On December 29, 2023, the Oregon Supreme Court issued its much anticipated opinion in Moody v. Oregon Cmty. Credit Union, 371 Or. 772 (2023). As discussed below, the opinion generally affirmed the Oregon Court of Appeals January 2022 decision that caused quite a stir for insurers worried about in-roads toward the creation of bad-faith law in Oregon.
Facts of Moody
The underlying facts of Moody involve a life insurance policy issued to the husband of plaintiff Christine Moody. In July of 2017, the plaintiff and her husband, Steven “Troy” Moody and their daughter took a camping trip with family friends. After the campers retired for the night, Mr. Moody’s friend Josh Montez perceived danger in the vicinity and discharged his firearm indiscriminately in the darkness. Mr. Moody was accidentally shot and killed. Mrs. Moody filed a life insurance beneficiary claim for $3,000.00. The insurance company denied the claim on the grounds that the policy did not apply to any accident caused by or resulting from Mr. Moody being under the influence of any narcotic or other controlled substance. The insurance company based that decision on a toxicology report that was positive for marijuana.
Moody Trial
Christine Moody filed a claim against the insurance company for violation of ORS 746.230, a statute that regulates unfair claim settlement practices. Mrs. Moody alleged the insurance company breached the insurance contract by (a) refusing to pay insurance benefits before conducting a reasonable investigation and (b) by not promptly and equitably settling in good faith a claim in which the insurer’s liability had become reasonably clear.
At trial, Moody asserted claims of breach of contract and negligence. The trial court granted the insurance company’s motion to dismiss the negligence claim and associated claims for non-economic damages. The trial court awarded the $3,000.00 insurance benefit Moody appealed the dismissal of her negligence claim.
Court of Appeals
At the Court of Appeals, Moody argued the insurance company was negligent per se because it violated ORS 746.230. In a departure from prior decisions, the Court of Appeals agreed that violation of ORS 746.230 can constitute negligence per se. The Court of Appeals reasoned that a breach of contract can constitute negligence when the breaching party is subject to a standard of care independent of the terms of the contract:
- A standard of care may arise out of a special relationship between the contracting parties; or
- A standard of care may be expressed in a statute or administrative rule.
The Court of Appeals reiterated that valid negligence per se claim must still satisfy the following elements: (1) defendants violated a statute; (2) that plaintiff was injured as a result of that violation; (3) that plaintiff was a member of the class of persons meant to be protected by the statute; and (4) that the injury plaintiff suffered is of a type that the statute was enacted to prevent. Moody, 317 Or App at 238 (citing McAlpine v. Multnomah County, 131 Or App 136, 144, rev den, 320 Or 507 (1995)). The insurance company appealed to the Supreme Court.
Supreme Court
At the Supreme Court, the insurance company argued a claim for negligence per se can only exist when a negligence claim otherwise exists. The Supreme Court broke down the insurance company’s arguments as follows:
- In Farris v. U.S. Fid. and Guar. Co., 284 Or. 453, 587 P.2d 1015 (1978) (Farris II), the Oregon Supreme Court decided that the legislature did not intend to permit a common-law negligence claim against a first-party insurer;
- Even if Farris II does not resolve the question, the Oregon Supreme Court should conclude that, in enacting ORS 746.230, the legislature deliberately decided not to provide a basis for a negligence claim against a first-party insurer or to supply a standard of care for a negligence per se claim; and
- The plaintiff does not have a legally protected interest sufficient to subject the defendant to liability for emotional distress damages.
The Supreme Court agreed that to make a claim for negligence per se, the plaintiff must have a valid underlying claim for negligence. The Supreme Court reinforced the “Fazzolari” framework for negligence claims.[1]
The Supreme Court focused its analysis on whether a “foreseeable risk” to a “protected interest” sufficient to establish a claim for negligence? The Supreme Court answered that question in the affirmative. It acknowledged there was no “test” for determining when an interest is protected and expressed caution in finding such a protected interest so as not to create “indeterminate and potentially unlimited liability.”
The Supreme Court discussed Farris II at length and ultimately concluded the complaint in that case did not allege a tort claim independent of the claim for breach of contract and therefore was not controlling. The Supreme Court went on to conclude that permitting a common-law negligence case for violation of ORS 746.230 would have the effect of deterring insurers from unreasonably engaging in prohibited conduct. It then discussed whether permitting non-economic damages here was (a) consistent with other common law actions and (b) would not place an undue burden on defendants. The Supreme Court ultimately concluded the circumstances of Moody warranted recognition of a legally protected interest:
In this case, we are convinced that plaintiff has alleged a legally protected interest that provides that limiting principle; that is, plaintiff, as the surviving spouse of a deceased breadwinner, has a legally protected interest sufficient to support a common-law negligence claim for emotional distress damages against her husband’s life insurer for failure to reasonably investigate and promptly pay her claim for insurance benefits.
In terms of limiting principles, the Supreme Court also stated contracts provide a means for a defendant to control the extent of its liability to potentially alter or eliminate tort liability or remedies. Mindful of the implications of its conclusion, the Supreme Court stated (emphasis added):
We caution that our conclusion here does not make every contracting party liable for negligent conduct that causes purely psychological damage, nor does it make every statutory violation the basis for a common-law negligence claim for emotional distress damages. Far from it. Few contracting parties promise to provide necessary financial resources on the death of a spouse knowing that their obligation to act reasonably in doing so is required by statute. And few statutes impose obligations on contracting parties designed to protect the parties from the type of emotional harm that plaintiff in this case allegedly suffered. Our decision in this case is a narrow one that applies and accords with the limiting principles that have guided our past decisions and does not unfairly expose defendant to liabilities that it could not have expected and guarded against.
Implications of Moody
For insurers in Oregon, the pending question is whether it will be exposed to tort claims arising out of the breach of an insurance agreement in first party disputes. The Supreme Court explicitly stated its decision does not apply to every contract breach and statutory violation. The “bad facts” of Moody played a role in the Supreme Court’s decision, as did the Supreme Court’s view of the critical importance of life insurance benefits. To the extent any insurance company offers products that could be seen as providing essential resources to those in a vulnerable position, it would be prudent to study the nuances of Moody and take proactive steps to mitigate potential tort claims. One such proactive step is to evaluate contractual means of defining the duties and expectations of the parties, as suggested by the Supreme Court in Moody. Defense counsel should stress the limiting language of the Supreme Court’s opinion and focus on distinguishing the underlying facts of Moody from their own, if helpful.
[1] (1) Defendant’s conduct caused a foreseeable risk of harm;
(2) The risk is to an interest of a kind that the law protects against negligent invasion;
(3) Defendant’s conduct was unreasonable in light of the risk;
(4) The conduct was a cause of plaintiff’s harm; and
(5) Plaintiff was within the class of persons and plaintiff’s injury was within the general type of potential incidents and injuries that made defendant’s conduct negligent.