Oregon Binders, Rates, Policy Forms and Unfair Discrimination

This chapter covers the Oregon laws that govern a property and casualty policy itself: temporary coverage under a binder, how rates and policy forms reach the market, when an insured may sue, what an applicant’s misstatements do to coverage, and unfair discrimination.

Oregon laws, regulations and required provisions

Binders (ORS 742.043)

A binder is a contract for temporary insurance until the policy is issued.

• A binder may be made orally or in writing
• It is deemed to include all the usual terms of the policy it binds, with any endorsements the binder names, except where the binder’s own clear and express terms say otherwise
• Within 90 days after a binder is issued, the insurer must issue a policy in its place, containing the insurance that was bound and its premium. If a lender closes a loan on the binder, the policy must be issued within 60 days (ORS 746.195)
• A binder may be extended or renewed beyond 90 days only with the Director’s written approval, or as the Director’s rules allow
• The binder statute does not apply to life or health insurance

Rates (ORS 737.025, 737.310; OAR 836-010-0011)

Purpose (ORS 737.025). Oregon regulates property and casualty rates so that they are not excessive, inadequate or unfairly discriminatory. The rating law also expressly intends to permit and encourage competition between insurers on a sound financial basis, and allows insurers to cooperate in rate making.

Rate-making standards (ORS 737.310).

• Rates may not be excessive, inadequate or unfairly discriminatory
• Outside workers’ compensation and title insurance, a rate is excessive only if it is unreasonably high for the insurance provided and a reasonable degree of competition does not exist for that classification. A rate is inadequate only if it is unreasonably low and its use endangers the insurer’s solvency or tends to destroy competition or create a monopoly
• Rates for each classification are based on the claims experience of insurers in Oregon, unless that experience is too thin to be actuarially sound
• Rates also take into account past and expected losses and expenses in Oregon, conflagration and catastrophe hazards, a reasonable margin for profit and contingencies, dividends returned to policyholders, and the insurer’s investment income
• Risks may be grouped into classifications, and casualty, surety and inland marine classification rates may be modified for individual risks under a rating plan that measures differences in hazard or expense

Filing rates. Every insurer files its rates, rating plans and rating systems with the Director. Most filings take effect on the date specified in the filing, but not before the Director receives it (ORS 737.205). An insurer may meet the requirement by joining a licensed rating organization that files for it. Some filings wait for review: workers’ compensation filings take effect no earlier than the 30th day after the Director receives them (ORS 737.320). Commercial liability filings in markets the Director designates also wait 30 days, where the average rate change exceeds 15 percent (ORS 737.207). In both cases the Director may authorize an earlier date or extend the wait, and a filing not acted on in time is treated as approved.

Filing procedure (OAR 836-010-0011). An insurer filing new or revised rates or forms follows the standards on the Division of Financial Regulation’s website, or the Oregon standards in SERFF (the System for Electronic Rates and Forms Filing) when filing electronically. Each filing carries a certificate of compliance, signed by an authorized officer of the insurer and by the person designated to prepare the filing. Changes to a previously approved form must be highlighted and explained in a letter. A filing received for prior approval that lacks the certificate and does not meet the standards is incomplete and is returned as disapproved.

Policy forms (ORS 742.003, 742.005)

Oregon is a prior approval state for policy forms (ORS 742.003). A basic policy form, an application form that becomes part of the policy, and a rider, endorsement or renewal certificate form may not be delivered or issued for delivery in Oregon until the Director has approved it.

• The Director approves or disapproves a form within 30 days of filing, and may extend that by up to 30 more days with written notice
• Exceptions include forms of unique character written for a particular risk, and forms that meet requirements the Director sets by rule

The Director disapproves a form if it (ORS 742.005):

• Does not comply with the law
• Contains a provision, title, label or heading that is unintelligible, uncertain, ambiguous or abstruse, or likely to mislead the person it is offered to
• Would be prejudicial to the insurer’s policyholders
• Contains unjust, unfair or inequitable provisions
• Is being used with sales material the Director has disapproved

Suit against insurer (ORS 742.240)

Every fire insurance policy must contain this provision: no suit or action on the policy to recover a claim may be sustained in any court unless all the requirements of the policy have been complied with, and unless it is commenced within 24 months after the inception of the loss.

Concealment, misrepresentation or fraud (ORS 742.013, 742.208, 742.562(1)(b), 742.702(1)(b); 746.075, 746.100, 746.110)

Statements in an application (ORS 742.013). All statements and descriptions in an application are representations, not warranties. A misrepresentation, omission, concealment of fact or incorrect statement does not prevent recovery under the policy unless:

• It is in a written application, and a copy of the application is endorsed on or attached to the policy when issued, and
• The insurer shows it was material and that the insurer relied on it, and
• It was either fraudulent, or material to the insurer’s acceptance of the risk or the hazard assumed

This section does not apply to surety insurance.

The fire policy (ORS 742.208). A fire policy must provide that the entire policy is void if, before or after a loss, the insured has willfully concealed or misrepresented any material fact about the insurance, the property or the insured’s interest in it, or in case of fraud or false swearing by the insured about it. In the absence of fraud, the insured’s statements are still representations, and the insurer must show they were material and relied on.

Cancellation for fraud. Fraud and material misrepresentation are grounds for canceling an in-force personal auto policy (ORS 742.562(1)(b)), and a commercial liability policy when made by or with the knowledge of the named insured (ORS 742.702(1)(b)).

The other side of the transaction. Oregon’s unfair trade practices law forbids anyone to misrepresent a policy’s terms, benefits or an insurer’s financial condition (ORS 746.075). It also forbids false or fraudulent statements on or about an application, or to obtain a fee, commission or benefit (ORS 746.100), and false advertising (ORS 746.110).

Unfair discrimination (ORS 746.015, 746.018, 746.240)

The general rule (ORS 746.015). No person may make or permit any unfair discrimination between individuals of the same class and equal expectation of life, or between risks of essentially the same degree of hazard. That applies to the availability of insurance, its rates, dividends or other benefits, and any other policy terms or conditions. In addition, an insurer may not:

• Discriminate in underwriting or rates solely because of a physical disability, or because a person has reached age 65, unless the action rests on sound actuarial principles or actual or reasonably anticipated experience
• Deny, cancel, refuse to renew, charge more for, or limit coverage for a person because they are, or have been, a victim of domestic violence or sexual violence. That status may not be used as an underwriting or rating factor

Unless the violation is willful, the Director gives the insurer written notice and at least 10 days to correct it. If, after a hearing, the Director finds the violation was willful, the Director may suspend or revoke the insurer’s certificate of authority.

Location in large cities (ORS 746.018). In cities of 300,000 or more, an insurer may not unfairly discriminate between risks of essentially the same hazard when issuing burglary, theft or robbery insurance, or casualty insurance against liability arising from real or personal property other than motor vehicles. Property or persons comparable in other respects are not a different hazard solely because of their geographic location or where the person lives or does business. (An insurer is exempt if its share of similar risks in a one-mile square around the property is at least its statewide market share for that line.)

Practices not named in the Code (ORS 746.240). No person may engage in a trade practice that, although not expressly defined in the Insurance Code, the Director finds to be an unfair or deceptive act or practice injurious to the insurance-buying public.

Lesson summary

• A binder may be oral or written, includes the policy’s usual terms, and must be replaced by a policy within 90 days unless the Director approves an extension (ORS 742.043).
• Rates may not be excessive, inadequate or unfairly discriminatory, and the law encourages competition (ORS 737.025, 737.310). Most rate filings take effect on the date specified, but not before the Director receives them; workers’ compensation filings wait 30 days.
• Policy forms need the Director’s prior approval, within 30 days plus an optional 30 (ORS 742.003), and are disapproved if misleading, ambiguous, prejudicial or unfair (ORS 742.005).
• A fire policy requires suit within 24 months after the inception of the loss (ORS 742.240).
• Application statements are representations. A misstatement defeats recovery only if it is in a written application attached to the policy, was material and relied on, and was fraudulent or material to the risk (ORS 742.013).
• Unfair discrimination between risks of the same hazard is prohibited, as are decisions based solely on physical disability or reaching age 65, or on being a victim of domestic or sexual violence (ORS 746.015).