Letter to Senator Johnson (Oregon) Supporting HB3160/SB414
PARSONSFARNELL&GREIN, LLPA T T O R N E Y S A T L A W1030 SW Morrison StreetPortland, Oregon 97205(503) 222-1812 • FAX: (503) 274-7979www.pfglaw.comS E T H H , ROWAdmitted in Oregon and WashingtonE-Mail Address: firstname.lastname@example.orgJune 12, 2013Via Email and FacsimileSenator Betsy Johnson900 Court St NE, S-209Salem, OR 97301Email: Sen.BetsvJolinson@state.or.usFacsimile: 1-503-986-1080Re: HB 3160/SB414-A5Dear Senator Johnson:I am an attorney in Portland and part of a seven-lawyer group at my firm that exclusivelyrepresents insurance policyholders, both businesses and individuals, in disputes with theirinsurance companies. Most of our clients are commercial-lines policyholders, and most of themare small businesses.1 write to ask you to support HB3160/SB414-A5, and to explain why from myperspective it is so important that this piece of legislation be passed to complement SB814, theamendment to the Oregon Environmental Cleanup Assistance Act ("OECAA") recently signedinto law. fJB3160/SB414-A5 is critically important because the OECAA does not apply to thevast majority of coverage disputes that small businesses experience. The OECAA was aimed ata relatively narrow (albeit important) class of coverage disputes; what commercial policyholdersalso need is the kind of broad protection that HB3160/SB414-A5 would provide in everysituation.The OECAA, and SB814s amendments to it, address a problem with serious publicpolicy ramifications: the difficulty that businesses have had getting insurance companies to coverclaims by the EPA or DEQ for pollution of public lands under "long-tail" policies that were soldbefore liability insurance policies began to routinely include a "pollution exclusion." The goal ofthe statute is to encourage companies to voluntarily reach agreements with environmentalregulators to clean up historically contaminated sites, without the need for expensive, time-consuming litigation, by making it harder for insurance companies to deny coverage under thoseolder, broader policies.O:SHRHB3160 AdvocacyWOOl shr Senator Johnson Itr.docx
Senator Betsy JohnsonJune 12,2013Page 2The OECAA was passed in 1999 because companies that were being good corporatecitizens, and were working with the state or EPA to reach agreements to clean up historicalcontamination (which, oftentimes, they did not cause), were turning to their insurance companiesto pay for the cleanup under these broad older policies, only to be told "we wont pay unlessthere is a lawsuit in court - if you reach an out-of-court agreement with the government, you areon your own." The OECAA was therefore written to say that the insurance company has to stepin to respond to any kind of written demand by EPA or DEQ that a company do something aboutcontamination in Oregon. No litigation is required.Although passed in 1999 (and amended in 2003), the OECAA had not been significantlytested until the Portland Harbor Superfund Site came along. In 2008, the EPA started sendingout written demands to hundreds of companies demanding that they participate in a non-judicialresolution process to allocate responsibility for cleanup ofthe Willamette River. The OECAA inhand, those companies (large and small) turned to their insurance companies to defend them,reasoning that since they had received a written demand from the EPA to do something about aSuperfund site, surely the insurance company would step in. Imagine the surprise when theresponse, from many ofthe nations largest insurance carriers, was no. These businesses thenhad to sue in federal court, where three different judges have now found that the insurancecompanies violated the OECAA by refusing to provide coverage for these written demands fromthe EPA.One of those businesses is a landowner in your District: Anderson Brothers, Inc.Anderson Brothers is a family-owned truck repair and parts company that has been in Portlandsince 1935. In the 1970s it bought some land in Portlands Northwest Industrial area that hadbeen used for all manner of industrial purposes over the decades by prior owners. Even thoughAndersons property is "upland" (not on the river), when the Superfund site started up Andersonwas dragged in because upland potential sources are within the EPAs zone of concern, andunder the Superfund law one only has to be a landowner within the zone to be potentially liable,even if the business did not use any hazardous materials itself on the site.For decades Anderson faithfully purchased liability coverage from one company -St. Paul Fire & Marine. When the EPA demanded that Anderson hire a lawyer and defend itself,Anderson was faced with a potentially disastrous situation: it could not afford to pay for a fulldefense itself, but if it did not defend it could be put out of business down the road once the EPAunilaterally allocated it a share of the cleanup cost. Anderson paid a lawyer to defend it as best itcould, but when its ability to fund its defense ran out, it turned to its long-time insurer, St. Paul(now a part of the Travelers Group) - which then refused to help. I helped Anderson sueSt. Paul, and the court found the insurance company in breach. The case is on appeal with theNinth Circuit.
Senator Betsy JohnsonJune 12, 2013Page 3Although the insurance company had to reimburse Anderson for its past defense costsand for my fees in the insurance coverage case, thats all that St. Paul has had to pay forbreaching its policy - nothing for the anguish that it caused Anderson, no punitive damages, andnothing for the delay in the cleanup process that its refusal to obey the law caused.Andersons insurance company took an aggressive position - defying the OECAA andforcing Anderson to sue - because in general there is little "downside" risk for an insurancecompany that refuses to step in and defend its policyholder. Because Oregon courts havegenerally refused to recognize a cause of action for "bad faith" denial of coverage, if aninsurance company loses in court it will only have to reimburse the policyholder for past defensecosts, perhaps pay a settlement if the policyholder was able to fund a settlement, and pay a littlebit to the policyholders attorney in attorney fees. On the other hand, if the policyholder lacksthe financial ability to sue the insurer, as is so often the case, the insurance company walks awayscot-free. Faced with that math, insurance companies have very little incentive to step in anddefend against any kind of claim for accidental property damage. Put another way, insurancecompanies believe that in Oregon they get a "free breach" of their insurance contract, so they rollthe dice by denying a defense.And, it is important to note, the policyholder cannot "cover" for this breach of theinsurance policy. A business caimot go out and purchase a new insurance policy to providecoverage for an accident that already happened. If the insurance policy that the business boughtbefore the accident happened does not provide coverage, the business is simply stuck.With SB814 that situation has been rectified by the addition of a "bad faith" cause ofaction to the OECAA - but the OECAA does not apply in most coverage situations. TheOECAA was intentionally limited in scope in many respects. For example, the "suit" portion ofthe statute limited to written demands by just two agencies: the EPA, and the DEQ. An action bysome other governmental entity, like a county government, or a tribe, would likely not fall intothe protection that the OECAA gives to the policyholder. And if the claim is not one for"pollution," but for some other kind of property damage, the statute may also not apply. Indeedmodern environmental damage claims often avoid alleging that they are "pollution" cases, toavoid the impact of the "pollution exclusion" that insurance companies put in the fine print oftheir policies. The OECAA may not apply to those claims.In those situations in which the OECAA and the SB814 amendments will not apply, andwhere policyholders will not have the "stick" of a bad faith claim, insurance companies willcontinue their practice of denying a defense unless and until the policyholder files suit. That isan enormously un-level playing field for small businesses. The cost to an ordinary business ofjust defending a suit, and particularly a contamination suit, is often more than the company canbear, let alone also fund an insurance coverage lawsuit. By comparison, insurance companieshave virtually unlimited access to lawyers to defend them.
Senator Betsy JohnsonJune 12, 2013Page 4Permitting insurance companies to continue to operate this way is also not good publicpolicy. In environmental damage cases not covered by the OECAA, where there is no insurancemoney brought to the table property damage is often not remediated at all, or if it is remediated itis done much later than it should have been. Businesses, taxpayers, and the environment pay theprice, while insurance companies walk away with premiums for which they provide nothing.HB3160/SB414 will help to level the playing field in all cases, not just Superfund cases,for small businesses like Anderson Brothers and businesses like it - developers, gas-stationowners, light manufacturers, food processors - who purchased liability coverage so that in theunlikely event that a property damage claim is made they will, at the least, get a lawyer paid forby their insurance company to help them bring the case to resolution. SB814 was an importantstep, but was only the first step, in providing real improvements to the insurance code that willbenefit small businesses. I urge you to support HB3160/SB414.Very truly yours.Seth H. RowSHR/dtgcc: Senator Chip ShieldsJerry Lawson/John Anderson, Anderson Brothers, Inc.