Oregon Insurance Regulator Mandates Narrow Intentional Acts Exclusion in Property and Casualty Policies

On May 3, 2022, the insurance regulator in Oregon, the Department of Consumer and Business Services, Division of Financial Regulation (“DFR”), substantially narrowed the scope of intentional acts exclusions available to property and casualty insurers in Oregon.  Per Bulletin No. DFR 2022-2, intentional acts exclusions may no longer preclude coverage for negligence or unintentional harms resulting from intentional acts.  As respects personal lines policies, intentional acts exclusions will apply onlyto “the” insured committing the excluded act, and not “innocent” coinsureds.  The Bulletin is substantially similar to the June 2021 draft “proposed” bulletin previously circulated by DFR.

The Bulletin aims at purportedly “new, more expansive” intentional acts exclusions, such as those providing that “coverage does not apply to bodily injury or property damage, which is expected or intended by an insured, even if the resulting bodily injury or property damage is of a different kind, quality or degree than initially expected or intended; or is sustained by a different person, entity or property than initially expected or intended.” (emphasis supplied).  B. at p. 1.

In DFR’s view, such intentional acts exclusions are inconsistent with Oregon Supreme Court authority holding that the exclusions “apply only when the insured intended or purposefully caused the specific injury or harm that resulted from the act, as opposed to merely intending the act.”  B. at p. 2.  Moreover, ORS 742.005 requires DFR, within certain constraints, to disprove policy forms that contain “uncertain,” “ambiguous,” or misleading terms, titles, or labels, and/or provisions that prejudice the policyholder’s interests, and/or that are “unjust, unfair, or inequitable.”  Id. at 742.005(2) – (4).  DFR believes that extending intentional acts exclusions to injury “even if different than expected or intended” renders the exclusion uncertain or ambiguous because it “could place unintended or negligent behavior within the exclusion[.]” Id.  Similarly, according to DFR, it would be misleading to label such an exclusion as an intentional acts exclusion where it encompasses unintended injury and negligence.  DFR also determined that such exclusions are ambiguous, misleading, inequitable and prejudicial to the extent that they apply to “an” or “any” insured – regardless of his or her involvement with the loss-causing act – as opposed to “the” insured who committed the loss-causing act.  Id.

The Bulletin concludes by putting insurers on notice that DFR will disapprove intentional acts exclusions applying to “losses of a different kind, quality or degree than initially expected or intended,” or losses “sustained by a different person, entity, or property than initially expected or intended,” or exclusions that convey “that an exclusion applies whether or not the insured had the requisite intent” (or similar language).  DFR will also disapprove personal lines policy forms “preclude[ing] a co-insured who did not purposefully participate in the intentional act from recovering for losses due to acts committed against them that would be covered by the policy.”  DFR advises that policies “that do not clearly limit intentional acts exclusions to acts of ‘the insured’” must clarify that “the exclusion does not apply to a named co-insured who does not cause, does not contribute to, and is not aware of the intentional act before it is committed.”  B. at 3.

Insurers have until July 1, 2022 (i.e., sixty days from May 2, 2022) to revise and refile any policy forms inconsistent with the Bulletin’s directives.  Id.