Door Open To Bad-Faith Claims Against Insurers In Oregon

According to an article by the Stoel Rives law firm, the ruling in Moody v. Oregon Community Credit Union expressly recognized the principle that insurance contracts are made for a policyholder’s economic and financial peace of mind and re-opened the door to bad-faith litigation in Oregon.

In the case, the plaintiff’s husband was accidentally killed by a friend during a hunting trip. The deceased had cannabis in his system. The insurer denied coverage based on a policy exclusion for deaths caused by or resulting from the insured being “under the influence of any narcotic or other controlled substance.”

His widow sued, alleging breach of contract, breach of an implied contractual covenant of good faith and fair dealing, and negligence. She asked for economic damages and emotional distress damages.

The Court historically held that the legislature did not create a private right of action under the Unfair Claims Settlement Practices Act. Policyholders had a claim against their insurer only if it was subject to a standard of care independent of the insurance policy.

With respect to negligence, the plaintiff claimed a standard of care outside the terms of the insurance contract provided by the Unfair Claims Settlement Practices Act.

She argued that the insurer violated claims handling practices, including failing to pay insurance benefits without an investigation based on all available information, and not making a good faith effort to “settle a claim in which the insurer’s liability has become reasonably clear.”

At trial, the judge ruled against the plaintiff on all but the breach of contract claim. The Court of Appeals reversed, holding that she could bring a claim for “negligence per se” and seek damages because she’d suffered “increased emotional distress and anxiety caused by having fewer financial resources to navigate the loss of a bread-winning spouse.”

The Supreme Court upheld the negligence per se claim after analyzing Oregon law that covers unfair claims settlement practices and held that the harm alleged was sufficiently important to merit protection.