S057422, Opinion — Bonds v. Farmers Ins. Co.

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Argued and submitted March 1, decision of Court of Appeals affirmed; judgment of
circuit court reversed, and case remanded to circuit court for further proceedings
October 14, 2010

Robert BONDS,
Petitioner on Review,
v.

# FARMERS INSURANCE COMPANY OF OREGON, Respondent on Review.

(CC 051213375; CA A134011; SC S057422)
240 P3d 1086

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## En Banc

On review from the Court of Appeals .*

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 judg-
ment 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).

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# 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 under-
insured motorist (UIM) benefits, an insured or an insurer
must expressly communicate to the other party that the ini-
tiating party is beginning the process of arbitrating a dis-
pute. 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 auto-
mobile 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 defen-
dant 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. Sub-
sequently, a claims representative for defendant sent plain-
tiff's lawyer two letters. The first letter acknowledged plain-
tiff's UIM claim and stated, "Should we disagree on the
liability/damages owed by the underinsured motorist, [defen-
dant] 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 representa-
tive 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 rep-
resentative offered, however, to consider additional informa-
tion 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 defen-
dant regarding the UIM claim. When plaintiff's lawyer said

: The second letter is not in the record. The representative testified to the con-
tents of the letter at trial.

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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 con-
trary. 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 insti-
tute 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 institu-
tion 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.

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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 insti-
tuted arbitration proceedings[.]"3

Defendant argues that we can determine the mean-
ing of ORS 742.504(12)(a)(B) by considering its context and
that neither party may formally institute arbitration pro-
ceedings under ORS 742.504(12)(a)(B) until both parties
have agreed to arbitrate under ORS 742.504(10). That sub-
section 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 vehi-
cle 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

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 provi-
sions of the statutory comprehensive model policy. ORS 742.504; Vega v. Farmers
Ins. Co., 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.

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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 cover-
age in the event of such election."

Former ORS 743.792(10) (1967), renumbered as ORS
742.504(10) (1989) (emphasis added). The predecessor to sub-
section (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)

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not to compel arbitration by unwilling party and not to vio-
late right to jury trial). After Molodyh, an "arbitration trap"
existed. That is, one party could demand arbitration, the par-
ties 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). Sen-
ate Committee on Business, Law and Government, SB 645,
May 8, 1997, Ex K, p 1 ("Summary of SB 645-2"). The legis-
lature 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 pre-
requisite 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 arbi-
trate under subsection (12), the other could avoid binding
arbitration by refusing to consent. It is reasonable to con-
clude 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 par-
ties to the resulting arbitration award, the legislature also
intended that that mutual agreement would occur before
institution of arbitration proceedings under subsection (12).

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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 refus-
ing 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 legisla-
ture 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 sub-
section (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 proceed-
ings and satisfy the statutory limitations period.

The legislative history of ORS 742.504 does not pro-
vide 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 agree-
ment to arbitrate has been reached, not as addressing the
action necessary to meet the timeliness requirements of sub-
section (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, subsec-
tion (12) sets out the circumstances that must exist for a
claim for benefits to accrue and explicitly permits either

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party, acting alone, to "formally institute" arbitration pro-
ceedings.

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 require-
ments 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 "for-
mally 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 Arbitra-
tion 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

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.

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we disagree with the contrary conclusion of the Court of
Appeals.

Alternatively, defendant argues that "arbitration
proceedings are 'formally instituted' when the process of arbi-
tration 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 pre-
scribed 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 'for-
mally institute' arbitration means to commence and estab-
lish 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 par-
ties 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 insti-
tute" do not impose a requirement of mutual agreement and
that initiating arbitration should be pragmatic and uncom-
plicated, 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 spec-
ify the custom or rule to which the parties should adhere.5 We

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 arbitra-
tion" 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).

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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 straight-
forward meaning than the one that the Court of Appeals sug-
gested in Sanderson. "Institute" can indicate bringing some-
thing into existence, establishing something, or creating a set
of procedures. However, it also may indicate simply a begin-
ning: "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 arbitra-
tion process.

That said, however, we must address whether defen-
dant'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, [defen-
dant] 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 com-
munication, 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 doc-
uments that are part of a single message, a notice, offer, or

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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 combi-
nation, the trial court correctly concluded that defendant had
agreed to arbitrate the dispute if necessary and that defen-
dant's rejection of plaintiff's claim for damages was an indi-
cation 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-disagree-
ment-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

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 cer-
tain 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 pol-
icy 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."

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limits of ORS 742.504(12)(a)(C) and does so even if the par-
ties 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 proceed-
ings must explicitly offer to arbitrate or demand arbitration
to expressly begin that process. Where, as here, a party's con-
sent 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 par-
ties to arbitrate their dispute. The majority adopts the latter
conclusion. I respectfully disagree.

Before addressing the majority's answer to that ulti-
mate question, I turn first to several intermediate conclu-
sions that, in my view, the majority decides correctly. First, I
agree that the arbitration procedures described in ORS

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[.]"

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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 pre-
scribed 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 agree-
ment 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 uni-
laterally, that is, without the participation, consent, or agree-
ment 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 correspon-
dence of defendant's claims representative "formally insti-
tuted 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 initi-
ating arbitration between parties to an "agreement to arbi-
trate"). 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 con-
cerns whether a party's offer or consent to participate in arbi-
tration qualifies as the formal institution of arbitration
proceedings under the statute.2 According to plaintiff, defen-
dant's first letter clearly expressed consent to arbitration but

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 "con-
sent" to arbitration. Both an "offer" and a "consent" to arbitration, however

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that consent was subject to a condition: that there be a dis-
agreement between the parties about the "liability/damages
owed by the underinsured motorist." That condition, accord-
ing to plaintiff, was satisfied when defendant's claims repre-
sentative, 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. Defen-
dant responds that the letters do not convey a consent to arbi-
tration, because the first letter consented to arbitration con-
ditionally and the second letter did not mention arbitration.

I note at this point that there is no doubt that defen-
dant's claims representative intended her two letters to con-
vey 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. How-
ever, subsection (3) of that statute nullifies that authority in

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 pol-
icy 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 attor-
ney 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 sub-
contractor for such expenses.

"(3) Subsection (1) of this section does not apply to actions to recover unin-
sured 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.)

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an action to recover UIM benefits if the insurer, timely and in
writing, accepts coverage, leaving in dispute only the under-
insured 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 arbi-
tration 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 defen-
dant the protection of ORS 742.061 against an award of
attorney fees, her correspondence could be equally effective

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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 insti-
tute arbitration proceedings under ORS 742.504(12)(a)(B),
"an insured or insurer must expressly communicate to the
other party that the initiating party offers to arbitrate or
otherwise commits to the arbitration process." 349 Or 152 at
162. 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 insuffi-
cient 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

4 The trial court stated, correctly, that the court must focus on defendant's con-
duct 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 stat-
ute, under another statute for purposes [of] cutting off attorney fees and unwit-
tingly have satisfied another statute."

The legislature, in my view, should consider the effect of the majority's conclu-
sion on both ORS 742.504(12)(a)(B) and ORS 742.061. The implication of the major-
ity'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.

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event and that party does not expressly advise or acknowl-
edge to the other party that that event has occurred, no 'for-
mal institution' of arbitration proceedings has occurred."

Id. at 163-64 (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 dis-
pute. That step is the formal institution of arbitration pro-
ceedings; that first step toward arbitration will lead to bind-
ing 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 dis-
agreement on the "liability/damages owed by the under-
insured motorist." The second letter, described by Ms. Barton
in her testimony, confirmed defendant's position that plain-
tiff 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 arbi-
tration became unconditional and, thus, legally effective. The
second letter stated, in legal effect, that the alleged underin-
sured motorist had no further liability, and owed no addi-
tional damages, to plaintiff and, thus, plaintiff was not enti-
tled 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

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<!-- PageHeader="Bonds v. Farmers Ins. Co." -->

satisfied. The majority's conclusion that that sort of addi-
tional 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 inconsequen-
tial 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 exis-
tence 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.