Oregon’s ‘Second Lawsuit’ Legislation Could Cause More Fraud, Higher Insurance Costs and Congested Courts

SALEM, Ore., Feb. 15 -- The Property Casualty Insurers Association of America issued the following news release:

The Oregon House Judiciary Committee considered legislation (HB 4136) today that would have imported the costly legacy of "bad faith" litigation from neighboring states into Oregon and decided they will not take action on the bill this year.

Four insurance trade associations joined forces in urging the House Judiciary Committee to reject the bill. The trade associations, the American Insurance Association (AIA), the National Association of Mutual Companies (NAMIC), the Northwest Insurance Council (NWIC) and the Property Casualty Insurers Association of America (PCI) opposed HB 4136 because it would have added even more litigation in Oregon as it would provide a new form of tort litigation for trial lawyers against insurers. The bill would have allowed lawsuits by first and third parties against insurance agents for the actions of an insurer.

"We appreciate the House Judiciary Committee taking a close look at the track record of California and Washington in order to understand that this bill is a bad idea for Oregon that could result in higher insurance costs, more fraud and clogged court houses," said Kenton Brine PCI assistant vice president. "When California adopted a similar law auto accident lawsuits nearly doubled to more than 91,400 cases before the the state Supreme Court struck down the "second lawsuit" rule. Then legislators took a second swing at the ball by passing another law, which voters repealed by a 3 to 1 margin in a voter referendum."

"Oregon's Unfair Claim Settlement Practices Act already provides insurance consumers with appropriate legal and regulatory protections to ensure that insurance carriers adjust claims in a fair, equitable and timely manner," said Christian Rataj, NAMIC state affairs manager, western region. "This legislation is really just a legal 'wolf in sheep's clothing' designed to coerce insurers into paying unjustified nuisance settlements, and will facilitate costly and protracted class action lawsuits. In effect, HB 4136 would have transformed the claims settlement process into a bad-faith litigation war zone dominated by frivolous lawsuits."

In 2007, proponents of a Washington "bad faith" measure said the new law would be used infrequently. Public Records show more than 1,100 "bad faith" pre-lawsuit notices were filed in the first 14 months alone that the law was on the books.

"Montana law allows these kinds of tort lawsuits by third party plaintiffs against insurers, to the benefit of plaintiffs' attorneys, and Montana drivers now pay among the highest rates in region," said Marjorie Berte, AIA vice president. "Oregon would do well not to follow in its neighbor's footsteps." Auto insurance rates in Montana are 40 percent higher than North Dakota, 30 percent higher than South Dakota, 20 percent higher Wyoming and 16 percent higher than Idaho.

"Oregon's economy has been hard hit by the recent financial crisis. Now is not the time to enact laws that will increase costs, incentivize expensive litigation and create opportunities for fraud," said Karl Newman, NWIC president. "Committee members should learn from the onerous laws enacted in the other western states and say no to HB 4136."

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