Oregon Creates Pro-Policyholder Insurance Law

My colleague, Dave O’Neill, Director of PolicyFind, recently wrote a blog about a new law passed by the Oregon Legislature that sets out a new statutory scheme relating to various insurance issues regarding environmental claims. Since he has already conducted the research, I would hate to not take the opportunity to shout this news from the top of Mt. Hood. But before we jump into the historic new legislation, I need to give some background.

Around 2001 or so, I was involved with drafting new language for the Oregon legislature whereby a dry cleaner would need to look for evidence of their historical insurance if they wanted to be accepted into the Oregon Dry Cleaner Program. The intent of the law was to preserve the capitol in the Cleanup Fund for those dry cleaners that did not have historical insurance that could be brought to bear to pay for environmental investigations and cleanups associated with the unexpected or unintended releases of dry cleaning solvents. Let’s face it, the Cleanup Funds are wonderful concepts, but it is very difficult for them to be self-sustaining. It is very difficult to generate enough money to pay for environmental investigations and cleanups from taxes derived on clothes being processed or dry cleaning solvents being purchased. Unfortunately, the intent of the law was difficult to adequately enforce because all a dry cleaner had to do was attempt to look for old policies and there was never a clear definition of what such an effort would entail.

In addition, the insurance law in Oregon, while favorable to policyholders, did not create any penalties against insurance carriers when they were not meeting their obligation of defending a claim. I was involved with a situation with a prominent dry cleaner and we were able to find insurance that, by the letter and intent of the law, would provide a defense for the cleaner. Such a defense would, at a minimum, include conducting soil and groundwater quality investigations in order to determine how big the problem was or wasn’t and what it would cost to get the site cleaned up. The insurance company, which I would consider anything but “a good neighbor,” fought us every step of the way. They wouldn’t agree to reasonable work scopes necessary to delineate the liability, they would switch claim handlers routinely so the new claim handler would need more time to get up to speed, they wouldn’t even pay reasonable bills after agreeing to specific work scopes. They hired their own environmental consultant that insisted that the dry cleaning chemicals must have come from a release that post-dated their coverage. While that did not surprise me, they caught me off guard when they finally agreed to do some investigative work, but only if the client would use the same consultant that tried to establish grounds to deny coverage. The problem with the law at the time was that there was no downside to the carriers not fulfilling their legal obligation. If the policyholder didn’t like the carrier’s behavior or tactics, they would have to sue the insurer on their own dime. If the policyholder won the case the carriers would then have to perform the responsibilities they were already suppose to be performing, so there literally was no downside to the carriers when they did not fulfill their legal contractual obligations. It probably goes without saying that the “good neighbors” left us with a large unpaid bill.

That was then and this is now and as of this summer, things are a whole lot better for policyholders. Senate Bill 814, as enacted amends ORS 465.479 and ORS 465.480 to create new provisions regarding several important issues pertaining to the identification of lost general liability insurance policies, the rights of policyholders and insurers under these policies and the tendering of environmental damage claims.

Treble Damages

Senate Bill 814 gives policyholders the right to sue insurers for bad faith and collect triple the actual damages when insurers fail to quickly investigate or pay claims, wrongfully deny a claim or delay payments to policyholder attorneys or consultants.

Choice of Laws

The new Oregon statute clearly states that if the site of environmental damage is in Oregon State, Oregon insurance law pertains.

 Owned Property

 Exclusion Diminished

The “Owned Property Exclusion” has sometimes been cited by insurers as a reason not to pay the full cost of environmental clean-up. Under Oregon’s new statute however, policy provisions that bar coverage for pollution on the insured’s own property cannot be enforced if there is any possibility of pollution migrating onto neighboring lands, wetlands or waterways. This replaces the ruling of the Oregon Supreme Court in Schnitzer Invest. Corp. v. Certain Underwriters at Lloyds of London, 137 P.3d 1282 (Ore. 2006).

Assignments of Policy Rights

Senate Bill 814 renders “anti-transfer” clauses in general liability policies inapplicable to environmental property damage claims. It allows policyholders to assign their rights under general liability insurance policies to claimants, allowing these claimants to then stand in the policyholder’s shoes in pursuing the claim. This provision goes beyond the law in most states that require the insurer to first have breached the insurance contract by wrongfully failing to provide a defense. Here there is no such prerequisite.

Policy Searches Required

Senate Bill 814 requires policyholders to conduct a diligent records search as a prerequisite to putting alleged insurers on notice of lost general liability insurance policies. At minimum, this search must include a thorough review of the insured’s own insurance records and those of its past and present insurance agents.

All notices of lost policies must be made by the policyholder in writing. Within thirty days of receiving written notice of a lost policy, an insurer must begin an investigation of its own records and if it determines that it issued the lost policy, it must investigate whether the terms and conditions of the lost policy relate to the environmental claim as filed. If the insurer is unable to locate portions of the lost policy or determine its terms, conditions or exclusions, the insurer must provide copies of all potentially applicable policy forms it had in use at the time of the issuance of the lost policy. Should it be unable to do this, it must explain to the policyholder why it cannot.

Policy Limits Determined

If as a result of its diligent search, the policyholder can produce documents that “tend to show” the policy limits applicable to a lost policy, then the burden of proof shifts to the insurer to prove that other limits or exclusions apply. Should the policyholder’s search establish that the insurer was the likely issuer of a lost policy but does not identify the policy’s limits, the new law creates an assumption that the minimum policy limits and exclusions in use by the insurer apply.

PRP Notice Can Be “Suit”

Should the insuring agreement of the policy require a “suit” or a “lawsuit” to trigger the insurer’s duty to defend, Senate Bill 814 makes it clear that litigation is not required. Actions taken under the written direction of the Oregon Department of Environmental Quality (“DEQ”) or the United States Environmental Protection Agency (“USEPA”) will constitute a “suit” or “lawsuit” to satisfy these policy requirements. Furthermore, “insurance coverage for any reasonable or necessary fees, costs or expenses, including remedial investigations, feasibility study costs and expenses” in response to such administrative directives “shall not be denied” as long as the directives are in writing.

Oregon An “All Sums” State

Should the identified general liability policy provide that the insurer has a duty to pay “all sums” arising out of a risk covered by the policy, the insurer “must pay all defense or indemnity costs” up to its limit of liability. The policyholder must place all known insurers on notice but may select which of its policies will be required to satisfy its claim.

Defense and Indemnity Defined

The new Oregon statute also creates a rebuttable presumption that the costs of preliminary assessments, remedial investigations, risk assessments or other necessary investigations are defense costs payable by the insurer as required by its policy’s provisions. Further, it creates a second rebuttable presumption that the costs of remedial actions and feasibility studies are indemnity costs that reduce the insurer’s limit of liability on its indemnity obligations under its policy.

Independent Counsel 

and Consultants

Once the insurer has undertaken a defense of the policyholder’s environmental claim under a reservation of rights, the insurer is required to provide independent counsel to defend the insured “who shall represent only the insured and not the insurer.” The insurer may also retain environmental consultants to assist an independent counsel. Should counsel and consultants experienced in “responding to the type and complexity of the environmental claim at issue” not be available in the insured’s community, those outside the community “must be considered.”

That my fellow business owners, is pro-policyholder insurance law! Maybe I’ll get those outstanding invoices paid after all.