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Insurers Consider Legal Challenge to New Oregon Pollution Liability Law; Question its Constitutionality

Source: BestWire

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Posted on 15 Jul 2013 by Neilson

Pollution LiabilityInsurance groups are considering a legal challenge to Oregon's new pollution liability law that took effect in June, claiming the law would force insurers to settle active pollution liability claims and retroactive bad-faith actions.

It is probably the worst single piece of insurance legislation enacted anywhere in the country in recent memory, said Kenton Brine, assistant vice president, state government relations for the Property Casualty Insurers Association of America. PCI and other insurance industry officials concerned with the measure have been gathering legal advice on whether the law is constitutional, Brine said.

Gov. John Kitzhaber signed SB 814 in June and declared it an emergency measure, which allowed it to become law immediately. The law amends the Oregon Environmental Cleanup Assistance Act passed in 1999 in response to complaints that insurers were resisting environmental liability claims. Democrat Sen. Chip Shields, one of the bills sponsors, said the new law gives policyholders the tools with which to settle legitimate environmental claims with insurers in order to proceed with cleanup activities, particularly those along the lower Willamette River.

Supporters said SB 814 will provide relief for companies by strengthening the cleanup assistance law to include a new list of unfair environmental claims settlement practices and a private right of action for company policyholders to pursue insurance companies based on the list. Also, the bill creates a non-binding mediation process to encourage resolution of disputes over claims. Claims payments fund cleanup efforts. "Holding insurance companies accountable to their policyholders by giving businesses a private right of action will ensure that these companies can be environmentally conscious while continuing to put thousands of Oregonians to work," Shields said in a written statement.

Brine said the primary intent of the new law is to force insurers to settle active, disputed pollution liability claims in the Portland area, including some along Portland Harbor. Some claims, he said, have been in dispute for at least a decade and some as long as 30 years or more.

Prior legal efforts by supporters of the bill to get insurers to pay pollution claims retroactively were rejected by the Oregon Supreme Court, Brine said. While the new law was intended to speed the process by which claims can be completed, Brine said lawmakers likely have created a new round of legal action that will delay cleanup further.

Brine said backers of the bill point to a clause in which the retroactive claims can occur only in instances in which the parties agree to them. But Brine said the legal advice industry officials have received to date indicates that the provision refers to judicial rules, not the statute, and therefore the retroactive language retains its authority.

The law also allows plaintiffs to independently seek and obtain a special counsel to settle claims, whose services are paid for by insurers. One of those who testified to a House committee on the industry's behalf was former state Supreme Court Chief Justice Paul De Muniz, who said the provision ending insurers' rights to appoint counsel for the insured violates existing contracts and was likely to be ruled unconstitutional in court.

[The law] has shaken the industry to its core, particularly for those writing commercial liability, Brine said.

The American Insurance Association would not comment on the potential for future litigation, but was among the trade associations that opposed the bill. Its one of the worst bills we've seen in a very, very long time, said Marjorie Berte, AIAs Western Region vice president. Berte said the new laws ability to retroactively close pollution exclusion endorsements is the most unsettling provision. She said the laws impact on pending cases has been immediate, but AIA is concerned that the law could also result in reopening of long-settled cases. It creates all sorts of uncertainty for all cases, closed or not, she said.

Industry groups and carriers tried unsuccessfully to stop the bill, despite De Muniz's suggestions that at least two portions of the bill may ultimately prove to be unconstitutional. Brine said the bills provision to settle claims retroactively may violate constitutional provisions concerning contract law.

Washington and California adopted environmental claims standards used in SB 814, including the private right of action to settle claims practices, according to Shields statement. He also said premium costs in Oregon will not increase, but that the new law provides more predictability and certainty to companies trying to meet cleanup orders.

Brine said the political climate in Oregon surrounding this bill was unique in this case, and therefore he believes unlikely that other states will run to pass similar legislation. Any court challenge over this bill could take years to adjudicate, he said. I don't see this sweeping the country by any means, he said.

While the insurance industry is leery of Oregon's new pollution liability law, environmental liability insurance is seen as a possible growth avenue for the industry in Asia. China recently introduced a pilot environmental pollution liability insurance plan that requires participation by industries that pollute heavy metals.


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