Moody Blues: Navigating the Oregon Supreme Court’s ruling in Moody v. Oregon Community Credit Union

For nearly five decades, Oregon law barred insured parties from pursuing tort or negligence claims based on violations of the Oregon Unfair Claims Settlement Practices Act (ORS 746.230). This changed with the Oregon Supreme Court’s 2023 decision in Moody v. Oregon Community Credit Union, which allowed a life insurance beneficiary to seek emotional distress damages for an insurer’s alleged failure to properly investigate and process a claim. While the court initially framed the decision as narrow, emphasizing the plaintiff’s unique position as a surviving spouse, subsequent rulings have broadened Moody’s scope significantly.

Historically, cases like Farris v. U.S. Fidelity & Guaranty Co. established that insurer misconduct constituted only a breach of contract, not grounds for tort-based emotional distress claims. Moody, however, overturned that precedent by recognizing that a claim based on statutory violations could support a negligence action—even without physical injury—when mishandling a claim causes emotional harm. Despite attempts by the court to confine its ruling, recent decisions have demonstrated that plaintiffs can now pursue extra-contractual damages beyond emotional distress in non-ERISA insurance cases.

Two 2024 U.S. District Court rulings further expanded Moody’s reach. In Mohammad v. Liberty Insurance, the court applied Moody to a property loss case, affirming that significant emotional distress wasn’t required for a valid negligence claim. In LiquidAgents Healthcare v. Evanston Insurance, damages were expanded to include lost profits, further opening the door to broader tort claims against insurers. These decisions reflect a clear shift toward holding insurers liable for negligence related to claims handling, far beyond the life insurance context originally addressed in Moody.

To reduce exposure to negligence claims under Moody, insurers should adopt best practices in claims handling: maintain detailed documentation, conduct thorough investigations, communicate proactively with claimants, and ensure fairness in decision-making. Regular training for claims personnel, preparation for increased litigation costs, and engaging experienced Oregon counsel are essential steps for insurers navigating this evolving legal landscape.