurance policies” from ORS Chapter 742, applies to modify the scope of ORS 742.061.  ZRZ Realty Co. v. Beneficial Fire and Casualty Insurance Company, 351 Or 255 (2011). While the ZRZ Realty court did not expressly state that the amendment excepting surplus lines policies modifies ORS 742.061, the Court did find that “to the extent the 2005 amendment applies to ORS 742.061, that amendment does not apply to actions filed before its effective date.” As the ZRZ Realty case was filed prior to the effective date of the amendment, and as the Court held that the 2005 amendment does not apply retroactively, the Court found that the amendment had no application to this action.

The ZRZ Realty court then considered whether the plaintiff insureds were entitled to attorney fees they sought under ORS 742.061. The Court held that because the insureds had timely submitted a proof of loss regarding the insurer’s duty to defend, and because the insureds recovered more defense costs than the insurer had tendered, then the insureds were entitled to recover their costs for establishing the duty to defend. But, as the insureds had not yet recovered any indemnification costs from the insurer, the ZRZ Realty court held that the insureds were not entitled to recover attorney fees related to the duty to indemnify. The ZRZ Realty court noted, though, that this decision does not preclude the insureds from recovering attorney fees in the future for the work that their attorneys have done, both at trial and on appeal, to establish the insurer’s duty to indemnify if the insureds meet the terms of the statute. It is reasonable to anticipate, then, that these cases may continue to provide Oregon’s appellate courts with additional opportunities to address issues regarding ORS 742.061.

The plaintiffs contended that the principals of the investment management services company were not administrators but rather were employees or officers under the definition of “employee” in the endorsement and that their acts were covered as a matter of law.  The appellate court noted that while the policy defined the term “employee” the policy did not define the terms that comprised that definition: trustee, officer, employee, administrator or manager.  In this case, the appellate court noted that it did not turn to dictionary definitions to determine the ordinary meanings of the undefined terms as it generally would.  Instead, because the appellate court found that the text of the endorsement strongly suggested an intention that the pertinent provisions of the ERISA regulatory scheme provided context for understanding the meaning of the terms, the appellate court turned to the meaning of the terms for the purposes of ERISA’s bonding requirement.

Examining the ERISA definitions for the undefined terms, but ultimately not deciding whether the undefined terms were properly afforded the meanings provided under ERISA or whether the ERISA definitions merely provided highly persuasive context for interpreting the meaning of those terms, the appellate court rejected the plaintiffs’ contention and found that the principals of the company that provided investment management services to plaintiffs were administrators such that, as a matter of law the principals’ acts were not covered.  The appellate court also rejected the plaintiffs’ contention that any coverage for administrators and managers in the endorsement was illusory. The appellate court further held that the doctrine of statutory incorporation did not compel coverage in this case. As a result, the appellate court held that the trial court properly granted the defendants’ summary judgment motions and denied those of the plaintiffs.