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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.

"For that reason, we conclude that defendants' settlements with Zidell did not operate to extinguish plaintiffs' right to equitable contribution for defense costs paid prior to the settlement. If plaintiffs and defendants had the same obligation to defend Zidell, and plaintiffs discharged a disproportionate share of that obligation, then their right to equitable contribution arose at that point in time. Although Zidell was able to release its own claims against defendants for defense costs, Zidell was not in a position to release plaintiffs' claims against defendants."

The court noted that its decision only applied to defense costs incurred before the date of a settlement between a carrier and the insured. The court expressed no opinion as to the fate of any underlying defense costs incurred after a carrier settles with its insured. The court held that the Oregon statute governing contribution among carriers for an environmental claim does not preclude a contribution action against a settling carrier because it allowed a carrier to at least seek contribution from another carrier who is "liable or potentially liable."

The court also held that because the insurer may only seek contribution based on equity, not contractual obligations, London was not entitled to statutory attorney fees in pursuing the contribution claim. With respect to what constitutes a suit, the court ruled that a letter from the Oregon Department of Environmental Quality that is the equivalent of an "agency ultimatum," asserting that the insured must investigate and remediate its site, qualifies as a "lawsuit." The court held that since the letter from the agency satisfied this requirement. The court held there was a duty to defend because the letter required investigation into the "extent" of third party property damage, rather than "whether" third party property damage had occurred.

-Submitted by Andrew Moses, Gordon & Polscer LLC