Oregon Court of Appeals Allows Insurance Consumers to Sue for Emotional Distress

On January 26, 2022, the Oregon Court of Appeals issued its opinion in Moody v. Oregon Community Credit Union, CA Case No. A178244. View opinion here. The new opinion is groundbreaking, and allows first party plaintiffs in Oregon to claim emotional distress damages based on negligence per se under ORS 746.230. Section 746.230(1) prohibits insurers from engaging in a number of specified unfair claim settlement practices, including in particular: 

(d) Refusing to pay claims without conducting a reasonable investigation based on all available information;

(e) Failing to affirm or deny coverage of claims within a reasonable time after completed proof of loss statements have been submitted;

(f) Not attempting, in good faith, to promptly and equitably settle claims in which liability has become reasonably clear;

(g) Compelling claimants to initiate litigation to recover amounts due by offering substantially less than amounts ultimately recovered in actions brought by such claimants;

(h) Attempting to settle claims for less than the amount to which a reasonable person would believe a reasonable person was entitled after referring to written or printed advertising material accompanying or made part of an application;

ORS 746.230(1)(d)-(h). 

Prior to Moody, an insured’s primary remedy against an insurer was an action for breach of contract.  The Moody court changed Oregon law, establishing for the first time that Section 746.230(1) creates an independent standard of care owed by an insurer to its insureds, such that an insurer’s violation of the statute can give rise to a cause of action in tort.  Moreover, observing that “an elementary principle of insurance law is that insurance policies do not merely provide for the payment of funds in case of loss; they also provide the policyholder peace of mind,” the Moody court found that an insurer’s violation of any of the provisions of Section 746.230(1) can give rise specifically to a claim for negligence per se, in connection with which a wronged plaintiff may seek damages for emotional distress caused by the insurer’s unfair claim settlement practices.

The Moody court’s ruling provides an important new tool to lawyers seeking to vindicate the rights of insureds and can be expected to make it more expensive for insurers to deny or delay payment of valid claims.  That said, we can expect the Moody decision to be vigorously appealed.  As of now, however, the Moody decision is the law of the land.