Formal Institution of Arbitration Proceedings
Requires More Than Consent to Arbitrate

In Bonds v. Farmers Ins. Co. of Oregon, 227 Or App 185, 205 P3d 45 (2009), the Court of Appeals recently discussed the two-year statute of limitations provision for UM/UIM (Uninsured Motorist and Underinsured Motorist) claims.  According to ORS 742.504(12)(a), an insured seeking UM/UIM benefits must within two years of the accident either: 1) settle with the insurer; 2) sue the UM/UIM driver or the insured; or 3) “formally institute arbitration proceedings” against the insurer.  The Bonds Court held that “formally institute” requires more than simply sending a letter agreeing to arbitrate.

In Bonds, within 6 months of receiving proof of loss of a potential UM/UIM claim, the insurer sent the claimant an ORS 742.061(3) safe harbor letter, in which the insurer confirmed coverage, stated that the only issues were liability and damages, and offered to resolve those issues through binding arbitration.  The claimant’s attorney did not respond to the insurer’s letter until after the two-year statute of limitation had passed.  In addition, the claimant did not file a claim against the UM/UIM driver and did not settle with the insurer.

After the two-year period had passed, the insurer informed the claimant’s attorney that UIM benefits would no longer be available and denied the claim.  The claimant then filed an action seeking UIM benefits, and the trial court held that the safe harbor letter sent by the insurer in which the insurer consented to arbitration qualified as formal institution of arbitration and thereby met the requirement of ORS 742.504(12), making the claim timely.

On appeal, the Oregon Court of Appeals overturned the trial court’s findings.  First, the appeals court held that formal institution of arbitration did not require complete offer and acceptance or mutual agreement.  According to the Court, it is sufficient that just one party “institute” arbitration proceedings.  However, the Court concluded that the term “formally institute” required formality consistent with the Uniform Arbitration Act and ORS 36.635(1).  Under that statute, one party must provide notice 

“in a record to the other parties to the agreement to arbitration in the agreed manner between the parties or, in the absence of agreement, by certified mail, return receipt requested and obtained, or by service as authorized for summons under ORCP 7 D.  The notice must describe the nature of the controversy and the remedy sought.”

Thus, the mere fact that the insurer sent a safe harbor letter consenting to arbitration at some time did not “formally institute” arbitration.  Rather, pursuant to ORS 36.635(1), one of the parties needed to serve the other by certified mail, return receipt requested with a letter indicating his agreement to arbitrate.  Accordingly, the Court of Appeals reversed the trial court and held the claimant was barred from bringing a UIM claim because the two-year limitation period had expired. 

Insurance Defense Team

Eric Kekel, Leader
Randy Arthur
John Barhoum
Anne Foster
Damon Henrie
Sam Smith
Don Templeton
Tom Tongue

AUGUST 2009