Is Oregon Going to Allow Suits For Insurance Bad Faith?

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Oregon to date has declined to recognize first-party bad faith claims against insurers, and only allowed tort claims against an insurer in limited circumstances where a special relationship existed between insured and insurer. This means that in Oregon, first-party claims against insurers have been limited to contract damages and not allowed the recovery of extra-contractual damages.

Recently, however, the Oregon Court of Appeals has for the first time allowed the pursuit of emotional distress damages against an insurer for alleged violations of Oregon insurance claims handling regulations. This change could open the door to the award of extra-contractual damages against insurers in Oregon.

In the recent case Moody v. Oregon Community Credit Union, 317 Or App 233 (2022), the Oregon Court of Appeals held that a negligence per se claim brought by an insured based on alleged violations of Oregon’s Unfair Claims Settlement Practices Statute (ORS 746.230) can give rise to emotional distress damages against an insurer who denied coverage. The court held that the violation of the Oregon Code could result in the imposition of emotional distress damages in an insurance action.

In the Moody case, the insured was accidentally shot and killed on a hunting trip. His wife filed a claim for his life insurance benefits, which were provided by the defendant Federal Insurance Company. The defendant denied the claim, saying it fell under the exclusion for accidents caused or resulting from the insured being under the influence of alcohol or drugs.

The insured tested positive for marijuana in his autopsy. When his wife brought suit, the court granted the insurer’s motion to dismiss the causes of action for negligence per se based on Oregon’s Unfair Claims Settlement Practices Statute (ORS 746.230(1)). Negligence per se is defined as negligence where the defendant failed to comply with a statute or law, creating a presumption of negligence.

Because negligence per se awards extra-contractual damages for emotional distress, the lower court believed that such claims were not permitted under Oregon law. The Court of Appeals overturned the dismissal of the claim, holding that there was no law or precedent that required the dismissal of such a claim.

On June 23, 2022, the Oregon Supreme Court agreed to hear the case. The oral argument is currently set for November 17, 2022. Defendant has retained Bullivant Houser for the appeal, and Oregon Business & Industry and the U.S. Chamber of Commerce have engaged Quinn Emanuel to file an amicus brief asking the Court to deny the introduction of bad faith into Oregon insurance law.

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