Bollam v. Fireman's Fund Ins. Co.

Decision Date10 January 1986
PartiesLouis W. BOLLAM and Elaine H. Bollam, Respondents-Cross-Appellants, v. FIREMAN'S FUND INSURANCE COMPANY, a California corporation, Appellant-Cross-Respondent. A8004-02314; CAA27608.
CourtOregon Court of Appeals

Gary V. Abbott, Portland, argued the cause for appellant-cross-respondent. With him on briefs were Hallmark, Griffith & Keating, Portland,

Stephen R. Frank, Portland, argued the cause for respondents-cross-appellants. With him on briefs was Montgomery W. Cobb and Tooze, Kerr, Marshall & Shenker, Portland.

GILLETTE, Judge.

This is a negligence action brought by plaintiffs to recover damages caused by their insurance company's alleged failure properly to handle a claim, thereby exposing them to excess liability. Defendant appeals from a judgment for plaintiffs. Plaintiffs cross-appeal. We affirm.

The pertinent facts are that, plaintiffs were driving northbound on Interstate 5 in Washington on January 23, 1975. It was raining heavily. A passing truck splashed plaintiff's car with water, obscuring Mr. Bollam's view. As a result, he crossed the center median and hit a southbound car driven by Russel Ruhle, who suffered back injuries and later required a spinal fusion. Plaintiffs' liability for the accident was reasonably clear.

On January 31, 1975, defendant, as plaintiffs' insurance company, began making advance payments to Ruhle in the amount of $400 a week in addition to payments for his medical expenses. The payments continued until July, 1976, when approximately $48,000 of the Bollams' $100,000 policy limit had been expended.

In July, 1976, plaintiffs, on defendant's advice, retained their own attorney to evaluate the Ruhle claim. Subsequently, defendant offered Ruhle the balance of the policy limits in settlement of his claim. Ruhle's response was to bring an action against plaintiffs. The case was settled before trial for $135,000, with defendant paying Ruhle the balance of the policy limits and plaintiffs paying him $35,000 of their own funds on June 29, 1979.

Plaintiffs then commenced this action, alleging that defendant was negligent in making advance payments to Ruhle, because those payments kept him from settling within the $100,000 policy limits. Plaintiffs claimed damages of $38,271, consisting of the $35,000 that they had to pay in excess liability and $3,271 for defense expenses, in the form of attorney fees, incurred in connection with the Ruhle claim. The jury returned a verdict for plaintiffs. 1 This appeal followed.

Defendant, in its first assignment of error, contends that the trial court erred by denying its motion for a directed verdict or, in the alternative, to strike one or more of plaintiffs' specifications of negligence. 2 Its argument on this assignment of error--resembling, at some points, a scream of frustration--is not a model of clarity. Defendant appears to argue only that, because ORS 746.230(1)(f) requires it to attempt in good faith promptly and equitably to settle claims in which liability has become reasonably clear, making advance payments in an attempt to discharge its statutory duty cannot, as a matter of law, constitute actionable negligence.

ORS 746.230(1)(f) imposes on insurers an obligation to attempt, "in good faith, to promptly and equitably settle claims in which liability has become reasonably clear * * *." Defendant seems to contend that, because it was under a statutory duty to make advance payments, it would be anomalous to say that, in fulfilling that statutory duty, it could nonetheless incur tortious liability to its insured. We think, however, that the existence of such a duty cannot, per se, serve as a defense to an allegation that an insurance company has negligently handled a claim. The fact that an insurance company may have a duty promptly and equitably to settle with an injured third party does not necessarily preclude the possibility that in doing so it has acted negligently toward its own insured. By way of illustration, one need only consider a situation in which, two days after an accident in which liability is reasonably clear, an insurance company in the position of defendant in this case tenders a check for its policy limits without obtaining a release.

We do not suggest that a defendant's good faith compliance with ORS 746.230 is not enough. We assume it is enough. We merely point out that, in this case, plaintiffs' evidence--including that of two experts--put defendant's good faith in issue. There is no suggestion that the jury instructions were inadequate. Although we might and, indeed, probably would, have decided this case the other way, defendant has failed to demonstrate that the trial court erred in sending it to the jury.

There is an alternative way of looking at the problem. One is hard put, in this record, to find any affirmative evidence that Ruhle would ever have accepted $100,000 in settlement. One could fairly argue, therefore, that no negligence of the insurance company caused any damage to plaintiff. That issue was raised in defendant's motion for directed verdict at the close of plaintiff's case, but it was not repeated at the close of all the evidence nor argued on appeal. It is therefore not before us. Instead, the case was submitted to a jury with this instruction:

"The plaintiffs alleged that the defendant is negligent in the manner in which it handled this claim in one particular, and this is all you're to consider in this case. The claim is that the defendant was negligent in making advance payment when it knew or in the exercise of reasonable care should have known that to do so would preclude settlement of the Ruhles' claim within their policy limits."

If the making of the advance payment were all that was involved, we might agree with defendant that there was no cognizable claim--that is all defendant asserts on appeal. Obviously, any advance payment would tend to preclude settlement within the policy limits, because there would be less "new money" available to settle the claim. A plaintiff should not be able to whipsaw an insurance company between ORS 746.230, on the one hand, and, on the other hand, a claim that any advance payment can, in and of itself, be negligence.

This case, however, involves more. There was evidence that, early in the claims handling process, defendant knew that the claim's value exceeded the policy limits and that liability was clear. (The insurer's own attorney had concluded that the chance of defending successfully on liability was less than one in ten.) Plaintiffs tried this case on a theory that defendant had a duty to attempt to settle the whole claim once damages were known to exceed policy limits and liability was clear. The negligence under that theory was in failing promptly to tender the limits and in stringing the claim out until too little was left to buy peace for the insured.

Defendant did not object to evidence of that kind and, in fact, evidence from its own witnesses supported that theory. That theory is, we think, viable and consistent with the policy of ORS 746.230(1)(f), imposing on the insurer an affirmative obligation to initiate settlement. It is also a theory that is not clearly outside the pleadings. The trial court did not err in submitting the case to the jury, at least as against any theory of error advanced here.

Defendant next contends that the trial court erred in striking its Statute of Limitations defense. In a negligence action, the period of limitation begins to run when three requirements are met: (1) the harm has occurred, (2) it appears reasonably probable that the harm was caused by defendant's negligence and (3) the negligence was or should have been discovered. U.S. Nat'l Bank v. Davies, 274 Or. 663, 548 P.2d 966 (1976); Jaquith v. Ferris, 64 Or.App. 508, 669 P.2d 334 (1983), aff'd 297 Or. 783, 687 P.2d 1083 (1984). The focus in this case is on the first requirement: When did the harm occur? The trial court found that the Bollams were harmed on June 29, 1979, the date when they paid Ruhle the $35,000 in excess liability. Defendant asserts that the harm occurred earlier, when the plaintiffs retained their own attorney and incurred attorney fees. This contention is easy to answer as a practical matter, but it is much tougher in view of the paucity of precedent.

As a practical matter, plaintiffs were entitled--even obliged--to retain counsel with respect to potential liability to Ruhle because the policy limits might not satisfy his damages. Because this is a different concern from suing defendant, the act of doing so does not carry with it Statute of Limitations implications.

We also find this analysis to be the correct one in light of the precedents. In U.S. Nat'l Bank v. Davies, supra, 274 Or. at 669, 548 P.2d 966, the Supreme Court quoted, with approval, the following passage from "Developments in the Law: Statutes of Limitations," 63 Harv.L.Rev. 1177, 1200 (1950):

"Although prima facie it seems just to compute the time limitation on the plaintiff's remedy from the time when a suit could have been maintained, the considerations which determine the factual components to be pleaded and proved by the plaintiff do not themselves necessarily fix appropriate time limitations for the initiation of an action. It is not surprising, therefore, that the courts have not always literally carried out the directive that the period begin when the cause of action accrues. The commencement of the statutory period has occasionally been delayed, despite the existence of a theoretical right to recovery, until the occurrence of some later event the absence of which made suit impossible or improbable: for example, until the plaintiff learned of the wrong or until substantial damage occurred." (Footnotes omitted.)

Although, theoretically, plaintiffs'...

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