February 8, 2022

First Party Bad Faith in Oregon? Moody v. Oregon Community Credit Union and Federal Insurance Company, Oregon State Court of Appeals

Christine Moody (“Plaintiff”), who was the beneficiary to her husband’s life insurance policy, brought suit against Federal Insurance Company (“Defendant”)  for unreasonably denying her claim for accidental loss of life benefits after her husband’s death. Federal Insurance had contracted to provide live insurance benefits of $3,000 to be paid in the event of Troy Moody’s death. He was accidentally shot and killed while on a camping trip. Defendant  asserted its policy exclusion that any accidents caused by or resulting from the insured being under the influence and that the exclusion applied because the sheriff’s toxicology report stated there was evidence Mr. Moody had tested positive for marijuana. Plaintiff’s position was Mr. Moody died because he was shot and not because he was under the influence of marijuana.

Plaintiff brought suit and alleged Defendant  was negligent per se under ORS 746.230(1) and Defendant’s negligence had caused her emotional distress. ORS 746.230(1)  provides that an insurer may not refuse to pay claims without conducting a reasonable investigation or fail to attempt in good faith to promptly and equitably settle claims when liability is reasonably clear.

Plaintiff alleged $3,000 in economic damages and $47,000 in noneconomic damages. Defendant  moved to dismiss the negligence per se claim and strike the allegation of damages for emotional distress on the ground that a negligence claim may not be predicated on a breach of the insurance policy. The trial court granted Defendant’s Motion. During the appeal, Defendant tendered the $3,000 benefits and the trial court entered a judgment on the breach of contract claim.

On appeal, Plaintiff argued the trial court erred in dismissing her negligence per se claim and striking her claim for emotional damages.  Plaintiff cited an exception to the rule that ordinarily, the remedy for a violation of the terms of a contract—including an insurance policy—is a claim for breach of contract. That exception is a standard expressed in a statute constitutes an independent standard of care that will support a claim for negligence per se. Abraham v. T. Henry Construction, Inc., 230 Or. App. 564, 572, 217 P.3d 212 (2009), aff’d on other grounds, 350 Or. 29, 249 P3d 534 (2011) (Abraham I).  The Court agreed with Plaintiff’s argument that Defendant’s breach of its  insurance policy also violated an independent statutory standard of care listed in ORS 746.230(1).

In recognizing a negligence per se claim arising out of the alleged breach of insurance contract, the Court analyzed the claim under the elements of negligence per se which requires: (1) defendant violated a statute; (2) plaintiff was injured as a result of that violation; (3) plaintiff was a member of the class of persons meant to be protected by the statute; and (4) the injury plaintiff suffered is of a type that the statute was enacted to prevent.”

There was no dispute as to whether ORS 746.230 applied to Defendant. Plaintiff alleged Defendant violated ORS 746.230(1)(d) and (f).  She further alleged that she was injured as a result of the violation. In further analyzing the claim, the Court found Plaintiff was included in the class of persons the statute was intended to protect.  Last, the Court found Plaintiff’s contractual damages and emotional damages were the type of damages the statute was intended to prevent.

In determining that that statute was enacted to prevent emotional distress the Court determined insurance policies do not “merely provide for the payment of funds in case of loss; they also provide the policy holder peace of mind.”

The Court reversed the trial court’s ruling on the Motion to Dismiss Plaintiff’s negligence per se claim and ruling on Defendant’s Motion to Strike Plaintiff’s claim for emotional damages. The case was remanded to the trial court.

Full Text:  Moody v. Oregon Community Credit Union