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June 2013

Oregon Senate Bill 814 Impacts Insurance for Environmental Claims

On June 10, Oregon Gov. John Kitzhaber signed into law Senate Bill 814, which impacts insurance coverage and claims handling for environmental claims.  S.B. 814 amends the Oregon Environmental Cleanup Assistance Act, ORS § 465.478, which states, in part, that Oregon has “a substantial public interest in promoting the fair and efficient resolution of environmental claims while encouraging voluntary compliance and regulatory cooperation.”  The Act also is based on legislative findings that “there are many insurance coverage disputes involving insureds who face potential liability for their ownership of or roles at polluted sites in this state.”  S.B. 814 amends §§ 465.475 to 465.480 of this Act in several ways. 

The new law creates a list of “unfair environmental claims settlement practices” including: failure to commence an investigation of an environmental claim within 15 working days of receipt; failure to respond diligently to tenders; failure to timely pay reasonable costs of defense or indemnity; denial of a claim for an improper purpose; requiring an insured to provide repetitious and unnecessary information regarding a claim; and failure to pay interest on certain types of defense and indemnity payments.  Additionally, the law provides a civil remedy for unfair environmental claims settlement practices in which the insured may recover actual damages, attorney fees and costs.  Courts also are given the authority to award up to three times the actual damages if it finds that an insurer acted unreasonably.  

The law creates new mechanisms for mediating claims, requiring insurers to participate in nonbinding mediation to address lost policy and coverage issues.  When the insured requests mediation, an insurer must provide the insured with information regarding the mediation.  The law charges the Oregon attorney general with appointing a mediation service provider responsible for operating a mediation program specific to environmental claims.  Insureds and insurers with settlement authority must attend the mediation sessions, which are confidential.

Anti-assignment provisions and noncumulation clauses are affected by the new law, which provides that a general liability policy requiring the insurer’s consent for assignment of rights under the policy does not apply to losses existing prior to the assignment.  In long-tail claims, defined as “an environmental claim covered by multiple general liability insurance policies,” the new law makes noncumulation clauses unenforceable stating:

A general liability insurance policy that provides that any loss covered under the policy must be reduced by any amounts due to the insured on account of such loss under prior insurance may not be construed to reduce the policy limits available to an insured that has filed a long-tail environmental claim, or to reduce those policies from which an insurer that has paid an environmental claim may seek contribution.

However, noncumulation clauses can be considered in the allocation of contribution claims between insurers. 

If an insured’s claim triggers multiple policies, the law provides that the insured can choose which policies “respond to the loss if not all are required to satisfy the insured’s claim.”  There is a right to contribution from the triggered policies and an insurer cannot fail to pay on a triggered policy on the basis that other insurers have not paid.  Contribution rights can be cut off, however, against insurers who have obtained a “good faith settlement” with the insured.  The new law creates a rebuttable presumption that binding settlements between an insurer and an insured are good-faith settlements.  Furthermore, a settlement agreement approved by a court after 30-day notice has been given to all insurers constitutes a good-faith settlement as to all noticed insurers. 

Regarding contribution rights, the law makes clear that it pre-empts all common law contribution rights between insurers for environmental claims.  In determining rights to contribution, an insurer cannot claim it is not required to contribute because another insurer has satisfied the claim.  The law adds that policy terms regarding the equitable allocation between insurers should be considered in determining the allocation of damages between insurers.

The law also makes clear that the contamination of the state’s waters or real property owned by a non-insured “constitutes damage, destruction or injury to property.”  It clarifies that remedial costs incurred by the insured to protect another’s property from hazardous substances is considered property damage even if it involves the insured’s property. 

The law also requires the appointment of independent counsel in environmental claims where the insurer is defending under a reservation of rights or if the insured may be liable for a claim in excess of policy limits.  The law further provides that an insurer may retain an environmental consultant to assist the independent counsel in defending the insured.  Both the independent counsel and the environmental consultant must be experienced regarding “the type and complexity of the environmental claim at issue” and their fees must be customary in light of the community and the type and complexity of the claim.  If the insurer and the insured have a dispute regarding the selection of independent counsel or an environmental consultant, the law provides that either party can request mediation.

The new law is retroactive.  It applies to claims arising on or before the effective date of the Act but does not apply to claims for which a final judgment has been entered.

The full text of S.B. 814, 77th Legis. Assemb., Reg. Sess. (Or. 2013), can be found here.

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Steven B. Bitter