Oregon's Supreme Court Examines "Proof of Loss" in ORS 742.061
In Parks v. Farmers Insurance Company of Oregon, 2009 Or. LEXIS 1014, filed on December 24, 2009, the Oregon Supreme Court examined what constitutes “proof of loss” in the context of ORS 742.061, which requires an insurer to pay an insured’s reasonable attorney fees if (1) the insurer fails to settle the insured’s claim within six months of the date that the insured files a “proof of loss,” and (2) the insured brings an action against the insurer and recovers more than any tender that the insurer has made. The Court held that the insureds had filed “proof of loss” when they telephoned their insurer’s agent seeking help with the cost of cleaning up methamphetamine contamination at an insured rental property. The Court’s holding reversed that of the Court of Appeals which had concluded that as the methamphetamine contamination was excluded from coverage under the particular policy, the insureds’ telephone calls about the methamphetamine contamination could not constitute “proof of loss.”
In 2003, the insureds learned that the police had discovered a methamphetamine lab in their rental property. In April and May of 2003, the insureds telephoned their insurer’s agent seeking help with the cost of the decontamination. The insureds filed an action against their insurer for breach of the insurance contract after the agent informed them that the policy excluded coverage for the contamination damage. In December 2003, the insurer offered to settle all of the insureds’ claims after learning that the property had also sustained damage from vandalism. The insureds accepted the offer and a judgment was entered. The insureds then filed a petition for attorney fees under ORS 742.061, claiming that the April and May 2003 telephone calls constituted “proof of loss” within the meaning of the statute and that they took place more than six months before the insurer’s settlement offer. The insurer contended that the telephone calls did not qualify as “proof of loss” of the claims that were subsequently settled because “proof of loss” must be in writing, and because the information conveyed in the telephone calls pertained only to methamphetamine damage excluded from coverage under the policy.
Addressing the insurer’s first contention, the Court concluded that to hold that “proof of loss” for the purposes of ORS 742.061 must involve a writing was incompatible with the Court’s functional definition of “proof of loss” articulated in its prior opinions as “[a]ny event or submission that would permit an insurer to estimate its obligations (taking into account the insurer’s obligation to investigate and clarify uncertain claims) qualifies as ‘proof of loss’ for purposes of [ORS 742.061].” Addressing the insurer’s second contention, the Court noted that, that the insureds’ complaint against their insurer for breach of the insurance contract included a broad allegation for “accidental physical damage.” The Court found that, while not immediately obvious, that that term could refer to methamphetamine contamination just as easily as it could to vandalism damage. The Court found that as the insurer refused to pay a claim for methamphetamine contamination, but then, more than six months later, agreed to settle “all claims alleged in this matter,” the insurer had, in fact, settled a methamphetamine damage claim for which the insureds’ telephone calls had conveyed sufficient information to constitute proof of loss for the purpose of ORS 742.061, and the insureds were entitled to their attorney fees under the statute.
