Tag Archives: oregon

How to Think About Marijuana and Work

With a flip of the calendar, on July 1, Oregon became the fourth state in which recreational marijuana use became legal. For many Oregon employers, this status change from illegal to legal wasn’t a big deal. Medical marijuana is already legal in 24 states, including the Beaver State, and possessing less than an ounce was decriminalized in Oregon 40 years ago.

Recreational marijuana is just a new twist on an old story. All it really means is you can’t go to jail (or be fined) for smoking pot recreationally.

However, this “non-event” has made risk managers ponder the ramifications of recreational use, especially for their employees who work in the manufacturing industry. Manufacturers have strict policies to ensure a safe work environment. It goes without saying that people who are under the influence at work in a manufacturing or an industrial setting are far more likely to be injured on the job.

Being stoned at work should be treated no differently than being under the influence of alcohol or prescription medication. You certainly can’t show up drunk for work.

The employer is responsible for that employee as soon as he walks on to the job. Any drug use that affects an employee’s ability to perform the job should be a genuine concern for the employer.

The difficulty for employers is that there is no scientific method to determine a marijuana intoxication level, unlike a blood-alcohol level. Until there is definitive scientific evidence, employers are being advised to err on side of safety and forbid an employee to be under the influence of marijuana.

To do that, the employer needs a crystal-clear, zero-tolerance policy. Unless the employer has been living in a cave the past 50 years, it already has such a policy. But it should be updated to specifically address marijuana use, both on the job and recreationally, because it could affect the employee’s job performance.

It is predicted that in 2016 – the third election cycle in which marijuana legalization measures will be on ballots across the country – as many as seven more states could allow recreational use of marijuana. As each state approves the recreational use of marijuana, there looms in the background the knowledge, that under federal law, its use remains illegal.

Whether that will eventually force the feds to take a stand remains to be seen. Right now, the feds have just rolled over to let you scratch their belly.

But as each state joins the ranks of approving pot use recreationally, what was a minor irritant to the feds could grow too large for them to ignore.

The bottom line is that a stoned CPA might drop a number or two, but a stoned assembly line worker might drop a few fingers. It doesn’t matter if the cause is pot, alcohol or prescription medication. Smoke cannabis at work – or show up stoned – and you’ll be disciplined. It’s not about a worker’s rights; it’s about workplace safety.

Post-SB 863: Now How Do We Contain Costs?

Several recent articles and publications have highlighted the challenges we continue to face in California workers’ compensation. Following the “state of the state” report in August by the Workers Compensation Insurance Rating Bureau (WCIRB), Mark Walls noted in an article that the challenges in California continue to mount as California now accounts for 25% of U.S. workers’ comp premiums, with some of the highest medical costs in the nation.

The recent Oregon report noted that California now has the most expensive comp system in the nation, having risen from the third most expense in 2012 to the #1 spot — a dubious distinction that should serve as a continued call to action.

As Walls so aptly noted, we in California need to move beyond the notion that we are always going to be different. We cannot continue to mark our “progress” against our own past performance, overlooking the sobering comparison to other states. If we do, we’ll see the return of television commercials touting nearby states as welcoming alternatives for employers.

With no shortage of reforms over the past 15 years, Mark’s comment about our focus on reducing frictional costs in the system without really addressing medical provider behavior rings true.

The recent reform attempted to tackle the frictional costs, particularly the costs of liens and utilization review (UR) disputes. It was assumed that the lien filing fee and statute of limitations on liens would reduce the extraordinary burdens and costs that were expended to both litigate and settle these expensive and often unjustified charges. It was also thought that independent medical reviews (IMRs) would speed the delivery of necessary medical care and would keep UR disputes out of the courts.

Although there certainly appear to be fewer liens, the problem has not been solved. In addition to some inevitable liens for disputed medical treatment, we continue to see liens filed after bills are reduced to conform to the approved fee schedule. In a state with a fee schedule, why should an employer be forced to litigate or settle a lien for charges that exceed the fee schedule? We know we can resist the lien, have a bill reviewer testify at a lien trial and have a good chance of prevailing. Unfortunately, though, the cost of winning is very high, including the cost of the hearing and the larger cost of keeping a claim open, delaying a settlement and maintaining a reserve. This is the very real dilemma that often causes payers to settle a lien that is not owed, rather than defending against it.

What if the prevailing party was reimbursed for the full cost of a lien hearing? Perhaps that would persuade claimants to carefully evaluate their liens before proceeding, while also forcing the defense to evaluate the validity of the lien before allowing the lien to go to trial.

The other significant attempt at reducing the frictional costs was the introduction of independent medical review. What have we seen, as a claims administrator that limits the use of utilization review by empowering examiners to approve significant numbers of diagnostics and treatments? We’ve seen in excess of 97% of the URs submitted to IMR upheld by the IMR process. Yet, for those 97%, our clients have incurred the added expense (IMR is not inexpensive), and the claims process was delayed while the IMR process was completed.

Some oversight is definitely healthy and necessary. The challenge is in finding a less costly, less time-consuming method of ensuring that injured workers are treated fairly — a method that actually changes provider behaviors so that the injured workers who are treated by high-performing providers are not swept up in a system of reviews and re-reviews.

Although no solution is likely to satisfy all constituents, there must be something we can do to provide incentives for the right provider behaviors. What about using all the medical bill reviews and other data to analyze provider behavior and “certifying” providers? The consequences could be:

1- A fee schedule “add on” or bonus for the top quartile of providers
2- A six month “bye” from utilization review for the top 50% of providers
3- Some sort of added oversight for providers performing below the 50th percentile

This is certainly not as easy as it sounds. Perhaps some representative providers would have some suggestions. Perhaps we should engage them in a discussion.

But it doesn’t seem that there can be any harm in considering a “pay for performance” model.

The answers may lie in the data, and they may not. The answers may also lie in the programs of one or more of the 49 states that offer less costly workers’ compensation coverage to employers. It certainly behooves us to look everywhere until we find those answers.

State-by-State Look at Small Medical Claims

Should an employer pay small medical claims or turn them in to the workers compensation insurance company?

That is the most common question an insurance agent gets from employers. The answer to this question is not simple. It can depend on several factors, including:

  • Whether the state has approved the experience rating adjustment (ERA) in the experience modification formula.
  • Whether the employer has expertise in paying according to the state fee or reasonable and customary schedule, and whether the employer has access to discounted medical networks, as insurance carriers do.
  • Whether a small deductible to handle small medical claims might beappropriate and assist in complying with state rues.
  • State rules and penalties where the employer is located.
  • Whether the state of operation has a favorable alternative option for handling small medical claims.
  • How organized and detailed the employer is?

Experience Rating Adjustment (ERA)

For years, insurance agents recommended that employers pay small workers compensation medical claims out-of-pocket and not submit them to their insurance carrier. The rationale was that frequency affects the experience modification formula more than severity does, so frequent claims would produce a higher experience modification and increase costs.

When the experience rating formula was created, assumptions were built into it. One assumption is that one large claim should not have as much effect as a number of smaller claims that total the same amount. For example, a single $90,000 claim should not have the same impact as five $18,000 claims. One large claim may not reflect the insured’s overall operations. However, five $18,000 claims indicate a problem with safety or other issues. In addition, studies have shown frequency often leads to severity.

The practice of employers not reporting small claims in an attempt to keep their experience modification low troubled many of the workers compensation stakeholders (insurance companies, actuaries, OSHA, National Council of Compensation Insurance [NCCI] and other state independent advisory organizations). The lack of reporting meant that the database of loss experience was not complete, possibly leading to poor statistical analysis.

To address this issue, an experience rating adjustment (ERA) was introduced into the formula. In states where ERA is approved, medical-only claims (injury code 6 claims) are reduced by 70% before being used to calculate experience rating. Also, the expected loss rate and discount ratio, used to compute expected losses and expected primary losses, have been changed to reflect that medical-only claims will be reduced by 70%. Many feel the incentive to not report medical-only claims has been eliminated in states where ERA is approved.

The ERA-approved states are: Alabama, Alaska, Arkansas, Arizona, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia and Wisconsin. The District of Columbia has also approved ERA.

Those that have not approved ERA are: California, Colorado, Delaware, Massachusetts, Missouri, New Jersey, New York, North Dakota, Oregon, Ohio, Pennsylvania, Washington, Wyoming and Texas.

After analyzing “what if” scenarios on employers either reporting to the carrier or paying medical-only claims on their own, studies conclude that the employer did not save money by paying medical-only claims. This was even truer in ERA states, particularly if the employer does not know how to apply the state fee schedule or has no access to discounted networks like those developed by insurance carriers.

The above illustration is representative of the reduction that would be realized on the $13,981 in medical bills had they been applied against the state fee schedule and insurance company network discounts. After these discounts, the total claims in the modification formula at 30% would be $1,846 ($6,152 x .30 = $1,846), reducing the modification from 1.275 to 1.20 vs. the 1.18 experience modification without reporting medical-only claims. No doubt reporting no medical claims produces a lower modification; however, many employers have no knowledge of how to apply the workers compensation state fee schedules and will not have access to insurance carrier discount networks. This often results in the employer paying higher medical costs and higher overall worker compensation costs.

Employers could arrange with a third-party fee schedule company to assist with state fee schedules, but this would depend on the volume of work. It may be awkward to engage a fee-schedule company without a formalized program to allow the employer to pay its own medical claims under a deductible program. Alternatively, the employer can look up the fee schedule amount by procedure code and fee schedule.

The employer will have to know how to create an “explanation of benefits” for the medical provider. In summary, some knowledge is required if an employer is going to take advantage of state fee discounts in paying its own medical claims.

Potential Risks and Penalties

Clearly, an employer paying its own medical claims in non-ERA states presents a more attractive option than doing so in ERA states, as the impact on the experience modification is greater. However, there are several factors to consider. There is always a risk the claim could become more serious. Many states have distinct periods of time that allow for a claim denial. If the claim becomes problematic or significant medical is needed, or if an employee becomes disabled (and the condition can be tied back to the original medical claim), the employer may lose the ability to have the claim denied at a later date because of the state’s statutes.

In addition, many states have penalties that apply if the employer does not report the claim to the carrier or the state. Arkansas issued bulletin warning employers, insurers and other workers compensation stakeholders against the practice of businesses paying small workers compensation claims directly, saying the practice was in violation of Ark. Code Ann. Section 11-9-106(a), which deals with making materially false representations for the purpose of avoiding payment of the proper insurance premium. The law authorizes insurers to offer a deductible to policyholders, but the law does not authorize direct payments, with or without a valid deductible program. The bulletin emphasized that even with an authorized deductible program all claims must be submitted for “first dollar” payment by the insurer. Other states require all incidents must be reported even if “notice only.” In other states, the doctor reports the claim to the state with a copy to the carrier of record so the opportunity to pay your own medical claims is certainly more challenging. An employer must also be aware of penalty situations in its states regarding timeliness of payment. For instance, in Michigan, as in many other states, the bill must be paid within 30 days of receipt.

Small-Deductible Programs

Most states have approved the use of small-deductible plans. Currently, 36 states (Alabama, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota and Tennessee) have state-approved small-deductible rules ranging from $500 (Oregon) to $25,000 (Missouri, Ohio and Texas) for medical and indemnity.

In some states, an insurer is not required to offer a deductible if the employer’s ability to make payment of the claims under the deductible is in doubt. Some states have specific requirements for small-deductible plans while others allow insurers to file their own plans. In Arizona, Idaho, Louisiana, Michigan and Mississippi, insurers are permitted to file small-deductible programs, but most carriers haven’t. North Dakota, Washington and Wisconsin are notable exceptions as states not allowing small-deductible plans.

In return for assuming a deductible applicable to every claim, the employer receives a premium credit. These plans are extremely popular as a cost-cutting tool for many employers, especially contractors. Sometimes, underwriters use deductibles as a defensive tool, or the employer reluctantly accepts a deductible, as it may have been the only way to obtain a competitive premium. A deductible is simple to manage from the employer’s standpoint. Claims are submitted to the carrier.

The carrier pays the claims after applying the state fee schedules and other network discounts. The employer is billed at the end of the month for reimbursement of the claims under the deductible amount.

Selecting a small deductible is not always a pricing consideration. A company may be more attractive to a carrier if it is willing to take on a small deductible. This is especially true of contractors.

Whether the claims under the deductible go into the experience modification depends on the state the employer is located in. Currently there are 15 NCCI states offering net deductible options for small deductibles: Alabama, Colorado, Florida, Georgia, Hawaii, Iowa, Kansas, Kentucky, Maine, Missouri, New Mexico, Oklahoma, Rhode Island, South Carolina and South Dakota.

Small-Deductible-Programs Reference Table

The following NCCI table provides a summary of the small deductible programs in the states where the Basic Manual applies. For complete details regarding the rules of any program, refer to the appropriate state pages.

Alaska, District of Columbia, Idaho, Louisiana, Mississippi and Oregon have not filed programs with NCCI.

So what does net vs. gross mean? Assume the employer is in Kentucky, a net small-deductible state. The employer signs up for a small deductible and gets a small premium credit. It sends the bills to the carrier, and the carrier bills for the amounts under the deductible at the end of the month. When the claims activity for this employer is reported to the NCCI, it is reported “net” AFTER the deductible has been applied. If the employer had a $500 deductible, a $400 claim would show up at the NCCI as $0 and a $1,000 claim would show up as $500. (Remember this is after the state fee schedules and carrier cost containment networks have been applied, so it could have started out as a $3,000 medical claim).

Some states require insurers to report losses on a gross basis, which is the full amount paid by the insurer, irrespective of deductible reimbursements received from the employer. In a gross state, say Indiana, an employer can sign up for a small deductible and get a small premium credit. When this employer’s claims are reported to the NCCI, they are reported “gross” — as if no deductible existed.

Assuming the same claim scenario — a client with a $500 deductible — the $400 claim is reported to NCCI as $400 and a $1,000 claim shows up as $1,000 for experience modification purposes even though the insured is reimbursing some of the claim under the deductible.

Gross means reported without regard to the deductible. Net means reported after the deductible is applied. Net reporting of losses may allow an employer to receive a premium discount up front and favorably affect its experience modification factor by eliminating all losses below the deductible from experience rating.

So what does it mean when a state is a gross and net state? The NCCI Basic Manual will refer you to the state pages for further explanation. It can be for several reasons:

  • In Florida, for instance, only a $2,500 deductible is “net.”
  • Some states are net for medical-only and gross for indemnity.

With so many states offering small deductibles for medical-only claims, it is difficult to understand — particularly in an ERA state — why any employer would not formalize a small-deductible plan and take the advantages of the state fee schedule and carrier network medical bill discounts as well as the carrier premium credit allowed for small deductible plans. This is especially true in those states that have approved ERA, have net deductible plans and also give a credit for the deductible program. These include Kansas, Kentucky and New Mexico.

With the expanded format of the unit statistical report approved in most states, losses are reported on both a gross and net basis. Thus, insurers report the same information in all states regardless of whether gross or net losses are used to calculate experience modifiers.

State-Specific Variances

There is usually a reason why a state did not approve ERA. Some states have a mechanism in place to handle employers paying small medical claims that reduce medical claims included in the experience rating calculation.


Employers are allowed to pay the first $15,000 of any medical-only claim. Ohio also allows employers “salary continuation” which allows an employer to pay an employee his or her regular wages after a workplace injury or illness occurs. No salary continuation payments or medical-only claims paid by the employer under the $15,000 go into the modification calculation.


Oregon has a medical reimbursement option that allows interested employers to reimburse medical-only claims up to $1,500. Any reimbursed medical losses are removed (or reduced) from the experience rating.


Missouri law allows employers the right to direct the medical care for their injured workers and to pay first-aid-type claims that are $1,000 or less out-of-pocket. By paying claims under $1,000 out-of-pocket, the frequency and cost of these claims are not included in the calculation of the experience modification. There is a special NCCI endorsement that is attached to the policy.

The bill is submitted to the carrier. The carrier reprices the medical bill according to the state fee schedule and network discounts. This is true even if a bill is $1,200 but ends up being $800 after re-pricing. The claims under $1,000 do not get reported on the experience modification.

Some carriers operating in Missouri that have a higher deductible plan (i.e., $2,500) in place with an employer will allow the employer to reimburse the bill and not report the entire bill to the experience modification. They count the first $1,000 under the Missouri law and the balance of the deductible as subrogation. Any lost time claim or a claim where it is known that a permanency rating will apply (i.e., fracture) must be reported even if under $1,000.

The Missouri system has worked well for employers. It is an example of how an employer may have a different approach to paying small medical claims or decide not to pay them at all depending on the state they are located in.


Medical-only claims are subject to a deduction equal to twice the average medical-only claim cost. The amount changes each year (2014 is $2,610). The claim cost will be deducted from the loss amount before beginning any other calculations on the claim. Ultimately it reduces the regular experience modification calculation.

No employer’s experience modification can increase or decrease more than twenty-five percent during any one year. However, if an employer’s experience modification factor is calculated to be below 1.00 without this twenty-five percent limitation and that employer had an experience modification factor greater than 1.333 in the previous year, then the experience modification factor shall be set to 1.00


California employers have an option to self-pay certain workers compensation claims. Specifically, first-aid claims. Even though there is no premium reduction to pay first aid claims out-of-pocket, this practice may have a positive effect in minimizing the impact on future experience modifications, and reduce the future cost of premiums.

Several states – Alabama, Kansas, Kentucky, New Mexico, Oklahoma and Rhode Island) offer a unique opportunity in that they approved ERA (70% discount for medical-only claims), they allow a credit for the small deductible and they do not include claims under the deductible in the experience modification.

Advanced Monitoring of the Experience Modification

It is important to note that the 70% reduction applied to medical claims for the experience modification in ERA states is only for a medical-only claim. As soon as an indemnity (lost wages) payment is included, the entire medical portion of the claim goes into the experience modification formula. Once the waiting period has passed to collect lost wages (anywhere from 3 to 7 days depending on the state) lost wages are paid back to day one. There are occasions when a claim may result in only 5 or 7 days off or $300 to $900 of indemnity payment but the medical is high (i.e. $10,000). Hernia operations are an example of short time off but large medical expense. If the employer were to continue to pay this individual for the week or two off and report only the medical to the carrier, only $3,000 of the medical would apply to the experience modification.

This feature of the formula highlights the importance of returning employees to work as soon as medically possible and when not medically possible, managing that one-to-three week period of wages. There is software available that can calculate a variety of “what ifs” to determine the cost saving advantages to paying close attention to this issue.

Once again the employer and agent must be aware of what the state of operation allows. Wisconsin issued a warning to employers that they cannot pay wages to injured workers to lower their experience modification. The claims must be paid by the workers compensation carrier. Wisconsin does not allow deductible plans and this action constitutes use of a deductible which has not been filed by the bureau and approved by the Office of the Commissioner of insurance for use in Wisconsin. The office warned it will pursue appropriate enforcement action about any practices noted as improper.

Medicare — Responsible Reporting Entity

In addition, employers must now contend with the rules from the Center for Medicare and Medicaid Services (CMS). But first, a little history. Federal Medicare set-aside has been in force for many years. What is in place is a process that was activated when a workers compensation settlement on a claim was imminent on an individual who was collecting Medicare because they were of Social Security age or disabled or when there was a reasonable expectation an individual would be eligible for Medicare within 30 months of the settlement time.

When these circumstances existed on a settlement of a workers compensation claim, the carrier or TPA was required to assemble medical records on this individual and send them to a company that would assess the future medical and prescription drug use only relative to the workers compensation injury (not everything covered by Medicare is covered by workers compensation).

When the employee receives his/her lump-sum workers compensation settlement a non-interest bearing bank account is also set up with the assessed amount for future medical and prescription (but no indemnity or impairment). The settlement “set-aside” (hence the name) pays bills and the employee keeps receipts. Any medical bills not paid but eligible for Medicare are then paid by Medicare.

The Secondary Payer Act was passed by Congress under George Bush. Medicare was always intended to be a secondary payer not primary but the only time this was getting done was in workers compensation settlements. Usually a denial or a delay (by way of lawsuit) of a workers compensation, general liability or automobile claim sent an eligible individual to Medicare. Medicare conditionally pays with the expectation of being reimbursed if and when a lawsuit is resolved with the workers compensation, general liability or automobile carriers.

Unlike workers compensation settlements set-aside, there was no formal method to recover what Medicare paid when the lawsuit settled. Medicare is now requiring reporting of all open general liability, automobile and workers compensation claims if another primary source of recovery is available for Medicare eligible claimants.

So this brings us to employers paying their own small medical-only claims or lost wages. An employer risks becoming the responsible reporting entity with all the burdensome reporting requirements when paying their own claims unless they adhere to the strict rules where workers compensation is exempt under ongoing responsibility for medicals (ORM) for minor incidents.

Workers compensation claims are excluded from reporting indefinitely if they meet all the following criteria:

  • Claim is for “medicals” only.
  • The associated “lost time” for the worker is no more than the number of days permitted by the applicable workers compensation law for a “medicals only” claim (or 7 calendar days if the applicable law has no such limit).
  • All payments have been made directly to the medical provider.
  • Total payment for medicals does not exceed $750.

The employer needs to evaluate whether saving a few dollars on their experience modification is worth tracking and carefully following these rules. If the employer pays any medical over $750 and the employee is Medicare eligible the employer could be creating more headaches with reporting/tracking etc than the experience modification savings is worth by paying the bills instead of sending to the carrier.

The carriers and TPAs have experts that have implemented these new rules and will have this streamlined. There are many companies now offering reporting services. Failure to report a claim carries a $1,000-a-day per claim penalty.


The variances among states dictate that there is no one, simple answer to the employer’s quandary of whether to pay small medical-only claims or turn them in to the insurance carriers for payment. An employer must weigh the advantages and disadvantages of paying small medical claims after:

  • Obtaining a complete understanding of their state’s laws.
  • Understanding the CMS rules.
  • Evaluating the staff’s ability to effectively manage their own medical bills.
  • Reviewing the insurance alternatives available (small deductibles) that take paying small medical claims into consideration.

Information in this article is provided as a reference only. While I strive for accuracy, the workers compensation world is constantly changing. Consultation with the governing authority or an attorney for verification is advised.

Is That Opportunity Calling in the 'Sharing Economy'? (Part 2)

Last week, we looked at the potential of the sharing economy and some of its top performers.This week, we’ll explore how insurance fits into that picture.

Start-ups in the car-sharing economy are attracting major investors who believe in their business model. There is, however, one area in which start-ups have not been able to gain traction—insurance. Many tell of cold calling insurance companies; some have reached out to insurance executives via LinkedIn. A few have been successful. For example, Getaround, a car-sharing service, was able to work closely with insurers to secure coverage by delivering a solid risk model. Further, the company is collecting information on its consumers to help start providing the data that insurance companies need to underwrite car-sharing activities. However, success is not the norm.

One major insurer, for example, specifically rewrote its personal auto policies to exclude car-sharing. A company spokesperson for another large insurer stated that, “The owner could put their current coverage for personal use of the vehicle in jeopardy as the act of making the vehicle available for rental purposes could inherently change the risk profile of the vehicle. And, by entering into commercial arrangements with their vehicle, the insured may risk being unable to secure auto coverage from our company in the future.”

Legislators have also gotten into the game. A few states have started to make inroads into the insurance challenge. For example, California and Oregon both state that a personal auto policy cannot be considered commercial, even if the owner participates in car sharing. However, the law also declares that the auto-sharing company, not the owner’s insurer, is responsible for any damage caused during car-sharing activities. In other states, legislation has not been as supportive. For example, New York state issued a cease-and-desist order against RelayRides when its insurance coverage was declared “illegal and inadequate.”

A few innovative companies are experimenting with different insurance models. MetroMile, for example, lets drivers pay for insurance by the mile. Drivers simply plug a device, called the Metranome, into the car’s onboard diagnostic switch to count miles driven. A UK-based company, jFloat, allows consumers to buy into a “collaborative consumption self-insured pool” through the Web. A reinsurer backs the pool when claims reach over the maximum amount. While these particular models do not directly apply to the car-sharing business today, they are heading in the right direction. It’s companies like these that are thinking about how to combine insurance with emerging technologies that may provide a disruptive insurance model for the sharing economy.

In the meantime, car-sharing enthusiasts are not idly sitting by waiting for insurance companies to respond. Instead, they have been reaching out to insurers and legislators to help them better understand the business and risk models. The goal is to provide insight into the needs of the car-sharing market and work with insurers and legislators to develop solutions. While it is to be expected that companies like RelayRides and Getaround would be proactive, a new consumers group has also emerged. Called Peers, it represents the renters’ side of the equation, advocating for their needs and their protection. Even universities are getting into the mix to help create solutions. For example, the University of California at Berkeley’s Transportation Sustainability Research Center regularly publishes a report on the auto-sharing industry. Its conference on the topic will host a session on “Insuring Shared-Use Mobility Services.”

Investors, consumers, governments and legislative bodies are all weighing in on the car-sharing market. The only industry that has remained relatively silent is insurance.

Next week, we’ll look at how insurance companies can evaluate the sharing economy opportunity in light of their individual business models and risk appetites.

An Overlooked Attorney Fee Statute in Oregon

Companies doing business in Oregon should be aware of ORS 20.080, which can provide for attorney fees in cases seeking damages of $10,000 or less.  That statute provides that prevailing plaintiffs may be awarded attorney fees. It is important to be aware that, in ORS 20.080 cases seeking compensatory damages of $10,000 or less, the attorney fees can quickly approach or outstrip the compensatory damages.

This article will explore three key questions that clients generally have when defending against an ORS 20.080 case: 1) How does the plaintiff receive attorney fees?; 2) Do courts require plaintiffs to strictly comply with ORS 20.080?; and 3) How can defendants escape attorney fees in ORS 20.080 cases?

1. How Does the Plaintiff Receive Attorney Fees Under ORS 20.080?

Generally, a plaintiff has a claim for attorney fees under ORS 20.080 if the plaintiff: gives the defendant notice of a claim for $10,000 or less at least 30 days before the plaintiff files a lawsuit; provides enough documentation for the defendant to generally value the claim; and was awarded more at trial or arbitration than the defendant offered before the plaintiff filed the lawsuit. 

ORS 20.080 provides that:

“(1) In any action for damages for an injury or wrong to the person or property, or both, of another where the amount pleaded is $10,000 or less, and the plaintiff prevails in the action, there shall be taxed and allowed to the plaintiff, at trial and on appeal, a reasonable amount to be fixed by the court as attorney fees for the prosecution of the action, if the court finds that written demand for the payment of such claim was made on the defendant, and on the defendant's insurer, if known to the plaintiff, not less than 30 days before the commencement of the action or the filing of a formal complaint under ORS 46.465, or not more than 30 days after the transfer of the action under ORS 46.461. However, no attorney fees shall be allowed to the plaintiff if the court finds that the defendant tendered to the plaintiff, prior to the commencement of the action or the filing of a formal complaint under ORS 46.465, or not more than 30 days after the transfer of the action under ORS 46.461, an amount not less than the damages awarded to the plaintiff.

“(2) If the defendant pleads a counterclaim, not to exceed $10,000, and the defendant prevails in the action, there shall be taxed and allowed to the defendant, at trial and on appeal, a reasonable amount to be fixed by the court as attorney fees for the prosecution of the counterclaim.

“(3) A written demand for the payment of damages under this section must include the following information, if the information is in the plaintiff's possession or reasonably available to the plaintiff at the time the demand is made:

“(a) In an action for an injury or wrong to a person, a copy of medical records and bills for medical treatment adequate to reasonably inform the person receiving the written demand of the nature and scope of the injury claimed; or

“(b) In an action for damage to property, documentation of the repair of the property, a written estimate for the repair of the property or a written estimate of the difference in the value of the property before the damage and the value of the property after the damage.

“(4) If after making a demand under this section, and before commencing an action, a plaintiff acquires any additional information described in subsection (3) of this section that was not provided with the demand, the plaintiff must provide that information to the defendant, and to the defendant's insurer, if known to the plaintiff, as soon as possible after the information becomes available to the plaintiff.

“(5) A plaintiff may not recover attorney fees under this section if the plaintiff does not comply with the requirements of subsections (3) and (4) of this section.

“(6) The provisions of this section do not apply to any action based on contract.”

2. Do Courts Require Plaintiffs to Strictly Comply With ORS 20.080?

The short answer is no.  Although ORS 20.080 requires that plaintiffs make their demands in writing to the defendant AND the defendant’s insurer, if known, courts generally do not require plaintiffs to strictly comply with this portion of the statute.  Under Schwartzkopf v. Shannon the Cannon’s Window & Other Works, Inc., 166 Or App 466, 471, 998 P2d 244 (2000), a person may act as an agent for the defendant (and therefore may be considered “the defendant”) for purposes of ORS 20.080 if that person has authority to defend or settle a claim for the defendant.  Under Schwartzkopf, trial court judges have allowed plaintiff’s lawyers to provide notice to the defendant’s insurer without providing notice to the defendant, even though the plain language of ORS 20.080 requires that the plaintiff provide notice to both.  In these kinds of cases, the insurer has usually already engaged in some kind of negotiations for the defendant or has gathered facts for and on behalf of the defendant, giving the plaintiff evidence of agency.  Therefore, under ORS 20.080 and Schwartzkopf, if the insurer is the only person who receives a demand, practically and generally speaking, the insurer should treat that demand as sufficient notice as long as it was made at least 30 days before plaintiff filed the lawsuit.

Courts do generally require plaintiffs to send any additional written information that the demand would include, such as additional medical bills, to the defendant (or the defendant’s insurer) as soon as possible if the plaintiff obtains such information after the plaintiff has made her written 20.080 demand and before she has filed the lawsuit.

However, in the initial written demand, courts generally give plaintiffs leeway and, as long as the plaintiff has provided the defendant with enough documentation to generally value the claim, the plaintiff generally does not have to strictly comply with the statute and provide all of the documentation “reasonably available at to the plaintiff at the time.”  For example, if you are provided with an ORS 20.080 notice from a plaintiff’s lawyer that includes most of the medical records and bills but does not include copies of the x-rays, a trial judge will generally hold that the plaintiff’s lawyer substantially complied with ORS 20.080 and that the claim may proceed.

3. How Can Defendants Escape Attorney Fees in ORS 20.080 Cases?

The only way the defendant can escape attorney fees in ORS 20.080 cases is if the defendant makes an offer to the plaintiff before the lawsuit is filed that is more than the damages ultimately awarded to the plaintiff. In other words, if the plaintiff recovers $5,000, but the defendant offered $3,000 before the lawsuit was filed, the plaintiff gets her attorney fees.  If the plaintiff recovers $5,000, but the defendant offered $8,000 before the lawsuit was filed, the plaintiff does not receive her attorney fees.

If the lawsuit is filed and the defendant has a counterclaim of up to $10,000 and the defendant prevails in the lawsuit, the defendant gets its reasonable attorney fees.  What is “reasonable” is decided by the court.

In Oregon, it is important to notify your attorney right away after receipt of an ORS 20.080 letter to ensure that you strategize appropriately.  Although it may seem unpalatable, generally the best strategy is for defendant to make its best offer first, to minimize the risk of an award in excess of the offer and exposure to attorney fees. Many times, lawyers don’t receive cases until the lawsuit is filed and, in ORS 20.080 cases, that is usually too late; the plaintiff’s attorney fee claim is already in play.