26 Trial Lawyer • Spring 2023 ance company in the event they are successful. The insurance company has no right to attorney fees if it loses. This leverage is powerful. Use a lawsuit A second option to consider is pursuing a lawsuit directly against the defendant’s insurance company. ORS 742.031 provides such a right. Generally speaking, if the plaintiff secures a judgment that is unsatisfied for 30 days, this statute permits the plaintiff to proceed with its own direct claims against the defendant’s insurance company to recover the amount of the judgment (up to policy limits). Unlike garnishment, which is statutorily technical, pursuing a direct action via ORS 742.031 does not have any unusual requirements. Instead, plaintiffs need only worry about the usual rules of litigation and the merits of the claim for coverage. For this reason, many attorneys are simply more comfortable with this option. Neither garnishment nor pursing a direct action requires any assistance from the defendant, such as obtaining an assignment of rights or actions from the defendant. So, where you are unable to communicate with the defendant, the defendant simply is not helpful in any way, or defendant is out of business, you are not stuck. Instead, after receiving a judgment, you are able to issue a writ of garnishment and proceed against the insurance company, or you can initiate a direct action against the insurance company. Insurance company liability What about the situation involving the insurance company that won’t pay to settle during litigation? In this situation, you also have an additional option. As noted above, an insurance company that is defending assumes fiduciary-like obligations owed to their policyholder, including the obligation to affirmatively and in good faith seek settlement of the lawsuit within policy limits. When the insurance company breaches that obligation, it may be held liable to its policyholder for tort-based “bad faith” damages. In this scenario, the insurance policy limits cannot shield the insurance company from its bad faith liability. Instead, it is liable for whatever harm it causes as a result of its failure to reasonably settle within policy limits. In situations like this, an insurance coverage counsel is often engaged (by plaintiffs and defendants alike) to assist with negotiating a settlement that includes a stipulated judgment and a covenant not to execute against the defendant’s non-insurance assets. Anyone who has participated in such a settlement is likely aware of the multiple pitfalls involved with documenting it correctly. Needless to say, insurance companies look for every opportunity to challenge any such attempt to hold them accountable in these situations. There has been much litigation over the technical aspects of documenting a stipulated judgment and covenant not to execute that insurance coverage attorneys closely follow to ensure such an agreement is valid and enforceable. Precisely complying with the technical requirements is critically important and time should be spent understanding the legal issues before attempting to resolve a case in this manner. ORS 31.825 generally sets the foundation for pursing such a settlement and permits defendant to assign any cause of action against its insurance company to plaintiff after a judgment. Some insurance companies attempt to invoke the so-called “antiassignment” clause contained in most policies as a defense against an assigned claim. However, a properly documented agreement should survive any such challenge. Assignment after judgment One key in this process is that the assignment must come after the judgment. As such, in order to perform a stipulated judgment and covenant not to execute, the defendant must agree to a judgment and allow it to be entered against it before any assignment can be effective. But how do you present this idea to the defendant that is represented by insurance defense lawyers who are being paid by the insurance company you want to sue? Because insurance defense lawyers under Oregon law have a tripartite relationship — that is, they owe duties to both the insurance company and the policyholder. Most (if not all) will recuse themselves from any efforts or discussion concerning a stipulated judgment and covenant not to execute to avoid any ethical issues concerning their duties owed to the insurance company. At this point, independent lawyers should be retained (to represent the defendant) who owe no duties to the insurance company. Seasoned insurance coverage attorneys are intimately familiar with these issues and routinely assist in these situations. Once the paperwork is signed, the plaintiff now holds the defendant’s claims against its own insurance company. In many cases, the stipulated judgment will be for an amount exceeding the defendant’s policy limits. With a garnishment or direct action only, plaintiffs may not be able to pursue damages exceeding policy limits. With a stipulated judgment and covenant not to execute, however, Insurance Continued from p 25 ...an insurance coverage counsel is often engaged (by plaintiffs and defendants alike) to assist with negotiating a settlement that includes a stipulated judgment and a covenant not to execute against the defendant’s non-insurance assets.
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