Parks v. Farmers Ins. Co. of Oregon

• Decision Date: 24 December 2009
• Docket Number: SC S055403).,CA A127316,(CC 0306-06214
• Citation: 227 P.3d 1127,347 Or. 374
• Parties: Eric PARKS and Yolanda Parks, Petitioners on Review, v. FARMERS INSURANCE COMPANY OF OREGON, Respondent on Review.
• Court: Oregon Supreme Court

227 P.3d 1127

347 Or. 374

Eric PARKS and Yolanda Parks, Petitioners on Review, v. FARMERS INSURANCE COMPANY OF OREGON, Respondent on Review.

(CC 0306-06214; CA A127316; SC S055403).

Supreme Court of Oregon, En Banc.

Argued and Submitted September 30, 2009.

Decided December 24, 2009.

Kathryn H. Clarke, Portland, argued the cause and filed the brief for petitioners on review. With her on the brief was Robert E.L. Bonaparte, of Shenker & Bonaparte, LLP, Portland.

Beth Cupani, of Bullivant Houser Bailey PC, Portland, argued the cause and filed the brief for respondent on review.

GILLETTE, J.

This attorney fee dispute arises under ORS 742.061, which requires an insurer to pay an insured's reasonable attorney fees if (1) the insurer fails to settle the insured's claim within six months of the date that the insured files a "proof of loss," and (2) the insured brings an action against the insurer and recovers more than any tender that the insurer has made. The trial court awarded attorney fees to plaintiffs (the insureds) under that statute, based in part on its conclusion that certain telephone conversations between plaintiffs and their insurance agent constituted the requisite "proof of loss." The Court of Appeals reversed the award, holding that the telephone conversations could not amount to a "proof of loss" for purposes of ORS 742.061. Parks v. Farmers Ins. Co., 214 Or.App. 1, 6-11, 162 P.3d 1088 (2007). We allowed plaintiffs' petition for review, and now reverse the decision of the Court of Appeals.

Plaintiffs Eric and Yolanda Parks owned a rental property—a house—that was insured under a "Landlord Protector Package" policy issued by defendant Farmers Insurance Company of Oregon. In 2003, while the policy was in force, plaintiffs received notice that police had discovered a methamphetamine lab in the house, had seized the house and placed it under quarantine. Ms. Parks hired a decontamination contractor to evaluate the problem and deal with any damage to the house.

The contractor told Ms. Parks that insurance companies sometimes help with losses in such cases. On April 14, 2003, Ms. Parks called a Farmers agent, Pascone, whose business was in the town where the property was located, and asked if Farmers could "help her with her loss." There are some factual disputes about the content of that conversation, but it is undisputed that Ms. Parks told Pascone about the seizure of the methamphetamine lab and subsequent quarantine of the house, and that she provided Pascone with the address of the house and the name and telephone number of the decontamination contractor. Depending on whose testimony is credited, either Ms. Parks or Pascone suggested that there might not be coverage in the policy for methamphetamine lab contamination. It is undisputed, however, that Pascone told Ms. Parks that "other things * * * might be covered," and that Ms. Parks should call her if she got any more information. Ms. Parks did not call Pascone again.

However, Mr. Parks called Pascone about a month later, on May 19, 2003. Mr. Parks told Pascone that a methamphetamine lab had been "busted" at his rental property at the end of April, that his wife already had called Pascone about the matter, and that, to date, he had paid $6,710 for cleaning up the property and had been quoted a figure of $2,000 to $3,000 to get the property in shape to rent. Mr. Parks testified that he asked Pascone to "reconsider the denial of the claim," and that Pascone told him that there was no coverage for the cleanup because the policy contained an exclusion for "pollution." Although Mr. Parks initially testified at deposition that he told Pascone that some of the damage to the property had been caused by vandalism, he later acknowledged that "all he told * * * Pascone about damage to the rental was the methamphetamine contamination."

Pascone's memory of the conversation with Mr. Parks was somewhat different. According to her, Mr. Parks told her that he and his wife did not want to file a claim because they felt that there was no coverage for the methamphetamine contamination and that the cost of repairing the other damage that he had described to her—two broken windows— would be less than the insurance policy's deductible. In any event, Pascone did not send any paperwork to Mr. Parks, did not refer him to Farmers' claims hotline, and did not otherwise tell him how to file a claim. Plaintiffs had no further contact with Farmers or its agents until June 11, 2003. On that date, plaintiffs brought an action against Farmers for, among other things, breach of Farmers' duties to them under the insurance policy.¹

In their complaint, plaintiffs alleged that their rental property was insured by Farmers, that the property had suffered unspecified "accidental physical damage," that the losses suffered as a result of that damage were within the coverage of the policy, that Farmers had breached the insurance contract by denying coverage for those losses, and that, as a result of that breach of contract, plaintiffs had been damaged in the amount of $75,000—$70,000 in damage to the dwelling and $5,000 in loss of the property's rental value. Farmers filed an answer that raised, among other things, an affirmative defense that referred to policy wording that excluded coverage for "release, discharge or dispersal of contaminants, pollutants, * * * or hazardous gases or chemicals."

On October 16, 2003, plaintiffs sent a written settlement demand to Farmers seeking (among other things) $10,338 for vandalism damage, $10,000 for diminution in the value of the rental property, $12,000 for attorney fees, and $6,800 for methamphetamine cleanup costs. On November 19, Farmers sent a letter to plaintiffs that questioned some and outright rejected other aspects of plaintiffs' settlement demand. In that letter, Farmers stated that the "pollution exclusion at issue has previously been upheld by the Circuit Court of Multnomah County."

On December 10, 2003, Farmers made a settlement offer of its own—it offered "to allow entry of judgment against it and in favor of plaintiffs on all claims alleged in this matter in the total amount of $22,021.31," exclusive of any legally recoverable costs and attorney fees. Plaintiffs immediately accepted the offer and, on January 22, 2004, the circuit court entered judgment in accordance with the offer. Plaintiffs thereafter filed a petition for attorney fees under ORS 742.061, which provides, in part:

"If settlement is not made within six months from the date proof of loss is filed with an insurer and an action is brought in any court of this state upon any policy of insurance of any kind or nature, and the plaintiff's recovery exceeds the amount of any tender made by the defendant in such action, a reasonable amount to be fixed by the court as attorney fees shall be taxed as part of the costs of the action and any appeal thereon."

Plaintiffs' theory was that, for purposes of the statute, they had filed "proof of loss" by their April 14, 2003, and May 19, 2003, telephone calls to Pascone, and that Farmers had failed to tender its settlement offer within six months of those calls. Farmers denied that the telephone calls qualified as proof of loss and argued that, at best, plaintiffs had triggered the six-month period provided in ORS 742.061 when they filed their complaint on June 11, 2003. The trial court ultimately concluded that the Parks's telephone calls to Pascone and, particularly, Mr. Parks's May 19, 2003, call, constituted a sufficient proof of loss and entered a supplemental judgment awarding plaintiffs $50,000 in attorney fees. In explaining its decision, the court explicitly rejected Farmers' contention that, because those telephone calls pertained to methamphetamine contamination, they could not serve as "proof of loss" with respect to the losses that were at the heart of plaintiffs' action (and which Farmers characterized as vandalism losses). The court concluded that plaintiffs' claim for "accidental physical damage" included a claim for damage caused by methamphetamine contamination and that Farmers had not "knocked out" that part of the claim prior to settlement.

Farmers appealed, arguing that plaintiffs' telephone calls to Pascone were not "proof of loss" within the meaning of ORS 742.061 for two reasons: (1) a "proof of loss" must be in writing; and (2) a "proof of loss" must allow an insurer to ascertain its liabilities, and plaintiffs' conversations with Pascone about methamphetamine contamination did not provide Farmers with any information that would have allowed it to ascertain its liabilities with respect to the only potentially covered loss that plaintiffs could claim—a claim for vandalism. The Court of Appeals essentially accepted the second reason, holding that the Parks's telephone calls did not and could not have served the essential purpose of a proof of loss, viz., to allow the insurer to ascertain its liabilities, taking into account the insurer's obligation to investigate and clarify claims that are uncertain:

"Here, there was no objective reason for Farmers to investigate before this action was filed because, until then, the only claim that plaintiffs had asserted was excluded under the policy, and plaintiffs did not ask Farmers to investigate a claim for any other damages. Thus, there was no `uncertain claim' that triggered Farmers' duty to investigate."

Parks, 214 Or.App. at 11, 162 P.3d 1088.

Before this court, plaintiffs argue that the Court of Appeals erred in assuming that the issue of coverage for methamphetamine contamination could not be considered "uncertain" and that a conversation that focused on that sort of damage would not provide any reason for an insurer to investigate further. They also continue to maintain that, contrary to Farmers' view, ORS 742.061 does not require that "proof of loss" be in writing. They insist, in short, that their telephone conversations with Pascone could and did...