Oregon Legislature Falls Short On Passage of Statutory Bad Faith Cause of Action

Oregon Legislature Falls Short On Passage of Statutory Bad Faith Cause of Action

In an unexpected and last minute turn of events, the Oregon legislature failed to pass a final-stage version of House Bill 3242 before its regular session adjourned on June 25, 2023 for the remainder of the year.  Generally, if HB 3242 had been promulgated into law, it would have opened the door to statutory “bad faith” insurance claims in Oregon. Oregon has traditionally not permitted this practice.

More specifically, the text of HB 3242 would amend Oregon’s Unfair Claims Settlement Practices Statute, ORS 746.230, to provide insureds with a new statutory cause of action for an insurer’s alleged unfair claim settlement practices. The new cause of action would allow an insured to recover “actual damages” resulting from the settlement practice, as well as costs and attorney fees. Further, if a court finds an insurer acted unreasonably, the proposed new law would permit the award of treble damages. HB 3242 also created a mandatory notice period for insureds: 45 days prior to filing suit, the bill would have required insureds to notify an offending insurer of the basis for the insured’s action, permitting a carrier time to respond to and possibly resolve the claim.

Although the House-drafted bill created a cause of action for insurance settlement practices, it expressly exempted practices related to settling workers’ compensation claims. The Senate later amended the draft bill to include an additional exemption to preclude direct causes of action against insurers  related to the settlement of medical malpractice claims. After including this additional exemption, the Senate sent the amended bill to the House for its cursory approval on June 23. However, in an unexpected legislative plot twist, the House did not approve the change, and the bill moved to Joint Committee for additional workshopping. The Joint Committee changed course once again, deleting the medical malpractice exemption, and sent it back to the Senate for a re-passage vote on June 24. With the medical malpractice exemption gone, HB 3242 was not able to garner the necessary votes for re-passage at the Senate level. Thus, the legislative session ended on June 25, 2023, with HB 3242 having fallen short of  passage.

Although HB 3242 failed this session, this may only be a temporary setback. The Oregon legislature will reconvene for its 35-day “short session” in January 2024. At that point, insurers, coverage counsel, and the defense bar alike will expectantly wait to learn HB 3242’s ultimate fate, and whether Oregon will join other states in permitting direct causes of action against insurers for unfair claims settlement practices.

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