A measure making Oregon insurers subject to an act that protects consumers from fraud passed the state House in Oregon this week to the chagrin of companies that say it will make the state overregulated and litigious.
HB 3160 would repeal the insurance industry’s exemption from the Unlawful Trade Practices Act (UTPA), meaning that the state attorney general and consumers are barred from suing insurers for fraud.
Under the bill, that exemption would be removed to allow such legal action, in addition to third-party claims brought by “harmed individuals” who, believing companies have negotiated in bad faith, have a “private right of action” for claims payments they believe the insurers still owe them.
Representatives in the state House passed the bill by a 33-27 vote this week, pushing the proposal to senators for further consideration.
A Senate bill companion, SB 686, is scheduled for a “work session” on April 12 in the Senate Committee on General Government, Consumer and Small Business Protection.
Insurers, Business Groups Say Bill Will Attract More Claims Litigation
The Standard, a coverage provider, said that the bill would make in-state insurers “a magnet for litigation” from out-of-state plaintiffs and ultimately brand the Beaver State as an unsavory place for insurers to locate their headquarters.
“The real effect will be to encourage residents of other states to file suit in Oregon to obtain the enhanced damages,” the Portland-based insurer said in testimony delivered to the House Committee on Consumer Protection and Government Efficiency. “The only insurance companies susceptible to suit in Oregon by residents are insurance companies headquartered here, like The Standard.”
Committee members eventually recommended the bill’s passage with a 6-3 vote.
Corvallis Insurance Services, based in Oregon, said an increase in litigation would “further the backlogs in our legal system and doesn’t enhance the state’s economic position.”
The National Association of Mutual Insurance Companies (NAMIC) said a jump in bad faith lawsuits increased bodily injury premiums in California between 32 and 53 percent after a state Supreme Court ruling allowed third-party bad faith litigation against insurers.
“It is an irrefutable fact that litigation is expensive and that it drives up the cost of all business products and services,” the organization said in its testimony.
The proposal also attracted opposition from state business groups.
Associated Oregon Industries (AOI) said HB 3160 would discourage a “positive business environment” while the Oregon Business Association (OBA) said increased expenses for insurers fighting off lawsuits would mean higher premiums for consumers.
Both organizations said that current industry regulation is handled by state regulators. Replicating that existing “framework” would impede business and make it inefficient, according to the OBA.
“This is the wrong time to embark on an experience that increases litigation and insurance costs,” D.J. Vogt, legislative director for the OBA, told committee members.
Former Governor Says ‘the Time has Come’
However, Theodore Kulongoski, a two-time state governor and former regulatory commissioner, said that timing was exactly the reason for his backing of HB 3160 and SB 686.
In a statement delivered at the committee’s March 26 hearing on HB 3160, Kulongoski said the “meltdown” of the financial services sector in 2007 should emphasize the importance of consumer protection.
“Most insurance companies follow the law, but there are bad actors in every business who ruin consumers’ lives and destroy businesses,” he said. “Giving Oregon consumers a private right of action to protect themselves is a simple, cost-effective way to afford consumers a measure of protection.”
As commissioner of the state’s department regulating insurers, Kulongoski said he opposed adding carriers to UTPA rules but was convinced to an about-face on the issue because of the recession.
“The recession must be a wake-up call for public officials to provide greater consumer protection against fraudulent business practices in the financial services markets … of which the insurance industry is a major part,” he said.
Witnesses testifying in support of the bill also included Wendi Rockholt, a resident of Mulino, Ore., who said she was injured in a car crash six years ago, rendering her unable to stand or sit for long periods.
A visit from a Farmers claims adjuster became “very uncomfortable” when “he still wouldn’t leave” without Rockholt signing settlement documents, she said.
“He put his foot up on a chair on my porch and pushed his clipboard at me,” she told committee members. “So I finally just signed the papers the adjuster kept forcing on me.”
Rockholt said her signature authorized a “super lowball offer of no more than $1,500” that covered little of her medical costs. She was forced to hire an attorney after her insurer “wouldn’t budge.”
“That adjuster lied to me and bullied me into signing something I was unsure of,” she told committee members. “I hope you stand up for people like me and make insurance companies play by the same rules and not allow them to bully and intimidate people.”