As my colleague, Kevin Mapes, wrote in an article last year, an insurer had raised the hackles of policyholder-side lawyers in Oregon in arguing that insureds successfully suing their insurers for coverage could not recover their attorneys’ fees if the insurer had lost its fight in federal court in Oregon, rather than one of Oregon’s state courts. This argument was especially troubling in light of the tactical choice of many insurers to “jump” an insured by rushing into federal court for a declaration about coverage rather than waiting for the insured to sue the insurer for coverage in state court.

This malicious trap, however, will not be available for insurers under the Ninth Circuit’s recent holding in Schnitzer Steel Indus., Inc. v. Continental Casualty Co. The insurer in this case, Continental Casualty, argued on appeal (as it did to the trial-court judge) that Continental should elude payment of Schnitzer’s $3.5 million in attorneys’ fees because Oregon’s fee-shifting statute, ORS 742.061, permits insureds to recover attorneys’ fees in lawsuits “brought in any court of this state upon any policy of insurance.” Continental asked the Ninth Circuit to interpret “of this state” to mean only state circuit courts in Oregon, but not the federal district court in Oregon.

The Ninth Circuit was having none of it. In only a single paragraph of its opinion, the court held that ORS 742.061 is part of Oregon’s “substantive law” and its concomitant “substantive policy” regarding coverage disputes, which cannot be subject to the manipulative whims of an insurer seeking a friendlier refuge in federal court than it would find, for the same coverage dispute, in state court.

This holding is especially welcome for policyholders’ lawyers because Oregon’s legislature has refused to follow the example of Washington and California, states with far more muscular protections for insureds battling their insurers’ bad-faith denials of coverage. The threat of paying its insured’s attorneys’ fees remains one of the few, but potent, weapons insureds in Oregon can count on — no matter the court where the fight is carried on.