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The Oregon Supreme Court Issues Insurers a Lump of Coal

12.29.23 | INSIGHTS

By Jackie Mitchson
Shareholder, 503.499.4511

In the long-awaited opinion of Moody v. Oregon Community Credit Union, issued December 29, 2023, the Oregon Supreme Court, split 4-3, announced that the plaintiff pleaded facts sufficient to give rise to a legally cognizable common-law negligence claim for emotional distress damages.

In so holding, the Oregon Supreme Court departs from established Oregon law as well as the reasoning in Moody v. Oregon Community Credit Union, 317 Or App 233, 248, 505 P3d 1047 (2022).

The facts of the case are important to the court’s reasoning. Plaintiff’s husband, decedent, was accidently shot and killed on a camping trip. Plaintiff filed a claim for life insurance policy benefits, and the defendant life insurance company initially denied plaintiff’s claim on the ground that the claim fell within the policy’s exclusion for deaths caused by decedent being under the influence of any narcotic or controlled substance.

Plaintiff then filed suit against the insurer alleging claims of breach of contract, breach of an implied covenant of good faith and fair dealing, and negligence. The insurer moved to dismiss the implied covenant and negligence claims and to strike the allegations seeking emotional distress damages. The trial court granted those motions. Thereafter the insurer paid the amount owed under the contract – $3,000.

Next Plaintiff appealed. In Moody v. Oregon Community Credit Union, 317 Or App 233, 248, 505 P3d 1047 (2022), the Court of Appeals up ended Oregon law by concluding that an alleged violation of ORS 746.230(1) supports a negligence per se claim. The insurer petitioned for review, and the Oregon Supreme Court accepted review.

The Oregon Supreme Court affirmed on other grounds. Importantly, the court clarifies that negligence per se is not a separate type of negligence claim. Instead, negligence per se is “simply shorthand for a negligence claim in which the standard of care is expressed by a statute or rule.” Abraham v. T. Henry Const., Inc., 350 Or 29, 35 n 5. Further, the court notes that in enacting ORS 746.230, the legislature did not intend to create a statutory tort.

The opinion makes clear that the court is reluctant to permit recovery of emotional distress damages in the absence of physical injury and that a limiting principle, in addition to foreseeability, is needed to avoid indeterminate and potentially unlimited liability. The court notes, “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.”

After Moody, it is clear that in limited circumstances, a common-law negligence claim and recovery of emotional distress damages is available to a policyholder against its insurer. The court concludes by stating, “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.”

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