In a decision issued yesterday, February 2, 2017, the Oregon Supreme Court reversed several lower-court decisions and held that a policyholder that is forced into litigation with its insurer can recover attorney fees if the insurer settles the case for more than the insurer offered before litigation began, clearing a significant roadblock to resolution of coverage disputes in Oregon.
In Oregon, when a policyholder is forced to litigate a coverage claim against its insurer, the policyholder can often recover its attorney fees if the insurer does not settle the claim within six months of its presentation and the policyholder successfully recovers in excess of any tender made by the insurer within that six-month time frame. See ORS 742.061. This right to recover attorney fees serves the important public policy of ensuring that wronged policyholders will not be forced to bear the financial costs of enforcing their insurance rights. In practice, the costs of enforcing an insurance contract often exceed the value of the underlying claim, and in major coverage cases attorney fees can surpass a million dollars. The recovery of attorney fees is always a critical consideration in deciding whether to initiate insurance coverage litigation.
In 2014, an Oregon Court of Appeals issued a decision that limited the situations in which an insured could recover its attorney fees. Triangle Holdings, II v. Stewart Title Guaranty, 266 Or App 531, 534, 337 P3d 1013 (2014). In Triangle Holdings, the insurer and policyholder settled their coverage dispute before trial. The policyholder then sought to recover its attorney fees under ORS 742.061. The court held that the policyholder could not recover its attorney fees because under ORS 742.061 no "recovery" had occurred, since no judgment had been entered. Under the Triangle Holdings logic, "recovery" meant obtaining a money judgment from a court, even though the legislature had not expressly required the entry of a "judgment" in the statute. Rather, the statute required only a "recovery" exceeding the amount of a tender by the insurer. By reading in a judgment requirement, the court severely limited the situations in which a policyholder could recover its attorney fees.
The Triangle Holdings decision had a chilling effect on coverage settlements throughout Oregon because policyholders would be unable to petition for ORS 742.061 fees without a formal judgment in hand. The Oregon Supreme Court never formally reviewed Triangle Holdings—even though it had accepted the policyholder's petition for review—because review was mooted by a settlement. Consequently, the Triangle Holdings decision remained problematic for policyholders even though the Oregon Supreme Court had expressed a willingness to review the decision.
On February 2, 2017, the Oregon Supreme Court rejected the Triangle Holdings limitation in a case titled Long v. Farmers Ins. Co., 360 Or 791 (2017). This decision is a must-read for any Oregon coverage attorney, but the big-picture takeaway is that under ORS 742.061 "an insured must obtain a monetary recovery after filing an action, although that recovery need not be memorialized in a judgment." 360 Or at 805. In other words, policyholders should be able to settle matters and then seek attorney fees in appropriate situations. There is no requirement that litigation end in a judgment. Policyholder attorneys have been watching this case very closely and will generally be satisfied with its treatment of ORS 742.061.