PCI Slams Oregon Bad Faith Proposals

A handful of bills proposed in Oregon could hit consumers with nearly $200 million in cost increases and yield a rash of lawsuits, according to the Property Casualty Insurers Association of America, which is urging Oregon lawmakers to defeat several bad faith laws introduced in legislature this session.

Six bills that either establish private rights of action for first party/third party claims, or extend the state’s Unfair Trade Practices Act to insurers, are in under consideration by the state’s Legislators: House Bill 2525, House Bill 3160, Senate Bill 512, Senate Bill 513, Senate Bill 514 and Senate Bill 686.

Many of the bills are aimed at bringing insurance issues under the state’s Unfair Trade Practices Act or enable first party/third lawsuits against insurers, establishing a separate private right of action outside of Oregon’s insurance code.

Several of the bills are authored by Rep. Paul Holvey, chair of the Consumer Protection and Government Efficiency Committee, and Sen. Chip Shields, chair of the General Government, Consumer and Small Business Protection Committee.

A spokesperson for Holvey did not return a call seeking comment. Shields’ office agreed to get the lawmaker to comment, but he did not do so.

In introducing and supporting such legislation Shields in statements has argued that insurance is the only line of business exempt from Oregon’s UTPA, the state’s consumer and business protection statute prohibiting fraud in business transactions

“No company in the State of Oregon should be able to misled or mistreat you, no matter what industry they are in, ” Shields said in a statement.

HB 2525, for example, would direct the court to award attorney fees in certain circumstances, it allows class actions against persons that commit unlawful insurance practices, and permits the state’s attorney general to punish unlawful insurance practice as unlawful practice under unlawful trade practices law.

Other bills contain similar language, and wording such as “Establishes private right of action for insurer’s or another person’s alleged unfair claim settlement practice,” or “Allows class actions against persons that commit unlawful insurance practices,” or “Permits person to obtain, and court to award, appropriate equitable relief in addition to monetary damages in action under Unlawful Trade Practices Act,” or “Includes insurance in definition of real estate, goods and services that are subject to penalties for unlawful trade practices.”

Kenton Brine, PCI assistant vice president, said these bills will create a potential flood of lawsuits in the state and drive up the cost of insurance – according to PCI it would push up consumer costs nearly $200 million.

“Everybody gets the right to sue,” Brine said of the bills’ potential impact, adding that this kind of legislation will “establish so many avenues for filing lawsuits and leveraging higher settlements.”

The “real intent” of the bills, according to Brine, is to force insurers to settle for more money, whether a claim merits more money or not.

Brine is warning Oregon lawmakers to pay close attention to the cost increases resulting from expansion of bad faith laws in states like California, Florida and Washington.

He cited study by the West Virginia Insurance Commissioner showing insurers operating in states allowing third-party bad faith lawsuits face bodily injury claim costs that are 25 percent higher than non-third-party tort states.

According to PCI, when the West Virginia Legislature eliminated third-party bad faith lawsuits in 2005 it resulted in a $200 million savings in loss costs over the next five years. That’s according to an estimate by the Insurance Research Council stated in their report.

PCI’S own report provided findings from different studies examining the impacts on litigation and costs following enactment of bad faith statutes. After Washington enacted a first-party bad faith law in 2007, within slightly more than a year 1,000 notices of intent to file a lawsuit had been filed with the insurance commissioner’s office; Two years later 1,400 more notices were filed; Washington’s four-year average auto personal injury protection claim cost rose more than 5 percent faster after enactment of the new law, to 25.2 percent post law from 19.7 percent prior; during the first two years of Washington’s first-party bad faith law, the homeowners loss costs rose an additional 21.9 percent compared with other states, costing an additional $190 million in losses for Washington residents.

The Royal Globe Ins. Co. vs. Superior Court decision in 1979 resulted in a bad faith doctrine, boosting the annual bodily injury insurance premiums in California between 32 and 53 percent from 1979 to 1988. That’s according to the Berkeley Research Group report, “The Impact of Bad Faith Lawsuits on Consumers in Florida and Nationwide,” in 2010 which cites a RAND study, “The Effects of Third-Party, Bad Faith Doctrine on Automobile Insurance Costs and Compensation,” 2001.

The elimination of Royal Globe, overturned by the California Supreme Court with Moradi-Shalal v. Fireman’s Fund Insurance Companies in 1989, reversed this trend and the average bodily injury payment in California fell relative to that in 29 out of 31 other tort states, according to a RAND Institute for Civil Justice report, “The Effects of Third Party, Bad Faith Doctrine on Automobile Insurance Costs and Compensation,” in 2001.

States that have UTPA laws that apply to insuers and have a private right of action include: Arizona, California, Connecticut, Washington, D.C., Hawaii, Illinois, Indiana, Massachusetts, Maine, Minnesota, Missouri, Montana, North Carolina, New England, Nevada, New York, Ohio, Pennsylvania, South Dakota, Tennessee and Washington.
Iowa, North Dakota and Oklahoma have UTPA that applies to insurers, but no private right of action, while Texas only allows the attorney general to pursue UTPA actions, and in West Virginia the unfair claims practice law is part of UTPA.