Oregon Federal Court Finds Insured Limited to Contract Damages

On April 1, 2014, in Braun-Salinas v. American Family Ins. Group d/b/a American Family Mut. Ins. Co., 13-cv-264-AC (D.Or. April 1, 2014), Magistrate Judge John Acosta of the U.S. District Court for the District of Oregon reaffirmed the Oregon principle that an insured is limited to recovering contractual damages from an insurer.  The case addressed an insurance claim that was filed after the insureds sustained physical injuries in a motor vehicle accident.  It was determined that the adverse driver was at-fault for the accident, and the adverse driver’s liability insurer paid the insureds the full policy limits.  After recovering from the tortfeasor, the insureds sought uninsured motorist (UIM) benefits under their automobile insurance policy to cover their unpaid damages.  The insurer tendered the full UIM policy limits after accounting for the recovery from the tortfeasor’s liability insurer.  In addition to the automobile policy, the insureds maintained an umbrella policy with the insurance company.  After recovering the UIM policy limits, the insureds sought the full limits available under the umbrella policy to recover their remaining damages.  After the insurer gathered all of the damages information, it offered to settle the claim for less than the full policy limits that were demanded by the insureds.

After their demand for full policy limits was rejected, the insureds then filed suit against the insurer alleging claims for breach of the implied covenant of good faith and fair dealing, intentional and negligent infliction of emotional distress, and negligence per se.  In addition, the insureds sought to recover emotional distress damages on their claim for breach of contract.  The insurance company moved for summary judgment on each of the insureds’ claims—aside from the claim strictly for breach of contract damages—on the ground that the claims were not recognized under Oregon law.  In response, the insureds conceded their claims for intentional and negligent infliction of emotional distress, but argued the remaining claims were viable and should proceed to trial.  The court disagreed with the insureds, and granted the insurance company’s motion for summary judgment in full.

In support of their claim for recovery of emotional damages based on the insurer’s breach of the implied covenant of good faith and fair dealing, the insureds alleged that the insurer failed to conduct a reasonable investigation, did not make a reasonable and timely settlement offer, and compelled the insureds to initiate litigation.  Each of the standards cited by the insureds is articulated in the Oregon Unfair Claims Settlement Practices Act, ORS 746.230, which the insureds argued was part of the insurer’s obligation to act in good faith and deal fairly with the insured.  Specifically, the insureds argued the Oregon Supreme Court recognized that the Unfair Claims Settlement Practices Act constituted the duties imposed on an insurer in Ivanov v. Farmers Ins. Co. of Oregon, 344 Or 421, 185 P3d 417 (2008).  The court noted that the Ivanov matter involved a claim for personal injury protection (PIP) damages, which are statutorily presumed reasonable and necessary if not denied within 60 days based upon a reasonable investigation.  According to the court, Ivanov cited to the Unfair Claims Settlement Practices Act merely because it contains a provision concerning an insurer’s obligation to investigate—as required in order to deny PIP claims—and that material facts existed regarding the sufficiency of the insurance company’s investigation prior to denying PIP benefits.  However, the Ivanov case but did not provide a standard of care that would impose tort liability.

The court also rejected the insureds’ claim for negligence per se in the performance of contract.  As noted by the court, quoting from Employers’ Fire Ins. Co. v. Love-It Ice Cream, 64 Or App 784, 791, 670 P2d 170  (1983), Oregon courts have “unequivocally held that ‘an insurer’s bad faith refusal to pay policy benefits to its insured sounds in contract and is not actionable in tort in Oregon.’”  The insureds conceded they did not have a “special relationship” with the insurer as required under Oregon law to impose tort liability, but again argued the Unfair Claims Settlement Practices Act created an independent standard of care.  The court recognized that Oregon has recognized that certain statutory provisions create an independent standard or care, but courts have Oregon courts have specifically rejected the argument that the insurance code—including the Unfair Claims Settlement Practices Act—does not provide the independent duty necessary to support a tort cause of action.  See Farris v. U.S. Fid. & Gaur. Co., 284 Or 453, 587 P2d 1015 (1978).

The attorneys at MLR have decades of combined experience addressing the issues concerning extra-contractual liability in insurance matters in Oregon.  Please do not hesitate to contact us with any questions concerning this case or any other matter you see on the website.

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