Oregon insurance and environmental contamination law has undergone major and far-reaching changes in favor of policyholders and landowners with the enactment of Senate Bill 814. The bill went into effect on June 10, 2013 after it was signed by Governor Kitzhaber. The bill had overwhelming support from the Oregon Legislature. In fact, it passed both chambers of the Oregon Legislature with only two votes against. Importantly, SB 814 applies not only to new environmental claims, but to existing and even past claims, as long as no final judgment was entered on the claim before the bill became law.
The key changes from the new law include:
- It gives policyholders a right to sue insurers for bad faith and to collect up to three times the actual damages for a number of reasons, including failing to quickly investigate or pay a claim, wrongfully denying a claim, delaying payments for policyholders’ lawyers and environmental consultants, refusing to engage in nonbinding mediation and failing to pay interest on money the insurer owes. This is a dramatic change from previous Oregon law, which did not allow bad faith lawsuits against insurers except in very limited circumstances. The right to sue for bad faith is sure to tip the scales to policyholders in many disputes against insurers, as occurred in Washington when its bad faith laws were expanded several years ago.
- Policyholders have the right to retain independent counsel at the insurer’s expense in almost all pollution cases. This overrides the provision found in virtually all liability insurance policies that allows insurers to appoint counsel of their choice, usually without consulting the policyholder. “Independent counsel” means policyholders get to chose their own attorneys and that those attorneys represent only the policyholders’ interests and are not controlled or directed by insurers. The new law does not completely strip insurers of input in the selection of counsel, and policyholders and their attorneys will still have a duty to cooperate with insurers, but the effect of this provision will be a wider range of attorneys available to policyholders and a significant increase in the rates attorneys charge insurers.
- Provisions in liability policies that bar coverage for pollution on the policyholder’s or landowner’s own property cannot be enforced if that pollution presents any possibility of damaging a neighbor’s property or the state’s waterways and underground water. This “owned property” exclusion is sometimes, but not always, stated as a reason insurers should not pay the entire cost of a clean-up. This part of the new law makes it clear that when the pollution could migrate and cause future damage to wetlands, waterways or neighbors, it is part of the damage that insurers must pay for.
- Insurers cannot rely on so-called “anti-transfer” clauses to prevent policyholders from settling with claimants and assigning their rights under the policy. In years past, when an insurer refused to provide a paid defense to a policyholder who was sued, policyholder defendants who had limited resources frequently settled with plaintiffs in return for an agreed judgment and rights to sue the defendant’s insurer. This practice almost totally stopped, however, after a 2006 Oregon Supreme Court case said insurers could enforce provisions in policies that voided such transfers and that prevented plaintiffs from being able to sue insurers directly until they had obtained a judgment in court. The new law allows such settlements and assignments of policy rights, even where an insurer is actually providing a defense. This goes beyond the law in most states that allow such assignments – those states usually say the insurer must have first breached the contract by wrongfully failing to provide a defense.
The new law is the latest amendment to several existing Oregon statutes known as the Oregon Environmental Cleanup Assistance Act – Oregon Revised Statutes 465.475 to 465.480. The previous provisions relating to insurance coverage were enacted in 1999 and were much more limited. Because the new law applies mostly to insurance policies that are 30 to 50 years old or more, many anticipate that the law will be challenged as an unconstitutional retroactive impairment of existing contracts. Both the United States and Oregon constitutions contain prohibitions on legislative modification of existing contractual obligations. These constitutional provisions were enacted due to the experience of the fledgling United States under the Articles of Confederation that preceded the national constitution. Under the Articles of Confederation, state governments frequently favored debtors by passing laws that voided contracts after the creditor had performed under the contract.
The proponents of SB 814 said that the bill is constitutional because it does not take away all value of the insurance policies from insurers, the public policy behind the law is more important than the rights being taken away, and insurance is a highly regulated field where insurers expect significant oversight and involvement by state regulators and legislators.
Proponents also say the law’s “savings clause” makes it constitutional. That clause says that any part of the law that conflicts with “the intent of the parties” is void. This language, proponents claim, “saves” the law from being unconstitutional because it can never truly bar enforcement of the sections of an insurance contract discussed above if it is clear that the insurance company and the policyholder agreed on the meaning of terms and conditions in the policy. However, insurance policies are standard form contracts where insurers and policyholders seldom negotiate over what is in the policy and what it means. This leads to frequent disputes between insurers and policyholders, and requires courts to interpret what the policy’s terms mean. When Oregon’s Supreme Court says what certain language in a policy means, that settles the issue for others who have exactly the same dispute, because insurance law is governed by state rather than federal law, and the Oregon Supreme Court is the final arbitor of state law. But few disputes are exactly the same as the one in a particular court case, insurance policies and language change over time and often change from insurance company to insurance company. Small changes in language, or the addition of new sections of the policy, mean a court might make a different decision in another case.
Insurers are certain to challenge the new law on many different grounds, but it remains the law until a court rules otherwise. If the new law stands, it will fundamentally alter the relationship of insurers and policyholders for many environmental claims. Remember, however, that the new law applies only to environmental cleanup cases, and not to any other kind of liability claims.
This is a brief overview of the portions of the new law that will most directly affect policyholders and landowners. The law contains other provisions that will also be significant in many cases, but many of these are more complicated and won’t go into all of them here. Here is a link to the press release from the Oregon Legislature on this new law. The press release is not within its particular spin, of course.
I testified about this bill in the Oregon House and have analyzed its provisions pretty carefully. This is a very, very significant change for Oregon, a state that essentially had no bad faith law (except for excess verdicts) and where the tripartite relationship has long reigned. It won’t be long before we see this bill come up in environmental matters across the state, and I suspect the boundaries of what environmental contamination consists of will also be tested. If anyone has any questions about the bill and its effects, feel free to contact me.