Insurers Downwind of Lawyer Theft: Must Send Notice Directly To Claimant Whenever They Settle Their Claim

Listen to Our Legal Alerts on the Following Platforms:

From the Desk of Jeff Eberhard:

Downwind. It Is an expression that when a bad event occurs, a forest fire, a chemical plan explosion, or a Chernobyl nuclear melt down, you don’t want to be “downwind”. Being downwind can range from a minor inconvenience to things far worse. Under a new law every insurance company is “downwind” from a lawyer who stole millions of dollars from her clients.

Claims Pointer:

Senate Bill 180 came into effect on January 1, 2022, and it effects the duty of an insurer when making payments of $5,000 or more to a claimant. Before the passage of this bill, the practice was that only the attorney was notified when the settlement was reached in a case. Typically, once the attorney receives their settlement fees, their client is notified and paid their portion, however this is not always the case. For example, in 2019 it was reported that Portland attorney Lori Deveny was indicted for allegedly stealing millions from her clients. The goal of Senate Bill 180 is to protect the client and ensure that this type of fraud never happens again by requiring the insurance company to notify both the attorney and the attorney’s client when a settlement payment is made. The reality is now insurance companies must add a new process to every case they settle in Oregon. And you thought 2022 was going to be better.

Facts:

A few years ago, the Oregon State Bar found out that a former personal injury attorney, Lori Deveny, had stolen millions of dollars from her clients by cashing in the settlement checks sent from insurers. This was able to happen because, pre-Senate Bill 180, insurance companies would send settlement checks straight to the claimant’s attorney. The attorney would then do some accounting, cover fees and expenses and then inform the client that the money was received. In this case, the clients were not told that the money had arrived. Dozens of clients of Deveny have come out with stories of how their signatures were forged on release forms, their settlement checks never coming, and being strung along while still suffering the effects of their injuries. Many of these clients stated that Deveny would ignore their inquiries about the status of their settlement and that they only found out that their case had settled months or years earlier when they directly contacted the insurance company. Essentially, Deveny was able to abuse her position of power and take advantage of her clients without their knowledge. The Oregon State Bar has heard from about 43 clients with losses that ranged from $5,000 to $500,000.

This malfeasance spurred the Oregon State Bar to propose legislature to help prevent this from happening again, which is where Senate Bill 180 came to play. Senate Bill 180 is essentially a “payee notification” law that exists in 15 other states.

Law:

Senate Bill 180 (effective January 1, 2022) provides, in part: “(1)(a) An insurer shall notify a claimant in writing at the time the insurer pays $5,000 or more to settle a third-party liability claim if: (A) The claimant is a natural person; (B) The insurer or an agent or other representative of the insurer, including the insurer’s attorney, delivers the payment to the claimant or to the claimant’s attorney, agent or other representative by draft, check or other form of payment; and (C) The claimant or the claimant’s attorney has provided contact information or a mailing address to the insurer.”

To comply, an insurer should provide the claimant a copy of the cover letter accompanying the distribution of settlement funds. This provides authorization for an insurer or insurer’s attorney to communicate with the claimant for the sole purpose of delivering this notice, even if the claimant is represented by counsel. However, if you intend to provide notice to the claimant not using the cover letter distributing funds, Senate Bill 180 limits the information that can be included in this letter to: “(A) A statement that the insurer has paid a settlement; (B) The amount of the settlement; (C) The date on which the insurer paid the settlement; (D) The insurer’s name; and (E) Any identifying number for the claim”

Notably, Senate Bill 180 does NOT create a cause of action for an insurer’s failure to provide this notice. To read the full text, click here.

The Big Picture:

The goal of this new law is to protect the claimant from theft of settlement funds by their attorney by providing transparency. Insurers should directly notify the claimant of any settlement payment over $5,000 so that the claimant knows that the case has settled and what funds they are entitled to. To help this notification process, there is now an exception to the general prohibition of attorneys directly contacting represented parties. So, there is no issue if an adjuster or a defense attorney for the insurance company contacts the claimant directly. If an insurer does not have the contact information of the claimant then they are not required to notify the claimant.