Oregon Supreme Court Decides the Meaning of ‘Recovery’ for Claims Under ORS §742.061

Under ORS §742.061, insurance companies are required to pay their insured’s attorney’s fees in Oregon if, in the insured’s lawsuit brought against the insurer, the insured obtains a “recovery” that exceeds the amount of any tender made by the insurance company within six months from the date that the insured first filed a proof of loss. The question of whether voluntary payments made by the insurance company could be factored into the determination of “recovery” for purposes of this statute was an unresolved issue until the Oregon Supreme Court recently weighed in on the question.

In Long v. Farmers Insurance Co. of Oregon, 360 Or. 791, 388 P.3d 312 (2017), the Oregon Supreme Court held that the insurance company’s voluntary payments to the insured after the insured filed suit and the insurance company’s payment of an appraisal award were a “recovery” for purposes of the Oregon statute entitling the insured to an award of attorney’s fees. Under the facts of the Long case, Farmers had made various voluntary payments for actual cash value (ACV) involving a homeowner’s water leak claim brought by the insured. After the voluntary payment was made, the insured submitted a proof of loss that estimated repair costs that far exceeded the sum that Farmers had voluntarily paid. When the claim was still unresolved one year later, the plaintiff brought a lawsuit against Farmers. In the Complaint, the insured alleged, among other things, that Farmers had not paid the sums due under the policy and had failed to submit to an appraisal process that had been demanded by the insured. In its Answer, Farmers admitted that the insured was entitled to appraisal under the terms of the policy. Therefore, the trial court ordered the parties to submit the claim to the appraisal process. After the appraisal process was completed, Farmers made two additional voluntary payments to the insured. The payments made by Farmers reflected the ACV that the appraisers had assigned to some of the insured’s claimed losses (which Farmers did not dispute or cover) as well as the insured’s mitigation costs.

Six months later, and shortly before trial, the insured submitted a proof of loss for RCV. Three days after the submission of the proof of loss, Farmers voluntarily paid a sum that it determined constituted the RCV as an undisputed amount. At the end of the trial the insured did not recover an amount that was greater than the amount that Farmers had paid, in total, before the trial had begun, and the trial court entered judgment for Farmers. The trial was limited to the issues that remained in dispute after Farmers’ payments. After the trial, the insured sought attorney’s fees under ORS §742.061. The insured argued that the requirements of the statute had been satisfied because after the lawsuit was filed, the insured obtained a greater sum from Farmers than it had tendered within six months after the insured had submitted the initial proof of loss. The insured argued that the voluntary payments that Farmers had made after suit was filed constituted a “recovery” within the terms of the statute. Farmers argued that to constitute a statutory “recovery,” an insured was required to obtain a judgment that exceeded a timely tender.

After reviewing various cases interpreting ORS §742.061, the Oregon Supreme Court sided in favor of the insured on the issue. In finding in favor of the insured, the Court made the following observation:

The purpose of ORS §742.061 is “to discourage expensive and lengthy litigation.” [citation omitted]. Requiring the insurer to pay the insured’s attorney’s fees if, and only if, the insured obtains more in the litigation than was timely tendered advances that purposes insofar as it encourages insurers to make reasonable and timely offers of settlement and also encourages insureds to accept reasonable offers and forego litigation. But the statute also serves a compensatory purpose. The statute ensures that, when insureds file suit to obtain what is due to them under their policies, they do not win the battle but lose the war by expending much or all of what they obtained in the litigation on attorney’s fees [citations omitted].

The function that a “recovery” plays in that overall framework is to establish that the insured obtained something in the action – payment of benefits due under the insurance policy that exceeded any amount that the insurer timely tendered. In the circumstances presented here, there is no functional difference between Farmers’ mid-litigation payments . . . the insured received a sum from the insurer that exceeded any amount timely tendered, a result that indicates that, at least in some practical sense, the insured prevailed in the action. It was the insurer’s payment, not the form of payment, that entitled the insured to attorney’s fees.

We conclude that the fact that plaintiff in this case did not obtain a “judgment” memorializing these payments does not make ORS §742.061 inapplicable.
360 Or. at 804, 388 P.3d at 319.

As the current law now stands, any recoveries achieved by the insured from the insurer within six months from the date of the insured’s first filed proof of loss will be factored into the calculation in determining a “recovery” for purposes of ORS §742.061.