The Oregon Court of Appeals recently decided two cases favorable to first-party insurance companies in their efforts to defend against tort claims.
Strader v. Grange Mutual Ins. Co., 179 Or.App. 329 (Jan. 30, 2002) (homeowners insurance).
Strader involved a claim originally arising from roof damage caused during a windstorm, which had resulted in water damage to the interior of David and Kathy Strader's home and contents. The insurance company arranged for temporary repairs, which did not prevent further water damage or allow evaporation of existing moisture. Upon completion of the permanent repairs a year after the storm, the insurance company and the insureds could not agree on the amount due under the policy.
During the winter after the roof was sealed, Kathy Strader began having health problems, which her physician told her were caused by asthma aggravated by an allergy to mold spores. The doctor advised reducing her exposure to the house. The insureds informed the insurance company of the diagnosis and showed a company executive the areas of the house that were still moist and where mold grew. The insurance company denied coverage for the amount requested by the insureds to repair the water damage, including the mold. The insureds then brought suit for breach of contract.
In the ensuing litigation, the insured also claimed damages for personal injury "foreseeably" caused by the insurance company's alleged "'unreasonable delays in repairing the roof and its failure to correct the moisture problem and provide funds to adequately remove the mold or replace items contaminated with mold.'" The insurance company moved for summary judgment on the personal injury claim. The trial court granted the insurance company's motion. The Oregon Court of Appeals affirmed.
The appeals court noted that the insurance company's alleged tortious conduct with respect to the personal injury claim, that is, its underpayment and non-payment of benefits, was precisely the same conduct identified as breaching the contract. As a result, the court ruled that, whether the insurance company could maintain a tort claim based upon a breach of contract depended upon whether, pursuant to well-established Oregon case law, there was a "special relationship" between the insurance company and the insured.
The court did not find such a relationship, concluding that the insurance company was not in a special "fiduciary-like" relationship with its insured and was therefore not liable on a tort theory for personal injury allegedly caused by the insurance company's delayed payment and nonpayment of benefits.
Lewis-Williamson v. Grange Mutual Ins. Co., 179 Or.App. 491 (Feb. 13, 2002) (homeowners insurance).
In Lewis-Williamson, the Oregon Court of Appeals considered the viability of a negligence claim against the insurance company's "captive" insurance agent. Following the same reasoning as that in Strader, the Lewis-Williamson court first considered whether there was a special relationship between the parties. The court concluded that the insured had no right to rely upon the agent and that the agent had no duty to act for the insured's economic benefit.
The court also concluded that a special relationship may not be unilaterally formed by an insured where the insured has no right to rely upon the agent. As the court stated: "The fact that she trusted him and deferred to his judgment does not make him her agent or show that he was acting on her behalf." Because the insurance company's "captive" agent was not in a special relationship with the insured, the court held that the agent owed no duty to exercise reasonable care in providing an estimate for the replacement cost of the insured's home.
Strader and Lewis-Williamson continue the trend of Oregon appellate courts to dismiss tortious claims against first-party insurance companies and their agents where there is no "special relationship" or heightened duty between the insurance company and its insured. The Strader and Lewis-Williamson cases solidify the argument that an insurance company or its agents may not be sued in tort absent special circumstances and facts that are normally not seen in the context of first-party insurance.
Although for many years Oregon cases have clearly held that there can be no tort claim of "bad faith" absent a special relationship between the parties, these new cases should assist insurance companies in obtaining dismissal of other tort claims in the first party context.