Repeal of Insurers’ Unlawful Trade Practices Act Exemption Moves into Senate

An economic analyst from Washington tells the Senate Consumer Protection Committee that insurance premiums fell after the state strengthened the private right of action against insurers, countering a national trend of rising premiums.
The Lund Report

This article has been edited from its original version to more closely report statements made by Standard Insurance.

May 13, 2013 — The bill to repeal the insurance industry’s one-of-a-kind exception to Oregon’s chief fraud law has moved to the Senate Consumer Protection Committee, where it faces a less certain outcome than in the House.

Sen. Chip Shields, D-Portland, bolstered his case for removing insurers’ exemption from the Unlawful Trade Practices Act at the Wednesday hearing, inviting an economic analyst from the Washington State Insurance Commissioner’s Office to testify on the impact of a 2007 Washington law that enhanced the private right of action.

The economic analyst, Jim Keogh, testified that the insurance lobby made many of the same arguments about the Washington Insurance Fair Conduct Act it has made about House Bill 3160 — that premium rates would rise much higher than the national average and consumers would be the ones to suffer.

But after the Washington law took effect, premiums in affected sectors went down 3 percent in Washington, while rates in those sectors — including homeowners, fire, auto, property and small business — went up 12 percent over the same period, 2007 to 2009.

HB 3160 would make insurers like every other business — liable to the Unlawful Trade Practices Act and allow private action for fraud against insurers by policyholders. The attorney general and government prosecutors could also sue insurance companies, with permission of the director of the Department of Consumer & Business Services, which oversees the industry through its Insurance Division.

Third parties could also sue if they are injured by an insured individual or business but the insurance company won’t honor their claim.

The Washington law specifically exempts health insurers from its provisions, but Oregon’s law would cover health plans on the individual market as well as supplemental coverage. Federal law supersedes the act for employer-based health insurance.

Supporters say it will act as a deterrent from lawsuits and result in settled claims, while opponents call HB 3160 a windfall for trial lawyers that will drive up insurance costs and hurt insurance companies based in Oregon.

Senate Path Uncertain

The House approved House Bill 3160 on a 33-27 vote in early April, with two Republicans joining the Democratic majority and three Democrats joining the Republican opposition.

But in the Senate, it may struggle to get out of committee, where it would likely require the vote of either Sen. Laurie Monnes Anderson, D-Gresham, or Sen. Larry George, R-Sherwood.

Monnes Anderson has scuttled other insurance reform legislation this session, including a provision that would have required health and life insurers to notify consumers when they asked the Insurance Division for rate increases.

She told The Lund Report that she had not fully decided her position on HB 3160 and wished to first seek advice from the Democratic caucus before sharing her opinion publicly. Her Gresham counterpart in the House, Rep. Greg Matthews, was one of three Democrats to oppose subjecting the insurance industry to the Unlawful Trade Practices Act.

Uncertain of her vote, Shields said he was interested in finding room for an agreement with George, the vice-chair of the Senate Consumer Protection Committee.

Conservative Republican Rep. Dennis Richardson of Central Point supported the bill, saying that putting the insurance industry under the Unlawful Trade Practices Act only levels the playing field, but George made skeptical comments at the hearing, telling the public that he was frustrated that his insurance company already settles petty and unwarranted claims waged against his business.

“I think this will just motivate people to file more fraudulent claims,” George said.

Rep. Paul Holvey, D-Eugene, the champion of HB 3160 in the House, said he saw little room for compromise.

“I don’t think I would support too many changes to the bill,” Holvey told The Lund Report.

Big Insurers, Small Businesses

A list of 46 interest groups, primarily insurers, also lined up their opposition in a letter organized by Jan Meekcoms, the lobbyist from the conservative National Federation of Independent Business. That organization has been accused of working as a front group for the insurance industry and other large corporate interests, often at the expense of small businesses.

It was also the lead plaintiff in the U.S. Supreme Court ruling that upheld the Affordable Care Act last summer, despite aspects of the law that create federal subsidies to allow many small businesses to offer health insurance to their employees for the first time, through public insurance exchanges like Cover Oregon.

Without the exchange, small businesses have been at a competitive disadvantage to large corporations, and less able to leverage affordable rates from insurers for their employees.

Congressional Democrats demanded that the federation disclose its financial backers and threatened the organization’s non-profit status, but it refused the request for transparency.

Wendell Potter, an insurance company whistleblower, wrote during his time as an executive of Cigna, major health insurers used the NFIB in the 1990s to disseminate misinformation that helped defeat the Patient’s Bill of Rights, which would have enhanced the ability of consumers to sue insurers for wrongful denials of coverage.

“We have 54 lobbyists trying to kill this thing,” Shields told The Lund Report. “The good news is they don’t have a vote.”

Insurers Profit from Delaying Claims

Shields added to the public record an internal memorandum from the Portland corporate law firm Stoel Rives that laid out for clients the night and day difference between how insurance claims are honored in Washington compared to Oregon.

The Washington Insurance Fair Conduct Act threatens insurers with damages at three times the rate of actual loss if they fail to honor honest claims or engage in fraudulent conduct — and as a result meritorious insurance claims are almost always quickly paid, often for the full amount requested, according to the memorandum.

Oregon consumers and small businesses currently have limited options if an insurer fraudulently denies a claim. The state Insurance Division can order civil damages, but cannot force insurers to pay claims to insurers, regardless of merit.

The attorney at Stoel Rives stated that insurance companies have incentives to low-ball claims for far less than what’s warranted, as the only other recourse is to pursue expensive litigation for breach of contract, where an insurer actually profits from delaying payment and investing the insured person’s money for itself before eventually paying the claim.

A comprehensive 2009 national report from the National Consumer Law Center, which advocates for low-income people, said the Oregon Unlawful Trade Practices law, while strong in many aspects, could be fortified if insurance companies lost their special exception.

Insurance Division Powers

Last week, Monnes Anderson repeatedly asked consumers and business owners who had disputes with insurers whether they had sought a remedy with the Insurance Division, and for the result.

Most said they had appealed to the Insurance Division, but had not yet received their preferred outcome.

However, DCBS Director Pat Allen said that of the 1,000s of complaints the state gets each year, his agency is only able to offer consumer complaint relief 70 percent of the time.

Insurers at the hearing, including Standard Insurance’s Justin Delaney suggested if the Legislature needed to pass something, it consider Senate Bill 414, which would strengthen the Insurance Division’s hand and give it the power to force insures to pay claims.

That bill was also preferred by Joel Fischer, the lobbyist for the Oregon Business Association.

Shields sponsored SB 414, but he kicked it to the Senate Rules Committee as a backup option rather than move the bill to the Senate floor. He also reserved the right to put the larger issue before the voters in 2014 if HB 3160 fails.

Christopher David Gray can be reached at

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