Oregon Considering New Punitive Damages Statute
Oregon House Bill 2791, currently before the state legislature, would create a private right of action against an insurer that engages in “unfair claim settlement practices,” as defined by ORS § 746.230. Among the practices penalized are an insurer’s misrepresentation of facts to the insured, its refusal to pay claims without conducting a reasonable investigation, and its bad faith denial of a claim.
Under current Oregon law, a plaintiff-insured who proves that his insurer violated the terms of the insurance policy is generally limited to a recovery of “actual damages” based simply on a breach of contract theory. Meanwhile, if HB 2791 passes, plaintiffs who establish that the insurer engaged in an “unfair claim settlement practice” would be entitled to reasonable attorneys fees and treble damages.
In effect, the statute, aimed at punishing and deterring “unfair” conduct, would prescribe a set formula for calculating punitive damages against offending insurers: two times actual damages (one third of the treble damages being actual damages and two thirds being punitive in nature).
An exception to the current “actual damages” limitation, apparently approved of by the Oregon Supreme Court in Goddard v. Farmers Ins. Co., 344 Or 232, 263-264 (2008), is that punitive damages are available to a plaintiff-insured who establishes that an insurer negligently failed to settle a third-party claim within policy limits. Presumably, the bill would not have as significant an impact on such cases, since punitive damages are already available.
The powerful new remedies that HB 2791 would provide has sparked controversy. The insurance industry charges that the bill would drive up the cost of insurance premiums for consumers by hindering insurers’ ability to investigate fraud, encouraging the filing of frivolous lawsuits, and driving up the cost of defending against and settling insurance claims. Meanwhile, proponents of the bill counter that passage of the bill is necessary to protect consumers by deterring insurers from engaging in unfair practices.
