Following the landmark Oregon Supreme Court decision in Moody v. Oregon Community Credit Union, 371 Or. 772, 542 P.3d 24 (2023), which allowed for a negligence per se claim against an insurer, Oregon courts have been repeatedly asked to clarify the boundaries of insurer liability under Moody. A recent Federal District Court of Oregon decision, Mohammad v. Liberty Ins. Corp., 1:23 CV-000691-CL, 2024 WL 4627462 (D. Or. Oct. 30, 2024), suggested that the boundaries of such liability are not so limited as once believed.
In Moody, the Oregon Supreme Court recognized an insured’s ability to pursue emotional distress damages in a negligence per se claim against an insurer for violations of ORS 746.230. The Moody Court articulated a narrow framework for such claims, emphasizing three critical factors: (1) the existence of a relationship of mutual reliance between the insured and insurer; (2) the insurer’s role in avoiding both financial and emotional harm to the insured; and (3) the presence of objective indicators of potentially serious emotional injury. The Moody Court awarded emotional distress damages to a spouse whose husband’s life insurer failed to promptly investigate and pay the claim, which in turn was deemed to have exacerbated her emotional trauma.
The court in Mohammad extended these principles from Moody to include emotional distress damages under a homeowner’s insurance policy. In Mohammad, the plaintiff submitted a claim under her homeowner’s insurance policy issued by Liberty Insurance Corporation (“Liberty”) for damages to her dwelling and personal contents after her home was vandalized by an unknown trespasser. Liberty denied the claim, leading the plaintiff to file suit for claims of breach of contract, breach of the duty of good faith and fair dealing, and negligence per se. The plaintiff asserted she experienced emotional distress due to Liberty’s denial of the financial resources necessary to address damage, leaving her to navigate the fallout of the vandalism alone.
Relying on Moody, the Mohammad Court reaffirmed that emotional distress damages could arise from violations of ORS 746.230, if the Moody factors were sufficiently pled. Despite Liberty’s argument that the emotional harm alleged by the plaintiff was less severe than that in Moody, the Mohammad Court found that the allegations met the federal pleading standard of plausibility and provided adequate notice for Liberty to respond.
The Mohammad decision underscores the potential breadth of Moody’s holding, signaling that emotional distress damages are not confined to cases involving life insurance policies or severe emotional harm. The Mohammad court emphasized that when evaluating emotional distress, Oregon courts must consider all of the Moody factors, and not rely on single factors alone.
Read the full Fall 2024 Northwest Insurance Law Quarterly Newsletter here.