Bench Memo 1 Mid-Century Farmers Ins. Co. v. Perkins How Can

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					Bench Memo 1:                      Mid-Century Farmers Ins. Co. v. Perkins

                                   How Can Insurers Respond to Demands to
                                   Stack Liability Payments and
                                   Underinsurance Benefits?

                                   Joel DeVore – LUVAAS COBB

    It did not take long for plaintiffs’ attorneys to   damages were sufficiently larger than UIM limits,
wonder whether a recent decision of the Oregon          then the “offset” of workers’ comp from total
Supreme Court could be used to make a dramatic          damages was academic. Workers’ comp and UIM
change in uninsured and underinsured motorist           benefits could stack or be combined in payment of
coverage statewide. One appeal and a host of            a claimant’s total damages. Workers’ comp
claims may soon provide the answer whether              benefits no longer could be subtracted from UIM
payments of liability insurance will no longer be       limits or benefits.
subtracted from the injured person’s potential
underinsured motorist benefits.                             The heart of the Bergmann decision was its
                                                        reinterpretation of the statute that had provided
     The typical scenario arises when the               the permissible list of potential offsets or
claimant’s total damages exceed uninsured (UM)          subtractions in a UM/UIM policy. At paragraph
or underinsured UIM) motorist policy limits. The        (7)(a) of ORS 742.504, the statute provides that
tortfeasor’s liability insurance is exhausted in        the policy limits are the most that will be paid for
payment of a settlement or judgment. Sometimes          injury to one person or in one accident. At
the tortfeasor’s liability limits and claimant’s        paragraph (7)(c), the statute then provides that any
UM/UIM limits are equal. Sometimes the                  amount payable under the coverage of the
claimant’s UM/UIM limits are larger than the            UM/UIM policy shall be reduced by (A) all sums
tortfeasor’s liability limits. In either case,          paid by or on behalf of the tortfeasor or (B) the
plaintiffs’ attorneys have begun to argue that          amount of workers’ compensation benefits. A
UM/UIM limits “stack” or “float” atop liability         four judge majority in Bergmann did not read
insurance. If successful, the argument would            paragraphs (7)(a) and (7)(c) together. Instead, the
transform every case of matching liability and          majority interpreted the subtraction for workers’
UM/UIM limits, where there has been no UIM              comp in paragraph (7)(c) to speak in terms of all
coverage, into unplanned UIM coverage. And,             damages caused by the tortfeasor, sums that the
where UIM limits are larger than liability limits,      insuring clause of ORS 742.504(1)(a) promises to
UIM coverage would jump by the amount of the            pay, subject to the policy limit. Three dissenting
liability payments no longer subtracted.                judges read the paragraphs (7)(a) and (7)(c)
                                                        together so as to subtract comp benefits from
    The new argument grows out of Bergmann v.           potential UIM benefits, as first fixed by the limits.
Hutton, 337 Or 596, 101 P3d 353 (December 2,
2004). Contrary to prior rulings of the Oregon              Although the Bergmann majority said
Court of Appeals, the state’s high court held that      otherwise, attorneys for injured claimants saw an
workers’ compensation payments would only be            immediate potential. If workers’ comp stacks
offset from the total value of a claimant’s             with UM/UIM benefits, then why should not
economic and noneconomic damages. If the total          liability payments stack, too? After all, did not
the Bergman decision reinterpret the phrase            combined coverage. Insurers will ask themselves
“amount payable” under the UM/UIM policy to            how to respond to the substance of the argument
mean total damages, rather than potential              and how to handle such claims as a practical
UM/UIM benefits? The subtractions for workers’         matter, while Perkins proceeds toward a decision.
comp and liability payments both seemed to be
subparagraphs (A) and (B) of the same set of               Insurers might be tempted to renew the
offsets in ORS 742.504(7)(c). The claimants’           arguments of the three judge dissenting opinion in
advocates asked, should not the subtractions be        Bergmann, to suggest that Bergmann was wrongly
treated alike?                                         decided, and to contend that text and context of
                                                       ORS 742.504 does mean that the statutes’ offsets
    The first case to present these questions arose    for workers comp and liability payments are
out of southern Oregon, as did Bergmann itself.        subtracted from potential UIM benefits. But
The first ruling came only about a month after         insurers need not risk offending four justices who
Bergmann was decided. In Mid-Century Ins. Co.          so recently decided the case.
v. Perkins, Jackson County Circuit Court Case
Number 04-1834-E7, the injured person had                  Bergmann itself considered the potential that
recovered $100,000 in liability proceeds, and his      treatment of liability payments might be
mother’s policy afforded the same sum of               questioned.      Anticipating the problem of
$100,000 in UIM coverage. Mid-Century had              reinterpreting ORS 742.504(7)(c), Ken Tharp, the
sought a declaratory ruling. Since the claimant        insurer’s attorney in Bergmann, had worried that
had moved to Washington state, he argued               liability proceed might not be permissibly
unsuccessfully for application of Washington law.      subtracted from UIM benefits. The majority
When Bergmann was announced, the claimant              opinion, however, rejected the attorney’s concern.
asked reconsideration and argued that his Oregon       The majority pointed to the definition of
UIM coverage should stack. A Jackson County            underinsured motorist coverage as the same
circuit judged agreed and gave judgment for the        amount provided as uninsured motorist coverage
claimant. Mid-Century appealed. In the opening         “less the amount recovered from other automobile
brief, attorney Tom Christ poses the fundamental       liability insurance policies.” Bergmann, 337 Or at
question, “Does underinsured motorist coverage         608 citing ORS 742.502(2)(a). The definition
require an underinsured motorist?”                     requires a subtraction of liability proceeds.

    The implications of Bergmann and Perkins               Although claimants might insist that the
were apparent to attorneys representing injured        majority’s remark was dictum, the remark is still
plaintiffs. In the May issue of its Sidebar            persuasive, since it comes from the Bergmann
newsletter, the Oregon Trial Lawyers Association       opinion itself. Although claimants might differ
offered a “Legal Malpractice Alert,” suggesting        with this part of the Bergman opinion, their
the Perkins argument to extend Bergmann. The           difference implies that even they must say that a
alert posed a concern, would not a plaintiffs’         part of Bergmann was wrongly decided.
attorney risk legal malpractice by failing to try to
extend Bergmann to liability payments? PLF                 Insurers have more than dictum from the high
defense attorneys would readily dispute the            court with which to respond. In at least two cases
suggestion, but the other implication of               out of the same southern Oregon county, judges’
Bergmann-Perkins was obvious to everyone. Tim          rulings have rejected the Perkins approach and
Grabe, the alert’s writer recognized, “This will be    held that there is no underinsurance where
a sea-change in Oregon law, and will put Oregon        liability proceeds equal UM/UIM limits. (Order
on a similar footing with Washington.”                 on Motion for Partial Summary Judgment,
                                                       Kathryn Young v. Farmers Ins. Co., Jackson Co.
    Oregon insurers are now challenged to              Circ. Ct. Case No. 05-1150-L3 (July 21, 2005);
respond to a growing number of UM/UIM claims           Order on Summary Judgment, Kara Day-Towne v.
styled on the Bergmann-Perkins argument for            Progressive Halcyon Ins. Co., Jackson Co. Circ.
Ct. Case No. 03-04378-L-2 (July 20, 2005)). The        the claimant to wait to the end of the claim to
definition of UIM coverage in ORS 742.502              collect anything. The immediate part payment
controls.                                              might be a fair trade for the claimant’s
                                                       relinquishment of demands for prejudgment
    Until there is a decision in Perkins, Oregon       interest on the whole sum. Both parties would
insurers will develop a variety of strategies for      then do themselves the favor of avoiding
responding to the demands for stacked UM/UIM           unnecessary litigation, while they abate and await.
benefits. The patterns of cases suggest at least
four likely responses.                                      Some time in late 2006 Perkins may be
                                                       decided. Perhaps a few months thereafter, the
    1. The first response might be a borrowed          state’s supreme court may decline the predictable
slogan. “Just say no.” There are good grounds to       petition for review, having had quite enough of
decline such demands, found in statute and in          the matter recently. The Perkins answer may be
Bergmann itself. Some claimants may not have           – just as the Bergmann majority indicated – that
made a serious demand, since their damages may         the second shoe does not fall. The Oregon
be fully compensated by liability coverage, since      definition of underinsurance should prevail.
liability proceeds may not even be yet exhausted,
and since the demand might be a temporary                  The Perkins answer will not likely overrule
malpractice precaution.                                Bergmann’s holding on the offset for workers’
                                                       comp. Perkins does not ask that. And, the
    2. For more serious demands, the best              Perkins answer will not likely reject the dictum on
response may be to abate and await. The parties        the offset for liability payments. Therefore,
could agree to abate arbitration or litigation and     Oregon insurers and claimants will both remain
await a final decision in Perkins, assuming it is      unhappy with ORS 742.504. Perhaps with irony,
decided based on Oregon law, not based on              the high court has called the statute a minimum
Washington law. Both parties would be spared           “model policy.” Its terms were enacted into
the unnecessary expense of legal fees on an issue      Oregon statute as a basic UM mandate, to which
that is already before an appellate court.             a UIM mandate was added without any thought
                                                       about whether substantive UIM terms were
     3. If the demand cannot wait, then the parties    needed. While ordinary policy forms are revised,
could agree to pursue and expedite a declaratory       clarified, and improved every year, this statute
proceeding in which the liability offset is the only   remains much as it was almost 40 years ago. It
issue. From the claimant’s perspective, there          remains a source of litigation, begging for repair,
could be advantages. A single legal issue would        and virtually impossible to fix in a political
avoid a potential waste of hearing preparation,        environment. The Bergmann - Perkins story is
proof of damages, the expense of a doctor’s            only one of its several tales of woe.
testimony, or uncertainties about the liability of
the tortfeasor. From the insurer’s perspective,
there could be an advantage, too. A declaratory
proceeding, in which no money damages are
awarded, would avoid the risk of a claimant’s
attorney fees under ORS 742.061. See, e.g., First
Nat’l Bank v. Malady, 242 Or 353, 408 P2d 724

    4. If UIM limits exceed liability proceeds,
and if fault and damages are relatively certain,
then a part payment of the undisputed amount of
UIM limits might be considered. An immediate
payment could be made in order to avoid forcing

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