Bollam v. Fireman's Fund Ins. Co.

• Decision Date: 17 March 1987
• Citation: 730 P.2d 542,302 Or. 343
• Parties: Louis W. BOLLAM and Elaine H. Bollam, Petitioners/Cross-Respondents on Review, v. FIREMAN'S FUND INSURANCE COMPANY, a California corporation, Respondent/Cross- Petitioner on Review. A8004-02314; CA A27608; SC S32432, S32435.
• Court: Oregon Supreme Court

Page 542

730 P.2d 542

302 Or. 343

Louis W. BOLLAM and Elaine H. Bollam, Petitioners/Cross-Respondents on Review, v. FIREMAN'S FUND INSURANCE COMPANY, a California corporation,

Respondent/Cross- Petitioner on Review.

A8004-02314; CA A27608; SC S32432, S32435.

Supreme Court of Oregon.

Argued and Submitted March 11, 1986.

Decided Dec. 16, 1986.

Reconsideration Denied March 17, 1987.

Stephen R. Frank, Portland, argued the cause for petitioners/cross-respondents on review. With him on the briefs were Montgomery W. Cobb and Tooze, Marshall, Shenker, Holloway & Duden, Portland.

Gary V. Abbott, Portland, argued the cause for respondent/cross-petitioner on review. With him on the briefs was Hallmark, Griffith & Keating, P.C., Portland.

Before LENT, P.J., and LINDE, CAMPBELL, CARSON and JONES, JJ.

LENT, Presiding Justice.

In an action for damages by insureds against their liability insurer for negligent management of a claim against them, does their cause of action accrue (1) when the insureds are aware that the claim cannot be settled within their policy limits and as a result of the negligence incur attorney fees to protect their own interests, or (2) when they later pay their own funds to the claimant in order to settle the claim? ¹ We hold that the cause accrues when they incur attorney fees as a result of the insurer's negligence.

On January 23, 1975, plaintiffs were involved in a motor vehicle collision in which Mr. Ruhle, in the other vehicle, was injured. Defendant was plaintiffs' motor vehicle liability insurer on a policy with applicable $100,000 limits. Plaintiffs' liability to Ruhle was reasonably clear.

About eight days after the collision, defendant began making advance payments to Ruhle of $400 per week in addition to payment for his medical expenses. Defendant continued to make advance payments for a period of about 18 months until July 1976, in a total sum of almost $49,000.

At that time, defendant advised plaintiffs that they should retain their own attorney to evaluate the Ruhle claim. Plaintiffs did so, and it is undisputed that plaintiffs incurred attorney fees thereby.

By April 1977, plaintiffs had been advised by defendant that Ruhle had sustained serious injuries, that advance payments of almost one-half of the policy limits had been made, and that Ruhle would not accept the remainder of the policy limits in settlement of his claim. By June 29, 1977, plaintiffs' attorney was advised that advance payments of $48,830 had been made.

In May 1977, defendant offered to settle Ruhle's claim for the balance of the policy limits. Ruhle's response was to file an action for damages against plaintiffs. When the action had been pending for almost two years, it was settled by defendant paying to Ruhle the balance of its policy limits and plaintiffs paying to Ruhle an additional $35,000. Plaintiffs made this payment about June 29, 1979.

On April 25, 1980, plaintiffs commenced this action for damages, asserting that the cause of their damages was the negligence of defendant in its management of Ruhle's claim. ² This was more than two years from the time that plaintiffs retained their own attorney and incurred legal fees in connection with the Ruhle claim, but less than two years from the date that Ruhle's claim was settled and plaintiffs paid the $35,000.

In their complaint, plaintiffs alleged that as a result of defendant's negligence they "were required to pay" the $35,000 "to their damages in the sum of $35,000" and that:

"Plaintiffs were required to retain attorneys to advise them in connection with Ruhle's claim and incurred reasonable and necessary attorney's fees and costs in connection therewith in the sum of $3,270.71, to their further damages."

The prayer of the complaint was for "judgment against defendant in the sum of $38,270.71, in addition to their costs and disbursements incurred herein, including a reasonable attorney's fee [for prosecution of the case at bar]."

In addition to denying negligence, defendant pleaded the affirmative defense that the action was not commenced within the statute of limitations, i.e., two years from the time the cause accrued. By motion for summary judgment, defendant continued to pursue that defense, but the motion was denied. In further support of that defense, during trial defendant made an offer of proof in the form of a stipulation by plaintiffs' counsel that plaintiffs incurred and paid attorney fees in connection with the Ruhle claim prior to April 1978. The evidence was not received because the trial court ruled, as a matter of law, that the cause did not accrue until the payment of the $35,000.

The claim for damages for $35,000 was submitted to the jury, which returned a verdict for that amount. The claim for reasonable and necessary attorney fees incurred by plaintiffs with respect to the Ruhle claim was later reduced by plaintiffs to $3,023.21 ³ and thereafter decided by the court to be $2,873.21, i.e., $150 less than the amount of alleged damages. Accordingly, the court eventually entered judgment for $35,000 and "for the additional sum of $2,873.21 on account of plaintiffs' additional damages incurred as attorney's$fees."

Under ORS 12.010 and 12.110(1) the two-year period for commencement of an action begins when the cause of action accrues. The task here then is to determine when this cause of action accrued.

For recovery in this case, plaintiffs were required to plead and prove that defendant was negligent and that such negligence was the legal cause of harm and resulting damages to plaintiffs. The alleged (and proved) negligence was defendant's conduct in making advance payments when it knew or should have known that to do so would preclude settlement within the policy limits. This conduct had ended in July 1976. At that time, the conduct either did or did not fall below the standard of care that would have been exercised by an ordinarily careful and prudent person in the same or similar circumstances. In other words, negligence, if any, had then occurred.

A cause of action for that negligence could not arise, however, until it caused harm and resulting damages to plaintiffs.

"Since the action for negligence developed chiefly out of the old form of action on the case, it retained the rule of that action, that proof of damage was an essential part of the plaintiff's case. Nominal damages, to vindicate a technical right, cannot be recovered in a negligence action, where no actual loss has occurred. The threat of future harm, not yet realized, is not enough. Negligent conduct in itself is not such an interference with the interests of the world at large that there is any right to complain of it, or to be free from it, except in the case of some individual whose interests have suffered.

"It follows that the statute of limitations is generally held not to begin to run against a negligence action until some damage has occurred." (Footnotes omitted.) ⁴

Prosser & Keaton, The Law of Torts 165 (5th ed 1984).

The affidavit of plaintiffs' counsel, filed after the trial and verdict in support of the claim for damages for attorney fees alleged to have been incurred "in connection with Ruhle's claim," shows that $3,023.21 was thereby incurred and further shows that at least $745.50 of that sum was incurred prior to April 1978.

The only claim of negligence that was submitted to the jury concerns conduct of defendant that ended with the final advance payment, an act that occurred about July 1976. Plaintiffs have pleaded that this negligence caused them loss by way of incurred attorney fees. Their evidence was that prior to April 1978 they had incurred at least $745.50 for those fees. Both by their pleading and their evidence, they have taken the position that defendant's conduct from about the end of January 1975 to July 1976 was negligent, that this negligence caused them loss compensable by way of damages, and that this loss had in part occurred prior to April 1978. They had a cause of action against defendant for those damages sometime prior to April 1978, but this action was not commenced until April 25, 1980, a date more than two years after their cause of action accrued.

Both plaintiffs and defendant have cited to us our decisions in U.S. Nat'l Bank v. Davies, 274 Or. 663, 548 P.2d 966 (1976), and Jaquith v. Ferris, 297 Or. 783, 687 P.2d 1083 (1984). The Court of Appeals, 76 Or.App. 267, 709 P.2d 1095, split in decision on this case because of different interpretations of the meaning of Jaquith.

The Court of Appeals majority held:

"Although, theoretically, plaintiffs' incurrence of attorney fees caused them damage more than two years before the filing of this action, we hold that the Statute of Limitations did not begin to run at least until the date when Ruhle's case against plaintiffs was settled and they paid Ruhle the $35,000 excess liability. In our view, this is a case in which practicality and legality meet: the incurrence of attorney fees to guard against the possibility of future harm does not constitute damage sufficient to start the running of the statutory period. Until the Ruhle claim was settled for $35,000 over the policy limits, plaintiffs' exposure to excess liability was merely a possibility. Had the claim been settled within the policy limits, their concern would have vanished. We, therefore, hold that, under these facts, the commencement of the statutory period was delayed until plaintiffs suffered substantial, palpable damage, i.e., excess liability. To hold otherwise would result in an anomolous [sic] situation in which plaintiffs would have been required to have initiated an action in anticipation of a loss that might never have materialized. Such provisional actions were expressly disapproved in U.S. Nat'l Bank v. Davies, supra, 274 Or at 670 ." (Footnote omitted.)

76 Or.App. at 273, 709 P.2d 1095.

The Court of Appeals dissenters reached the contrary conclusion.

"This case falls squarely within ...