By Jamison McCune
Peace of mind? Not for insurers in Oregon right now. In Moody v. Oregon Community Credit Union, 317 Or App 233 (Jan. 26, 2022), the Oregon Court of Appeals held that insurers can be subject to negligence per se claims that seek emotional distress damages for denying claims. This decision and its ramifications are discussed below.
I. The Coverage Dispute
The case arose from a dispute over a $3,000 life insurance policy. Federal Insurance Company (“Federal”) issued the life insurance policy to Moody’s husband. Moody’s husband was accidentally shot and killed during a camping trip. Moody timely filed a claim with Federal, and Federal denied the claim based on a policy exclusion.
Moody filed suit against Federal in state court and alleged claims for breach of contract and negligence per se based on Oregon’s Unfair Settlement Practices Act, ORS 746.230. Moody alleged Federal violated ORS 746.230 by failing to conduct a reasonable investigation of her claim and by failing to settle her claim in good faith. Moody sought the $3,000 policy limit as economic damages and $47,001 for emotional distress damages.
Federal moved to dismiss Moody’s negligence per se claim on the grounds that it did not state a claim for relief and also moved to strike Moody’s emotional distress allegations, because such damages are not recoverable. The trial court granted both motions, leaving Moody’s claim for breach of contract.
Moody appealed the resulting judgment.
II. The Court’s Ruling
The Court of Appeals overturned the trial court decision and held:
Moody complaint stated a negligence per se claim for relief against Federal under ORS 746.230 for the denial of her claim, and
Moody could recover emotional distress damages against Federal.
To state a claim for negligence per se, a plaintiff must allege four elements:
The defendant violated a statute;
The plaintiff was injured by the defendant’s violation;
The plaintiff was a member of the class of persons meant to be protected by the statute; and
The plaintiff’s injury was the type of injury the statute was enacted to prevent.
The Court of Appeals held that Moody’s complaint alleged all four of these elements. Moody alleged Federal violated ORS 742.230 by failing to conduct a reasonable investigation and by failing to settle her claim in good faith. Moody alleged she was injured as a result. In regard to the third element, the court noted the express purpose of the Oregon Insurance Code is “for the protection of the insurance-buying-public.” As a member of the insurance buying public, ORS 742.230 was enacted to protect policyholders like Moody and her husband.
With respect to the fourth element, the court noted that a fundamental purpose of insurance is to provide policyholders with “peace of mind” and security. The court reasoned that violation of ORS 746.230, such as bad faith claims handling or delay tactics, could have significant emotional consequences on policyholders. The court therefore held that emotional distress damages was the type of injury the statute was designed to prevent.
Federal argued that ORS 742.230 does not provide a private right of action for policyholders. Even if ORS 742.230 does not include a private right of action, the statute prescribes a specific standard of care for insurers, which could be used to support a claim for negligence per se. As all four elements of the negligence per se test was met, Moody stated a valid claim for relief against Federal.
In the normal setting, the day-to-day business of insurers in Oregon, after the Moody decision, should not look all that different. Claims professionals will presumably continue to promptly respond to correspondence, investigate claims, and attempt to settle claims for reasonable amounts where this is coverage. These are the same legal obligations insurers had under the Unfair Settlement Practice Act before Moody.
But coverage litigation, on the other hand, could look very different. Before Moody, the only cause of action policyholders could typically pursue against their insurers for denying claims was a breach of contract claim. An insurer’s potential liability was, therefore, generally limited to the covered amount of the claim and attorney fees under ORS 742.061, if the claim was not settled within six months.
After Moody, insurers now face the prospect of tort claims and extracontractual damages in coverage matters. In coverage cases where tort claims are alleged, coverage may no longer be the sole issue in the litigation. Insurers may also be required to litigate the extent of the insurer’s investigation, as well as the policyholder’s entitlement to extracontractual damages.
Federal recently filed a petition for review with the Oregon Supreme Court. Only time will tell whether Moody will have a lasting impact on coverage litigation in Oregon. Should you have any questions on this important decision and its impact, please contact me or any of my partners to discuss.