Insurance Defense Team

Eric Kekel, Leader
Randy Arthur
John Barhoum
Anne Foster
Damon Henrie
Sam Smith
Don Templeton
Tom Tongue

OCT 2009

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HB 2369- New Rules for Securing Bodily Injury Releases from Injured Insureds and a Clearer Right to Reimbursement for PIP Carriers

The Oregon Legislature’s 2009 regular session recently ended. Of the bills passed, Oregon’s liability and PIP carriers ought to be interested in HB 2369. Sections 2 and 3 are scheduled to be added to the Insurance Code at the end of the year and apply to all motor vehicle accidents that occur after that date, These sections read:

Section 2

(1) When a motor vehicle liability insurer obtains a release for bodily injuries within 60 calendar days following an accident from a person who is eligible to receive personal injury protection benefits under ORS 742.518 to 742.542, the release must state that, subject to the motor vehicle liability insurer’s applicable limits of liability, the rights of an insurer furnishing personal injury protection to recover payments made for medical benefits from the motor vehicle liability insurer are not impaired.

(2) Nothing in this section impairs the rights of a motor vehicle liability insurer to contest a recovery claim from an insurer furnishing personal injury protection, based upon liability or the reasonableness or necessity of medical benefits paid by the insurer furnishing personal injury protection.

Section 3

If a representative of a motor vehicle liability insurer obtains a release from a claim of bodily injuries in person from a person who is eligible to receive personal injury protection benefits under ORS 742.518 to 742.542:

(1) The representative of the insurer must provide the eligible person with a clear and conspicuous notice substantially similar to the following, which shall be incorporated into the insurer’s release or provided in a separate document:

(2) The eligible person may rescind the release if the person provides the insurer written notice of rescission no later than five business days after the execution of the release and then promptly performs all other requisite acts for rescission of a contract. For the purposes of this subsection, notice of rescission is provided to an insurer on the date and time shown on a properly addressed proof of mailing or electronic transmission.

Section 2 requires all releases of liability executed within the first 60 days following an accident to include a provision stating that the release does not impair PIP carrier’s right to recover from the liability carrier the PIP benefits paid to the injured person. Under ORS 742.543(1), a PIP carrier has three avenues with which to be reimbursed: (1) inter-insurer arbitration pursuant to ORS 742.534; (2) the filing of a PIP lien pursuant to ORS 742.536; and (3) filing a subrogation action pursuant to ORS 742.538. A problem arises when the injured person executes a release before the injured person files a PIP claim or before the PIP carrier stops paying benefits because the release extinguishes the PIP carrier’s right to seek reimbursement. See e.g. Wynia v. Fick, 162 Or App 365, 986 P2d 625 (1999), rev. denied, 329 Or 590 (2000) (once an injured party files suit against the tortfeasor, the PIP carrier cannot file a second action to recover the PIP benefits paid to the injured party). Thus, under current law, a PIP carrier may not be able to recover the PIP benefits paid to the injured party after a release is executed.

Section 2 solves this problem. Liability insurers must include a provision in the release preserving the PIP carrier’s right to reimbursement for any and all PIP benefits paid, even if those benefits are paid after the release is executed. Notably, the text of Section 2 does not specify which method of reimbursement the release must preserve: inter-insurer arbitration, PIP lien, or subrogation. Presumably, all methods for seeking reimbursement are preserved. However, a liability carrier must preserve the PIP carrier’s right to reimbursement only when the liability carrier obtains a release within the first 60 calendar days following the accident. If the liability carrier obtains a release after 60 days, there is no obligation to preserve the PIP carrier’s right to reimbursement.

Because Section 2 preserves a PIP carrier’s right to reimbursement following a release, Section 2 correspondingly preserves a liability carrier’s defenses to reimbursement. Specifically, a liability carrier retains the right to contest reimbursement by asserting lack of liability and lack of reasonableness or necessity. In addition, a liability carrier can rely on its limits in defense of a PIP carrier’s reimbursement claim. Section 2 permits PIP carriers to seek reimbursement only to the extent that the sum of the settlement proceeds and the PIP benefits do not exceed the liability carrier’s policy limit.

Section 3 of HB 2369 is designed to prevent an injured person from misunderstanding the consequences of accepting a liability carrier’s offer of settlement, which will always include a full release if its insured. To accomplish this goal, Section 3 imposes two new requirements for obtaining a legally enforceable release of liability. First, the release must include clear and concise language advising the injured person about the legal consequences of accepting settlement and executing the release- i.e., that the person is surrendering his right to sue the tortfeasor. Without this language, the release would not be enforceable. Next, Section 3 a five- day cooling period during which the injured person can void the agreement. This cooling period gives the injured person time to talk with his insurance company and/ or attorney. If the injured person comes to believe the release in unwise, he can rescind it.

Importantly, Section 3’s new requirements apply in very limited circumstances. Section 3 applies only where the injured person executes the release in the presence of the liability carrier or one of its representatives. By contrast, if the solicitation and execution of the release occurs electronically, through the mail, or through the injured person’s attorney, then Section 3 does not apply. In those situations the legislature apparently assumed the injured person has time to read the release carefully and to seek outside advice, if needed.

In the end, HB 2369 does two things, First, it provides a clear vehicle by which PIP carriers may recover PIP benefits paid to their insureds following the execution of a release within the first 60 days following an accident. Second, it endeavors to prevent an injured person from misunderstanding the legal significance of agreeing to a settlement and release. Both changes are new to Oregon law and become effective in January 2010.

Thanks to Sam Smith for writing this article.