Case Title: Bonds v. Farmers Ins. Co.

Citation: 

Docket Number: S057422

State: oregon

Court: Oregon Supreme Court

Date: 2010-10-14T00:00:00Z

Document:
FILED: October 14, 2010
IN THE SUPREME COURT OF THE STATE OF OREGON
ROBERT BONDS,
Petitioner on Review,
v.
FARMERS INSURANCE COMPANY OF OREGON,
Respondent on Review.
(CC 051213375; CA A134011; SC S057422)
En Banc
On review from the
Court of Appeals.*
Argued and submitted
March 1, 2010.
Joel S. DeVore, Luvaas
Cobb, Eugene, argued the cause and filed the brief for petitioner on review.  
Thomas M. Christ, Cosgrave
Vergeer Kester LLP, Portland, argued the cause and filed the brief for
respondent on review.
Meagan A. Flynn,
Portland, filed a brief for amicus curiae Oregon Trial Lawyers
Association.
WALTERS, J.
The decision of the
Court of Appeals is affirmed.  The judgment of the circuit court is reversed,
and the case is remanded to the circuit court for further proceedings.
Durham, J., filed a
dissenting opinion in which De Muniz, C. J., joined.
*On appeal from
Multnomah County Circuit Court, Jerry B. Hodson, Judge. 227 Or App 185, 205 P3d
45 (2009).
WALTERS,
J. 
In this
case, we decide that, to "formally institute arbitration," and
thereby satisfy the timelines set forth in ORS 742.504(12)(a)(B) and maintain a
claim for underinsured motorist (UIM) benefits, an insured or an insurer must
expressly communicate to the other party that the initiating party is beginning
the process of arbitrating a dispute.  We further decide that two letters
written by defendant to plaintiff in this case did not meet that standard and
that plaintiff's claim for UIM benefits is therefore time-barred.  
On
July 2, 2003, plaintiff was injured in an automobile collision caused by the
negligence of another driver.  Plaintiff was insured under an automobile policy
with Farmers Insurance Company (defendant) and was entitled to UIM coverage.  In
March 2005, plaintiff's lawyer told defendant that he had reached a settlement
agreement with the other driver, that the settlement did not adequately cover plaintiff's
damages, and that plaintiff therefore intended to seek UIM coverage from defendant
for the remainder.  Subsequently, a claims representative for defendant sent plaintiff's
lawyer two letters.  The first letter acknowledged plaintiff's UIM claim and
stated, "Should we disagree on the liability/damages owed by the
underinsured motorist, [defendant] consents to submit this matter to binding
arbitration."  The second letter stated that defendant disagreed about the
extent of the damages owed -- in particular, the representative stated that
plaintiff already had been compensated for his injuries through the other driver's
insurance coverage -- and that plaintiff was not entitled to UIM benefits.  The
representative offered, however, to consider additional information about plaintiff's
alleged injuries. Both letters likely arrived on the same day.(1)
On
July 6, 2005 -- two years and four days after the accident -- defendant's claims
representative called plaintiff's lawyer to ask whether he had filed an action
against defendant regarding the UIM claim.  When plaintiff's lawyer said that
he had not, the representative and the lawyer disagreed about whether the time
for filing such an action had expired.  The next day, plaintiff's lawyer called
the representative and, referring to the representative's March 2005 letters, stated
that plaintiff would accept defendant's offer to arbitrate.  When defendant asserted
that plaintiff's UIM claim was time-barred, plaintiff sought a judicial
declaration to the contrary.  Following a bench trial, the trial court
concluded that defendant had formally instituted arbitration proceedings within
two years of the date of the accident and ordered defendant to arbitrate.
Defendant
appealed.  The issue before the Court of Appeals focused on the action required
by ORS 742.504(12)(a)(B), which governs how parties to an insurance contract
can initiate arbitration respecting the contract:
"The parties to this coverage agree that no
cause of action shall accrue to the insured under this coverage unless within
two years from the date of the accident:
"* * * * *
"(B) The insured or the insurer has formally
instituted arbitration proceedings[.]"
(Emphasis added.)  Defendant
argued that, to formally institute arbitration proceedings under ORS
742.504(12)(a)(B), the parties must follow a sequential two-step process:  first,
the parties must reach a mutual agreement to arbitrate; and second, one of the
parties must give notice to arbitrate in compliance with the "arbitration
laws of the State of Oregon," specifically Oregon's Uniform Arbitration
Act.  In a written opinion, the Court of Appeals decided that mutual agreement
to arbitrate is not a prerequisite to a party's formal institution of
arbitration proceedings.  Bonds v. Farmers Ins. Co., 227 Or App 185, 205
P3d 45 (2009).  However, the court also decided that the party instituting arbitration
proceedings must send notice of arbitration in accordance with Oregon's Uniform Arbitration Act and that defendant's
letters were insufficient to meet the requirements of that act.  Id. at
191.  We allowed plaintiff's petition for review, and, for the reasons we
explain, we affirm the decision of the Court of Appeals, but on different
grounds.
We
begin our analysis with the text of ORS 742.504.(2) 
ORS 742.504 sets out a comprehensive model UIM policy.  Subsection (12) of that
statute provides that the accrual of a claim for uninsured and underinsured
motorist benefits is conditioned on the occurrence of one of several events
within two years of the date of a motor vehicle accident.  One of those events
is that "[t]he insured or the insurer has formally instituted arbitration
proceedings[.]"(3)
Defendant
argues that we can determine the meaning of ORS 742.504(12)(a)(B) by
considering its context and that neither party may formally institute
arbitration proceedings under ORS 742.504(12)(a)(B) until both parties have
agreed to arbitrate under ORS 742.504(10).  That subsection provides, in part:
"If any person making claim hereunder and
the insurer do not agree that the person is legally entitled to recover damages
from the owner or operator of an uninsured vehicle because of bodily injury to
the insured, or do not agree as to the amount of payment that may be owing
under this coverage, then, in the event the insured and the insurer elect by
mutual agreement at the time of the dispute to settle the matter by
arbitration, the arbitration shall take place as described in section 2,
chapter 328, Oregon Laws 2007."
(Emphases added.)  Plaintiff
agrees that, under subsection (10), arbitration cannot "take place"
absent mutual agreement to arbitrate, but contends that, under subsection (12),
one party acting alone may initiate the arbitration process and thereby
preserve a claim for benefits.  Both parties point us to the enactment history
of subsections (10) and (12) to support their positions.  
In 1967,
when the legislature originally enacted the forerunner to those subsections,
either the insured or the insurer could elect to arbitrate their dispute, and election
by one bound the other.  The predecessor to ORS 742.504(10) provided, in part: 

"[I]n the event the insured or
the insurer elects to settle the matter by arbitration, * * * [s]uch person and
the insurer each agree to consider themselves bound and to be bound by any
award made by the arbitrators pursuant to this coverage in the event of such
election." 
Former ORS 743.792(10) (1967), renumbered as
ORS 742.504(10) (1989) (emphasis added).  The predecessor
to subsection (12) provided:
"The
parties to this coverage agree that no cause of action shall accrue to the
insured under this coverage unless within two years from the date of the
accident:
"(a) 
Suit for bodily injury has been filed against the uninsured motorist, in a
court of competent jurisdiction;
"(b) 
Agreement as to the amount due under the policy has been concluded; or
"(c) 
The insured or the insurer has formally instituted arbitration proceedings."
Former ORS 743.792(12) (1967), renumbered as ORS
742.504(12) (1989) (emphases added).
In
1987, this court determined that a statute that compelled the parties to a fire
insurance policy to "accept" the result of a damages appraisal
procedure that only one party had invoked deprived the nonconsenting party of
the right to a jury trial under Article I, section 17, of the Oregon
Constitution.  Molodyh v. Truck Insurance Exchange, 304 Or 290, 295, 744
P2d 992 (1987); see also Carrier v. Hicks, 316 Or 341, 352, 851 P2d 581
(1993) (construing ORS 742.504(10) not to compel arbitration by unwilling party
and not to violate right to jury trial).  After Molodyh, an "arbitration
trap" existed.  That is, one party could demand arbitration, the parties
could arbitrate their dispute, and then the nonelecting party, if dissatisfied
with the results in arbitration, could demand that party's constitutional right
to a jury trial. 
In 1997, in part to "[e]liminate[] the trap for the unwary
party," the legislature amended subsection (10).  Senate Committee on
Business, Law and Government, SB 645, May 8, 1997, Ex K, p 1 ("Summary of
SB 645-2").  The legislature revised subsection (10) to make an
arbitration award binding only upon mutual agreement of the parties: 
"[I]n the event that the insured and the insurer elect
by mutual agreement at the time of the dispute to settle the matter by
arbitration, the arbitration shall take place under the arbitration laws of the
State of Oregon or, if the parties agree, according to any other procedure."

Or Laws 1997, ch 808, § 2.  That
amendment of subsection (10), defendant contends, demonstrates that the
legislature intended that the mutual agreement of the parties be a prerequisite
to the institution of arbitration proceedings under subsection (12).  Plaintiff's
retort is that the legislature did not similarly amend subsection (12) to add a
requirement of mutuality, an omission that indicates its intent that a party's unilateral
action will be sufficient to meet the timelines imposed by that subsection. 
There
is merit to the arguments of both parties.  Defendant is correct that
subsection (12) originally was adopted years before this court announced its
decision in Molodyh.  After Molodyh, even if one party elected to
arbitrate under subsection (12), the other could avoid binding arbitration by
refusing to consent.  It is reasonable to conclude that, when the legislature amended
subsection (10) in 1997 to explicitly recognize, as required by Molodyh,
that mutual agreement to arbitrate was necessary to bind the parties to the
resulting arbitration award, the legislature also intended that that mutual
agreement would occur before institution of arbitration proceedings under
subsection (12). 
On the
other hand, it also is reasonable to conclude that, when the legislature retained
without amendment the text that is now subsection (12)(a)(B), it did so
intending to continue to permit either party to take the action necessary to meet
the time limits that it imposed without also requiring that that party obtain the
agreement of the opposing party.  The legislature could have been concerned
that, if the accrual of an insured's claim depended on the insured obtaining
the insurer's agreement to arbitrate, the insurer could, by refusing to consent
to arbitration, negate, or at least interfere with, the insured's ability to
meet statutory timelines.  That argument is supported by the fact that, although
the legislature did not amend subsection (12) to require mutual action to
institute arbitration proceedings, it did amend subsection
(12) to provide that an insured's claim accrues if, within two years from the
date of the accident, "[t]he insured has filed an action against the
insurer in a court of competent jurisdiction."  Or Laws 1997, ch 808, § 2,
codified as ORS 742.504(12)(a)(C).  That
the legislature chose to amend subsection (12) in one way but not another is an
indication that the legislature consciously chose to continue to permit action
by one party alone to "formally institute" arbitration proceedings
and satisfy the statutory limitations period.
The
legislative history of ORS 742.504 does not provide further guidance as to the
legislature's intent, and we therefore rest our decision on the text of
subsections (10) and (12) and the purposes that they serve.  State v. Gaines,
346 Or 160, 171, 206 P3d 1042 (2009).  We read subsection (10) as identifying
rules for conducting arbitration once an agreement to arbitrate has been
reached, not as addressing the action necessary to meet the timeliness
requirements of subsection (12).  Subsection (10) requires arbitration when the
parties agree to arbitrate "at the time of the dispute."  In the
event that the parties reach mutual agreement to arbitrate, subsection (10)
provides that the arbitration shall "take place" under the state
arbitration laws.  "Take place" means "[to] occur" or "[to]
happen."  Webster's Third New Int'l Dictionary 2331 (unabridged ed
2002).  In contrast, subsection (12) sets out the circumstances that must exist
for a claim for benefits to accrue and explicitly permits either party, acting
alone, to "formally institute" arbitration proceedings.  
We do
not think that, by modifying ORS 742.504(10), the legislature also changed
subsection (12) in the same way sub silentio.  See ORS 174.010
(in interpreting statutes, duty of court is not to insert what has been
omitted).  We therefore hold, as did the Court of Appeals, that, to meet the
requirements of ORS 742.504(12)(a)(B), a party need not have obtained the other
party's agreement to arbitrate. 
The
question that remains, and to which we now turn, is the particular action that
a party must take to "formally institute" arbitration proceedings.  Defendant
argues, and the Court of Appeals concluded, that the answer is found in the
requirement of subsection (10) that arbitration shall "take place under
the arbitration laws of the state of Oregon."(4)
 Defendant argues, and the Court of Appeals also concluded, that that was a
statutory reference to the Uniform Arbitration Act, particularly ORS
36.635(1).  However, the Oregon Uniform Arbitration Act applies only to a
binding "agreement to arbitrate."  See Or Laws 2003, ch 598, §
3 (so stating).  Under the Uniform Arbitration Act, an agreement to arbitrate
is an enforceable and irrevocable agreement that requires the court, upon
petition by one party, to order the other party to arbitrate.  See ORS
36.620 (an agreement to arbitrate generally is enforceable and irrevocable);
ORS 36.625(1) (court shall order parties to arbitrate upon showing of an
agreement to arbitrate).  A contract of insurance that contains the model
provisions authorized by ORS 742.504 is not itself a binding agreement to
arbitrate.  As noted, ORS 742.504(10) requires arbitration only when the
parties agree to arbitrate "at the time of the dispute."  Because we
hold that an agreement to arbitrate is not a prerequisite to formal institution
of arbitration proceedings, the Uniform Arbitration Act, which does not apply unless
such an agreement has been reached, does not establish the manner in which a
party "formally institutes" arbitration proceedings.  It follows that
we disagree with the contrary conclusion of the Court of Appeals. 
Alternatively,
defendant argues that "arbitration proceedings are 'formally instituted'
when the process of arbitration has begun in accordance with established rules." 
Defendant relies, for that position, on a Court of Appeals case that analyzed
ORS 742.504(12) and purported to define those terms:
"'Formal' means 'following or according with
established form, custom or rule * * * based on forms and rules, esp. such as
are accepted by convention:  of or following a prescribed form.'  Webster's
Third New Int'l Dictionary, 893 (unabridged ed 1993).  'Formal' has the
opposite meaning of 'informal,' which means 'conducted or carried out without
formal * * * or ceremonious procedure:  unofficial.'  Id. at 1160.  'Institute'
means 'to originate and get established:  set up:  cause to come into
existence.'   Id. at 1171.  Thus, to 'formally institute' arbitration
means to commence and establish arbitration according to prescribed or official
terms and rules."
Sanderson v. Allstate Ins.
Co., 164 Or App 58, 63, 989 P2d 486
(1999).  Consequently, defendant contends, until the parties have agreed to
arbitrate, no single party can "commence and establish arbitration
according to prescribed or official terms and rules" under Sanderson and
thereby "formally institute it."  Plaintiff responds that the words "formally
institute" do not impose a requirement
of mutual agreement and that initiating arbitration should be pragmatic and
uncomplicated, just like arbitration itself.  
We consult,
as did the Court of Appeals in Sanderson, the dictionary.  Although it
is true that "formally" can mean according to rule or custom, it also
has a simpler, more straightforward meaning, namely, "expressly" or "explicitly." 
Webster's at 893.  Although "according to custom or rule" is a
possible meaning of the word "formally," that is an unlikely meaning
in this context, because the legislature did not specify the custom or rule to
which the parties should adhere.(5) 
We conclude that it is more likely that the legislature simply sought to
emphasize that the nature of a communication regarding arbitration should be "express"
or "explicit." 
Likewise,
the word "institute" has a more straightforward meaning than the one
that the Court of Appeals suggested in Sanderson.  "Institute"
can indicate bringing something into existence, establishing something, or
creating a set of procedures.  However, it also may indicate simply a beginning: 
"to set on foot:  INAUGURATE, INITIATE."  Webster's at 1171.  
Putting
the synonyms for "formally" and "institute" together, we
conclude that the legislature used the words "formally institute" arbitration
proceedings to require that a party "expressly begin" those proceedings. 
To take the action necessary to satisfy ORS 742.504(12)(a)(B), an insured or
insurer expressly must communicate to the other party that the initiating party
is beginning the process of arbitrating the dispute.  The first step in that
process is the party's offer to utilize the arbitration process.  Thus, to
"formally institute" arbitration proceedings, an insured or an
insurer must expressly communicate to the other party that the initiating party
offers to arbitrate or otherwise commits to the arbitration process.
That
said, however, we must address whether defendant's two letters satisfied the
requirements of ORS 742.504(12)(a)(B) as we have described them.  One letter
from defendant said that, "[s]hould [defendant] disagree on the
liability/damages owed by the underinsured motorist, [defendant] consents to
submit this matter to binding arbitration."  The subsequent letter from defendant
stated defendant's view that plaintiff already had been compensated for his
injuries through other insurance, but specifically noted that defendant was
willing to consider additional information.
Although
we cannot say that "formal institution" of arbitration proceedings must
always occur in a single communication, we think that the word "formal"
evidences an expectation that, when a party begins arbitration, the party will
do so in an obvious and express way, such as occurs when a party sets forth, either
in one document or in multiple documents that are part of a single message, a
notice, offer, or demand for arbitration.  Here, plaintiff relies for its
argument that defendant formally instituted arbitration proceedings not only on
two documents, but also on an inference that, plaintiff asserts, can be drawn from
those two documents.  Plaintiff contends that, taking the two documents in
combination, the trial court correctly concluded that defendant had agreed to
arbitrate the dispute if necessary and that defendant's rejection of
plaintiff's claim for damages was an indication that arbitration was necessary. 

The
problem with plaintiff's position, in our view, is that even viewing
defendant's letters, as we must, in the light most favorable to plaintiff, see
Liles v. Damon Corp., 345 Or 420, 423, 198 P3d 926 (2008) (stating standard
of review), defendant did not obviously and expressly state that it was offering
to arbitrate.  The first letter indicated a willingness to arbitrate, depending
on whether a future event -- disagreement -- occurred.(6) 
The second letter did not definitively state that a disagreement existed, nor
did it mention arbitration.  
We do
not mean to suggest that the parties must have reached an impasse in
negotiations before either party may "institute" arbitration
proceedings.  A party that files a complaint with a court of competent jurisdiction
within two years of the date of a motor vehicle accident satisfies the time
limits of ORS 742.504(12)(a)(C) and does so even if the parties are engaged in
negotiations.  The filing of a complaint, however, serves to begin the litigation
process.  Similarly, a party that wishes to satisfy the time limits of ORS
742.504(12)(a)(B) by formally instituting arbitration proceedings must explicitly
offer to arbitrate or demand arbitration to expressly begin that process.  Where,
as here, a party's consent to arbitrate is contingent on some future event and that
party does not expressly advise or acknowledge to the other party that that
event has occurred, no "formal institution" of arbitration
proceedings has occurred.  We conclude that, on this record, defendant did not "formally
institute" arbitration proceedings within two years from the date of the
accident as required by ORS 742.504(12)(a)(B) and that plaintiff's claim for UIM
benefits was therefore time-barred.  
The
decision of the Court of Appeals is affirmed.  The judgment of the circuit
court is reversed, and the case is remanded to the circuit court for further
proceedings.
DURHAM, J., dissenting.
The question before the court is
whether defendant, through two letters to plaintiff's lawyer, "formally
instituted arbitration proceedings" under ORS 742.504(12)(a)(B).(1) 
If defendant did so, then the trial court correctly compelled defendant to
participate in arbitration regarding plaintiff's underinsured motorist coverage
(UIM) claim.  If defendant did not do so, then the trial court erred in
requiring the parties to arbitrate their dispute.  The majority adopts the
latter conclusion.  I respectfully disagree.
Before addressing the majority's
answer to that ultimate question, I turn first to several intermediate
conclusions that, in my view, the majority decides correctly.  First, I agree
that the arbitration procedures described in ORS 742.504(10) do not bear on the
correct meaning of "formally instituted arbitration proceedings" in subsection
(12)(a)(B).  By its terms, subsection (10) applies only if the insured and the
insurer "elect by mutual agreement" to settle their UIM dispute in
arbitration.  Here, neither the statutorily prescribed minimum terms of UIM
coverage under ORS 742.504 nor the policy that defendant issued to plaintiff
constituted an agreement to arbitrate any UIM dispute.  No other agreement to
arbitrate exists.  Consequently, the majority correctly decides that subsection
(10) does not help to explain the meaning of "formally instituted
arbitration proceedings" under subsection (12)(a)(B).
Second, the majority correctly
determines that ORS 742.504(12)(a) contemplates that either the insured or the
insurer may formally institute arbitration proceedings unilaterally, that is,
without the participation, consent, or agreement of the other party.  The term
"or" in subsection (12)(a)(B) leaves no doubt that either party may
act independently of the other to formally institute arbitration proceedings.
The majority also correctly determines
that the Oregon Uniform Arbitration Act (UAA), ORS 36.600 to 36.740, does not
govern the question whether the correspondence of defendant's claims
representative "formally instituted arbitration proceedings" under
ORS 742.504(12)(a)(B).  The UAA applies generally to arbitration proceedings
that are the result of an agreement to arbitrate the underlying dispute.  See
ORS 36.635(1) (describing procedures for initiating arbitration between parties
to an "agreement to arbitrate").  As already noted, no agreement to
arbitrate exists in this case.
I turn to the majority's analysis of
the phrase "formally instituted arbitration proceedings" in ORS
742.504(12)(a)(B).  The parties' principal disagreement concerns whether a
party's offer or consent to participate in arbitration qualifies as the formal
institution of arbitration proceedings under the statute.(2) 
According to plaintiff, defendant's first letter clearly expressed consent to
arbitration but that consent was subject to a condition:  that there be a
disagreement between the parties about the "liability/damages owed by the
underinsured motorist."  That condition, according to plaintiff, was
satisfied when defendant's claims representative, in a second letter, likely
received by plaintiff the same day as the first letter, asserted that plaintiff
was not entitled to UIM benefits, because the underinsured driver's insurance
had fully compensated him for his injuries.  Defendant responds that the
letters do not convey a consent to arbitration, because the first letter
consented to arbitration conditionally and the second letter did not mention
arbitration.
I note at this point that there is no
doubt that defendant's claims representative intended her two letters to convey
defendant's consent to arbitration.  Another statute, ORS 742.061(1),(3)
authorizes an award of attorney fees against an insurer in certain litigation
over an insurance policy.  However, subsection (3) of that statute nullifies
that authority in an action to recover UIM benefits if the insurer, timely and
in writing, accepts coverage, leaving in dispute only the underinsured
motorist's liability and the insured's damages, and " [t]he
insurer has consented to submit the case to binding arbitration." 
(Emphasis added.)
Defendant's claims representative,
Kerry Barton, testified that she intended her letters to convey consent to
arbitration to obtain for defendant the protection in ORS 742.061 against an
award of attorney fees to plaintiff:
[Ms. Barton:]  "Just whenever I get a * * *
UM or UIM claim, I automatically send what we call the binding arbitration
letter, and then that went out.  And then afterwards, subsequently, I was able
to review all the medical records, so a second letter went out.  [Plaintiff's
lawyer] probably received them both on the same day, but they -- they did go
out at different times.
"Q:      All right.  And in -- in the
second letter, do you remember whether you stated the company's position with
respect to his client's uninsured motorist claim?
"A:      Yes, I did.  I reviewed the
medical records and, based on my opinion of those records and what they said, I
felt that his client had been compensated already for his claim through the
underlying policy.
"* * * * *
"Q:      Ms Barton, why was the letter sent
containing the offer to consent to binding arbitration?
"A:      When we receive notice of a UM or
UIM claim, if we notify the plaintiff attorney that we're willing to submit it
to binding arbitration, it makes it -- and I believe it's within six months of
notice of the claim, it makes it so that they're not entitled to attorney fees.
"If we don't consent to binding arbitration
and they file suit, then they're entitled to attorney's fees no matter what the
award is.  So that's why we send that."
That testimony supports the trial court's observation that,
although Ms. Barton may have intended to secure for defendant the protection of
ORS 742.061 against an award of attorney fees, her correspondence could be
equally effective in formally instituting arbitration proceedings under ORS 742.504(12)(a)(B).(4)
The majority, after consulting
dictionary definitions of "formally" and "institute,"
concludes that, to formally institute arbitration proceedings under ORS
742.504(12)(a)(B), "an insured or insurer expressly must communicate to the
other party that the initiating party offers to arbitrate or otherwise commits
to the arbitration process."  Bonds v. Farmers Ins. Co., 349 Or ___,
___, ___ P3d ___ (Oct 7, 2010) (slip op at 11).  The majority thus accepts the
trial court's premise that, in this context, an offer or a consent to arbitrate
constitutes a formal institution of arbitration proceedings.  However, the
majority reasons that defendant's second letter was insufficient to convey
defendant's offer to arbitrate because it did not expressly state that the
condition stated in the first letter had been satisfied:
"The first letter indicated a willingness
to arbitrate, depending on whether a future event -- disagreement -- occurred. 
The second letter did not definitively state that a disagreement existed, nor
did it mention arbitration.
"* * * [A] party that wishes to satisfy the
time limits of ORS 742.504(12)(a)(B) by formally instituting arbitration
proceedings must explicitly offer to arbitrate or demand arbitration to
expressly begin that process.  Where, as here, a party's consent to arbitrate
is contingent on some future event and that party does not expressly advise or
acknowledge to the other party that that event has occurred, no 'formal
institution' of arbitration proceedings has occurred."
Id. at ___ (slip op at 12-14) (footnote omitted).
I agree with the trial court and the
majority that a party's written offer or consent to arbitration serves to
formally institute arbitration proceedings under ORS 742.504(12)(a)(B).  Where
no agreement to arbitrate exists, the parties have no authority to present any
claims to an arbitrator, and no administrative structure (such as a civil court
system) exists to receive complaints or demands for relief by any party. 
Consequently, the only practical step that a party may take in this context is
to notify the other party in writing that the initiating party consents,
demands, offers or otherwise commits to participate in arbitration over the
dispute.  That step is the formal institution of arbitration proceedings; that
first step toward arbitration will lead to binding arbitration of the dispute
if the other party also consents.
The majority, however, falls into
error in concluding that defendant's correspondence was too indefinite to offer
or consent to arbitration.  Defendant's first letter contained an unambiguous
consent to arbitration of the UIM dispute, but the consent was subject to a
condition:  that there be a disagreement on the "liability/damages owed by
the underinsured motorist."  The second letter, described by Ms. Barton in
her testimony, confirmed defendant's position that plaintiff already had been
fully compensated for his injuries through the other driver's insurance policy.
In my view, the only permissible
legal construction of defendant's two letters is that defendant's consent to
arbitration became unconditional and, thus, legally effective.  The second
letter stated, in legal effect, that the alleged underinsured motorist had no
further liability, and owed no additional damages, to plaintiff and, thus,
plaintiff was not entitled to any UIM benefits from defendant.  That message
fully satisfied the condition stated in the first letter.  It is of no legal
consequence that defendant's claims representative expressed defendant's
consent to arbitration in two letters rather than one, or that the second
letter did not state in express terms that the condition set out in the first
letter was satisfied.  The majority's conclusion that that sort of additional
particular message is essential in this context simply embroiders the statute
with a requirement that has no basis in the terms of ORS 742.504(12)(a)(B).  It
is also inconsequential that the second letter from the claims representative
offered to consider additional information about plaintiff's injuries.  That
statement did nothing to alter the legal effect of the second letter:  the
condition of "disagreement" set out in the first letter was
satisfied, because, in defendant's opinion, plaintiff had been fully compensated
by other insurance and was entitled to no UIM benefits from defendant.  The
existence of a disagreement between the parties became obvious and, thus, the
conditional consent to arbitration expressed in the first letter became
unconditional.
The trial court correctly determined
that defendant consented to arbitration.  The majority errs in overturning the
trial court's judgment.
I dissent.
De Muniz, C. J., joins in this
dissenting opinion.
1. The
second letter is not in the record.  The representative testified to the
contents of the letter at trial.  
2. Former
ORS 742.504 (2003) was in effect at the time of the accident.  We refer to
the current version of the statute because the operative language has not
changed materially.  We note amendments to the statute where relevant to the
analysis. 
3. In
this case, defendant incorporated the provisions of ORS 742.504(12)(a)(B) in its
insurance contract with plaintiff.  Insurers must include, in their UM/UIM
policies, coverage no less favorable to the insured than that set forth in the provisions
of the statutory comprehensive model policy.  ORS 742.504; Vega v. Farmers
Ins. Co. of Oregon, 323 Or 291, 301-02, 918 P2d 95 (1996).  Insurers
may include terms that vary from the model policy only by excluding or
softening terms that disfavor insureds or by adding extraneous terms that are
neutral or that favor insureds.  Vega, 323 Or at 301-02.  In this
case, defendant issued a UM/UIM policy to plaintiff that incorporated the time
limitations of the statutory model policy.  Therefore, it is the terms of the model
policy that are operative here.  See id. at 296 (terms of model
policy not applicable unless included in contract with insured); North River
Insur. v. Kowaleski, 275 Or 531, 534-35, 551 P2d 1286 (1976) (terms of
statutory model policy inoperative unless included in contract with insured).  Of
course, when we interpret such statutorily imposed terms, we are seeking
to identify the legislative policy choice that is represented in the statute.
4. In
2007, the legislature removed the reference to the "arbitration laws of
the State of Oregon" and substituted reference to "local court rules
in the county where arbitration is held."  Or Laws 2007, ch 328, §§ 2(2),
5.
5. We
also have some indication that, in 1997, when the legislature amended ORS
742.504(12), practitioners used a letter that included a "demand for
arbitration" to institute arbitration proceedings.  See Lind v.
Allstate Ins. Co., 134 Or App 395, 397, 895 P2d 327, modified on recons,
136 Or App 532, 534-35, 902 P2d 603, rev den, 322 Or 362 (1995) (demand
for arbitration contained in letters from plaintiff).
6. Defendant
characterized its letter as intended to avoid payment of attorney fees under ORS
742.061(1).  ORS 742.061(1) provides, in part, that, subject to certain
exceptions, 
"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."
ORS 742.061(3) provides one of those
exceptions:
"Subsection (1) * * * does not apply to
actions to recover uninsured or underinsured motorist benefits if, in writing,
not later than six months from the date proof of loss is filed with the
insurer:
"(a) The insurer has accepted coverage and
the only issues are the liability of the uninsured or underinsured motorist and
the damages due the insured; and
"(b) The insurer has consented to submit
the case to binding arbitration."
(Emphasis added.)  Defendant's representative testified, "If
we don't consent to binding arbitration and they file suit, then they're
entitled to attorney's fees no matter what the award is.  So that's why we send
that."  
1. That
subsection of ORS 742.504 provides:
"(12)(a) The parties to this coverage agree
that no cause of action shall accrue to the insured under this coverage unless
within two years from the date of the accident:
"* * * * *
"(B) The insured or the insurer has
formally instituted arbitration proceedings[.]"
2. For purposes of this discussion, there is no material difference in
the legal consequences that result from an "offer" to participate in
arbitration and a "consent" to arbitration.  Both an
"offer" and a "consent" to arbitration, however phrased,
commit the communicating party to participate in arbitration concerning the
underlying dispute.
3. ORS
742.061 provides, in part:
"(1) Except as otherwise provided in
subsections (2) and (3) of this section, 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.  If the action is brought upon the bond of a contractor or
subcontractor executed and delivered as provided in ORS 279B.055, 279B.060,
279C.380 or 701.430 and the plaintiff's recovery does not exceed 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 and allowed to the defendant
as part of the costs of the action and any appeal thereon.  If in an action
brought upon such a bond the surety is allowed attorney fees and costs and the
contractor or subcontractor has incurred expenses for attorney fees and costs
in defending the action, the attorney fees and costs allowed the surety shall
be applied first to reimbursing the contractor or subcontractor for such
expenses.
"* * * * *
'(3) Subsection (1) of this section does not
apply to actions to recover uninsured or underinsured motorist benefits if, in
writing, not later than six months from the date proof of loss is filed with
the insurer:
"(a) The insurer has accepted coverage and
the only issues are the liability of the uninsured or underinsured motorist and
the damages due the insured; and
"(b) The insurer has consented to submit
the case to binding arbitration."
(Emphasis added.)
4. The
trial court stated, correctly, that the court must focus on defendant's conduct
and its legal effect, not on defendant's intent and whether defendant might
have intended to comply with one particular statute rather than another:
"If I conclude that [the] insurance company
initiated formal arbitration proceedings, it may not matter whether they
intended to or not.
"[T]here are often unintended legal
consequences of people's conduct, and they may have intended to begin a
process, to use a term that's not in the statute, under another statute for
purposes [of] cutting off attorney fees and unwittingly have satisfied another
statute."
The legislature, in my view, should consider the
effect of the majority's conclusion on both ORS 742.504(12)(a)(B) and ORS
742.061.  The implication of the majority's reasoning is that the standard
operating procedure that defendant's claims representatives have followed for
many years to consent to arbitration under ORS 742.061(3)(b) may be legally
insufficient, thus exposing defendant to unanticipated claims for attorney
fees.  In my view, the legislature could not have intended to require a party
to use  magic words or phrases to effectively consent to arbitration.  The
legislature may wish to make clear that consenting to arbitration can be
accomplished by any written communication that in substance commits the party
to arbitration.