For decades Oregon insurers have denied their own policyholder claims and made "low-ball" offers to their policyholders, forcing them to litigate instead of receiving a good faith settlement offer from their insurer. Oregon has been one of two states in the United States without the ability to sue an insurer for "first party" bad faith, regardless of whether the insurer denies a claim entirely, makes a clearly unreasonable settlement offer, or violates other legal requirements of insurers. Today, the Oregon Court of Appeals issued a 16 page opinion in Moody v. Federal Insurance Co., 317 Or App 233 (2022), that we believe will decrease the most significant insurer abuses, and potentially minimize improper insurance claim denials for personal and business losses from natural disaster losses in the future. To the extent it doesn't stop insurer abuses, it will provide a legal remedy for policyholders who are damaged through "bad faith" insurance company conduct.
The Oregon Court of Appeals has ruled that violations of ORS 746.230, provide a basis for suing an insurer for negligence per se as a type of insurance "bad faith" claim. This applies in "first party" cases between policyholders and their insurance companies, as third party bad faith between an injured person and the at-fault party's insurer for improper insurance claim practices already existed under Oregon law. Our office has substantial expertise in insurance claims practice cases, with Oregon insurance bad faith lawyer Aaron DeShaw authoring and editing multiple books on the topic, as well as our office being one of four firms involved in one of the largest insurance class action cases in U.S. history - Hensley v. CSC et al.
A bit of background on Oregon insurance claim handling practices:
Insurance companies registered with the National Association of Insurance Commissioners (“NAIC”), agree to the terms of the NAIC model act for Unfair Claims Settlement Practices adopted by the NAIC in the mid-1960s. This is an external standard of care for insurance company behavior, independent of the insurance policies issued by insurers and adopted by insurers as an NAIC member. The NAIC model act for Unfair Claim Settlement Practices was adopted by Oregon as the standards of care for handling insurance claims, as ORS 746.230. It was also adopted in every other state in the United States, and has served as the basis for bringing claims against insurers for violations of those laws. But, for reasons that are unclear, Oregon did not provide a clear path to litigate against the insurers when they violated the statute. When a legal cause of action is not clear in a statute, courts must consider the intent of the legislature when they passed the bill to determine what effect the law has.
The first version of the Oregon statute on unfair insurance claim settlement practices was enacted in 1967, based on the NAIC model act of that era. The language in the 1967 version (Section 558a) specifically addressed a very problematic issue for Oregonians – their insurer's intentional refusal to pay on the insurance coverage sold (sometimes under multiple separate insurance policies). It said;
“No insurer shall refuse, without just cause, to pay or settle claims arising under coverages provided by its policies and with such frequency as to indicate a general practice in this state:
(2) A substantial increase in the number of lawsuits filed against the insurer or its insureds by claimants;”
This language remains in the statute today in §2.
Subsequently, legislative history demonstrates that the statute was updated to follow the updated language of the NAIC model act of 1972, and in subsequent Oregon legislative sessions including the present NAIC model rules adopted in 1990. The Oregon Legislature amendment of ORS 746.230 in 1973 is the most important session in determining the legislative intent of the present version of ORS 746.230 because all of §1 of the present version of the statute was added at that time. Only minor changes have been made since that time. The audio recordings of the legislative hearings in 1973 demonstrate that the legislative intent for ORS 746.230 was to stop claim practice abuses within the insurance industry, primarily involving the claims of policyholders against their own insurers in “first party” insurance claims. That is, the claims that arise due to a refusal by the insurer to honor the insurance policy purchased by the policyholder. It is unclear that any prior court in any Oregon case has considered the legislative history when determining the intent of ORS 746.230. In review of the case law, our office has seen no such reference to the original intent of the Oregon Legislature in cases considering this statute, but it is very important in determining why the law was passed in the first place.
Audio recordings of a session on April 19, 1973 demonstrates that the amendment (HB 2999) was introduced by a Senator Howard after he found out that one of his constituents was unable to get a good faith offer in an insurance claim without involving his office to intervene on the policyholders behalf. The initial offer was $5,000 on what sounds to be a fire loss claim on the policyholder’s home. In the audio recordings Senator Howard testifies that the policyholder was “devastated” by the low offer from their insurance company. The audio recording notes:
“They called me, I called the insurance commissioner’s office and they said that they would look into it. Well, they wrote a letter to the man that had the loss and said that they recommended he accept the company’s offer. [Inaudible], but we have no authority to do anything else. And some way the insurance company found out that I had been asking questions about it and they settled that loss for $10,000. This is just not right. I know that sometimes, everybody needs a bit of policing and I think that [inaudible] to have the power to check on fire or automobile or whatever it is to see that the companies are doing what they should be.”
Both this introductory statement in the House Consumer and Business Affairs Committee, and subsequent discussions demonstrate that the legislative intent of HB 2999 (enacted as an amendment to ORS 746.230) was to provide a standard of care for the insurance industry’s operation within Oregon that followed the NAIC rules promulgated by the insurance industry itself. That language was introduced by then Oregon Insurance Commissioner Lester Rawls, and it is noted that by that time other states had already enacted the legislation to provide a cause of action (the ability to file a lawsuit) against insurers in other states for violation of the Unfair Settlement Practices Act. Testimony in the 1973 session by Oregon Insurance Commissioner Rawls is particularly telling, in that the problems this bill was intended to prevent continue to plague Oregon insurance claims in a much more notable way today – notably improper policy coverage denials:
“Some of these [insurance claim practices] are so ludicrous they’d be funny, but, unfortunately some of the insureds suffered great harm and inconvenience in many of these cases. Some of them you’ll notice that that the claims have been denied completely and they have a practice of denying all claims. And under (g) you’ll find that there was a windstorm loss and they flatly denied the claim and after the department was asked to get in and look the file over and talk to the company that was involved, they made a $15,000 settlement.”
[Keep in mind that is $15,000 in 1973 dollars, when a house didn't cost much more than that.]
The intent of the legislature was not to move all statutory violations of ORS 746.230 to the jurisdiction of the Oregon Insurance Division as has erroneously assumed by some courts in prior cases. In response to a question by Chair Roberts and a subsequent panel member, Insurance Commissioner Rawls noted “we can’t replace the courts in the Insurance Division. If there is a legitimate difference of opinion between the company and the beneficiary as to whether or not there was actually [inaudible], then I think that we still have to allow the judiciary to take care of that according to the law.” He goes on to note that while the Insurance Division can revoke an insurers ability to write insurance in Oregon, they cannot require the payment of claims. When asked the question “In other words you don’t have the authority to actually force them to make payment at all.” Rawl’s reponse was “No...So, we do not have the authority, nor do I think we should have the authority to force them to do it because if it's a legal matter involved then properly the courts [inaudible – but it is believed to be ‘must’].”
The clear legislative intent is that the claim handling requirements set forth by the Oregon Legislature in ORS 746.230 are intended to guide courts in making determinations about when a policyholder needs to be paid in a policy dispute. The standards of care in the statute are there to guide the courts in determining when an insurer must pay for a violation of the statute. In the House Committee Report for HB 2999 signed on April 23, 1973, under the heading “Explanation of the Bill” is the following stated objective for the legislation; “Prohibits insurers and other persons from performing certain unfair claim settlement practices.” Pursuant to ORS 174.020(1) in the construction of a statute, a court shall pursue the intention of the legislature if possible. Plaintiff has offered this court the legislative history of the statute to ensure it is correctly interpreted in this case pursuant to ORS 174.020(1)(b).
The purpose of ORS 746.230 is supported by ORS 731.008, which notes “The Legislative Assembly declares that the Insurance Code is for the protection of the insurance buying public.” Words in a statute are to be interpreted in their ordinary and usual signification. It is axiomatic that when the legislature in adopting an Act makes use of plain, unambiguous and understandable language, it is presumed to have intended precisely what its words imply.” See State v. Buck, 200 Or 87, 118, 262 P2d 495 (1953).
Until the Oregon Court of Appeals issued its decision in Moody v. Federal Insurance Co. today, insurers have argued that ORS 746.230 had no effect for the insurance buying public because Oregon law has not to date recognized a direct tort action for violation of ORS 746.230. In fact, we presently have cases with pending motions where that exact issue is before a court. But, the Oregon Court of Appeals has made clear that violations of the statute are the basis for negligence per se claims. What kinds of conduct is a violation of the Unfair Claims Settlement Act? Most of the abuses we see from insurance companies that have been rampant in Oregon well before the passage of the statute. The statute reads as follows:
(1)An insurer or other person may not commit or perform any of the following unfair claim settlement practices:
(a) Misrepresenting facts or policy provisions in settling claims;
(b) Failing to acknowledge and act promptly upon communications relating to claims;
(c) Failing to adopt and implement reasonable standards for the prompt investigation of claims;
(d) Refusing to pay claims without conducting a reasonable investigation based on all available information;
(e) Failing to affirm or deny coverage of claims within a reasonable time after completed proof of loss statements have been submitted;
(f) Not attempting, in good faith, to promptly and equitably settle claims in which liability has become reasonably clear;
(g) Compelling claimants to initiate litigation to recover amounts due by offering substantially less than amounts ultimately recovered in actions brought by such claimants;
(h) Attempting to settle claims for less than the amount to which a reasonable person would believe a reasonable person was entitled after referring to written or printed advertising material accompanying or made part of an application;
(i) Attempting to settle claims on the basis of an application altered without notice to or consent of the applicant;
(j) Failing, after payment of a claim, to inform insureds or beneficiaries, upon request by them, of the coverage under which payment has been made;
(k) Delaying investigation or payment of claims by requiring a claimant or the claimant’s physician, naturopathic physician, physician assistant or nurse practitioner to submit a preliminary claim report and then requiring subsequent submission of loss forms when both require essentially the same information;
(l) Failing to promptly settle claims under one coverage of a policy where liability has become reasonably clear in order to influence settlements under other coverages of the policy;
(m) Failing to promptly provide the proper explanation of the basis relied on in the insurance policy in relation to the facts or applicable law for the denial of a claim; or
(n) Any of the practices described in ORS 746.233 (Unfair claim settlement practices with respect to prior authorizations of health care items or services).
(2) No insurer shall refuse, without just cause, to pay or settle claims arising under coverages provided by its policies with such frequency as to indicate a general business practice in this state, which general business practice is evidenced by:
(a) A substantial increase in the number of complaints against the insurer received by the Department of Consumer and Business Services;
(b) A substantial increase in the number of lawsuits filed against the insurer or its insureds by claimants; or
(c) Other relevant evidence. [1967 c.359 §588a; 1973 c.281 §1; 1989 c.594 §1; 2014 c.45 §79; 2015 c.59 §6; 2017 c.356 §101; 2019 c.284 §10]
The very important outcome of this case was obtained by lawyer Travis Eiva of Eugene. We've been in contact with Mr. Eiva for the past several years, reviewed his briefs and arguments and were awaiting the outcome of this important case. We applaud this decision by the Oregon Court of Appeals because it will hopefully stop the most significant abuses of Oregonians by insurers. It confirms that what the legislature intended in 1967 and forward was to stop abusive insurance practices.
While the Moody case addressed the improper denial of a life insurance policy (yes, where the person died and the insurer refused the claim), the decision will impact auto insurance bad faith, disability insurance bad faith, health insurance bad faith and business insurance bad faith claims between the policyholder and their insurer. In the event your insurance company denied your claim improperly, or made an unreasonably low offer and then you obtained a much higher outcome at trial or arbitration, please contact our office via this form, or call us at (503) 227-1233 for a free consultation to discuss whether you may have a claim against the insurer for violation of ORS 746.230.