A New “Bad Faith” Bill Has Been Introduced In This 2017 Legislative Session

By Tessan Wess

Insurance Bad Faith in Oregon : HB 2858

A new “bad faith” bill has been introduced in this 2017 legislative session. House Bill 2858 provides a statutory cause of action for any person that suffers an ascertainable harm as a result of an Insurance Code violation. Unlike its neighbors to the north and south, Oregon does not provide any common law or statutory cause of action for bad faith. Accordingly, damages arising from first party insurance coverage disputes are presently limited to actual contract damages, with a risk of exposure to attorney’s fees.

HB 2858 would amend the Oregon insurance code in the following significant ways:

1. Statutory cause of action for bad faith. A person harmed by an insurance code violation could bring a direct action against an insurer, in state or federal court, without the need to submit a complaint to the Director of the Department of Consumer and Business Services and without reliance on the Director’s prosecution of that claim.
2. Increased damages exposure. The court may award actual and punitive damages. Presently, there is no basis in Oregon for extra-contractual damages arising from a first party insurance coverage or claim handling dispute.
3. Inequitable attorney fee provision. The proposed legislation includes a a prevailing party attorney fee provision which would entitle a prevailing plaintiff her reasonable attorney fees in an action brought by the plaintiff or in an action brought by the Director. However, the same provision would severely limit a defendant insurer’s entitlement to its attorney fees, providing recovery of attorney fees only in an action brought against the insurer by the Director that the court determines did not have an objectively reasonable basis.

It is anticipated that this bill, like prior bills with similar objectives (i.e. HB 2257/SB 510 in 2015) will be met with fierce opposition from the Oregon defense bar. We will continue to provide updates on this legislation and its potential effects on Oregon courts and the insurance defense practice in Oregon.