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

Plaintiff then brought a breach of contract and bad faith lawsuit against Illinois Union for its alleged failure to properly settle the underlying suit. After two rounds of summary judgment motions and trip up to the Ninth Circuit, the issues were narrowed for trial and plaintiff grudgingly accepted Illinois Union’s $425,000 Offer of Judgment, exclusive of costs and fees. Plaintiff then filed its motion for $473,930.68 in claimed attorney fees and costs.

Magistrate Judge Papak found that the plaintiff wholly failed to “verify” the $40,137.93 in claimed costs. Id. at *11-12. Although Judge Papak allowed plaintiff leave to file an amended cost bill, he advised plaintiff that it could not “recoup costs for courier, mail, telephone, [] computerized research [,]travel expenses [,] costs of a mediator [,] outside counsel [,]” and many other claimed costs because they were “‘plainly not recoverable.’” Id. at *12-15. Plaintiff did not file an amended cost bill and, therefore, recovered no costs.

On the issue of recoverable attorney fees, Illinois Union’s threshold argument that ORS 742.061 should not apply because it never “denied” coverage, but simply contested the extent of available coverage was rejected. Id. at *19-22. Illinois Union’s argument that the plaintiff’s underlying complaint did not constitute a requisite “proof of loss” under ORS 742.061 sufficient to trigger its indemnity (as opposed to its defense) obligations was also rejected.   Relying on the Oregon Supreme Court’s recent decision in Parks v. Farmers Ins. Co., 347 Or. 374 (2009), Papak found that plaintiff’s underlying complaint, even though for unspecified damages, provided “sufficient information for Illinois Union to estimate its indemnity obligations.” Id. at *17-19. Judge Papak did, however, agree with Illinois Union on the apportionment of fees between the contract and the bad faith claims finding that they did not share “common issues”, reducing recoverable fees by over $104,000. Id. at *22-25. And Papak reduced plaintiff’s recovery by roughly another $60,000 pursuant to several ORS 20.075 “reasonableness” factors, including plaintiff’s unreasonable pursuit of settlement. Id. at *20-37.

The sufficiency of what constitutes a “proof of loss” under ORS 742.061 continues to be diluted.   However, arguing for the apportionment of recoverable fees between the contract claim and (the inevitable) bad faith claim remains a viable weapon in contesting policyholder attorney fee claims. The District Court is also proving to be a better venue for mitigating fees claims based on their overall “reasonableness” relative to the substantive claims at issue, the parties litigation conduct and the sufficiency of the petition.

-Submitted by Lloyd Bernstein, Gordon & Polscer, LLC

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.