The Evolving Landscape of Bad-Faith Law in Oregon: A Year After Moody v. Oregon Community Credit Union

By Cameron Zangenehzadeh and Seth Row

In a landmark decision in 2023, the Oregon Supreme Court in Moody v. Oregon Community Credit Union, 371 Or. 772, 542 P.3d 24 (2023), reshaped the contours of bad-faith insurance litigation in Oregon. This ruling has since reverberated through Oregon’s legal landscape, charting new paths for policyholders seeking redress for insurer misconduct, giving some measure of “teeth” to the Unfair Claim Settlement Practices Act (ORS 746.230).

The Moody case stemmed from a devastating tragedy. Christine Moody’s husband, Troy, was accidently shot and killed during a camping trip. She submitted a claim on his life insurance policy, but the claim was denied by Oregon Community Credit Union. The denial was predicated on a policy exclusion—Troy had marijuana in his system at the time of death—but Moody argued that fact had nothing to do with his cause of death. She sued, alleging that the insurer was negligent per se because it failed to reasonably investigate her claim and adhere to its statutory obligations under ORS 746.230. The Oregon Supreme Court agreed, holding that Moody could pursue a negligence per se claim against the insurer for emotional distress damages without needing to establish a physical impact, a significant departure from prior limitations on such claims.

The court’s ruling underscored a critical shift: emotional distress damages could now be recoverable when insurers violated the legally protected interests enshrined in Oregon’s Unfair Claim Settlement Practices Act. While policyholders still have no direct right of action under the Act, Moody opened the door for claimants to hold insurers accountable not only for financial harm but also for the emotional toll of bad-faith claim handling.

The Ripple Effect: Moody in Subsequent Case Law

The Moody opinion has proven transformative, as subsequent cases have grappled with its implications. A series of cases in federal and state court—including Butters v. Travelers Home and Marine Insurance Company, Hinzman v. Foremost Insurance Company, Mohammad v. Liberty Insurance Corporation, Thanh Huynh v. Truck Insurance Exchange, and LiquidAgents Healthcare LLC v. Evanston Insurance Company—have invoked Moody to validate negligence per se claims against insurers based on ORS 746.230.

• Butters v. Travelers Home and Marine Insurance Company.[1] In this case, the pro se plaintiff alleged that Travelers mishandled a property damage claim under a homeowners policy. In an April 2024 decision, Magistrate Judge Beckerman acknowledged that Moody established the viability of emotional distress damages in negligence per se claims based on violations of ORS 746.230. Still, the court granted summary judgment to the insurer, finding that the undisputed facts showed that the insurer did not violate any provision of the Act. In affirming the decision, Judge Simon also noted (in dicta) that it appeared that the plaintiff did not satisfy the “physical impact” rule. The plaintiff has since filed an appeal.

• Hinzman v. Foremost Insurance Company.[2] In this case, the plaintiffs pursued claims for wildfire-related smoke damage to their vacation home, alleging that the insurer’s refusal to investigate or pay for certain repairs violated ORS 746.230. The court (Judge Aiken) relied on Moody to deny the insurer’s summary judgment, ruling that Moody does not require a “physical impact,” affirming the plaintiffs’ ability to pursue emotional distress damages and punitive damages, and emphasizing the legal obligation of insurers to engage in fair claims practices.
• Mohammad v. Liberty Insurance Corporation.[3] Here, the plaintiff alleged that Liberty acted negligently in failing to investigate her property loss claim, causing emotional distress. Liberty contended that the plaintiff’s allegations of emotional impact were insufficiently specific. The court (Magistrate Judge Clarke) referenced Moody to reject Liberty’s motion and confirmed that a plaintiff’s alleged emotional injury need not be as dramatic as Ms. Moody’s. The decision reaffirmed that Moody has set a new standard for recognizing policyholders’ rights when insurers act in bad faith.

• Thanh Huynh Truck Insurance Exchange.[4] This Multnomah County Circuit Court case is one of the first cases to acknowledge that “ORS 746.230 is not limited to noncommercial policies.” Thanh Huynh, the owner of a commercial property damaged in two separate incidents involving freezing pipes, brought a lawsuit against Truck Insurance Exchange, alleging negligence per se based on ORS 746.230 and bad-faith claims handling. Central to the case were questions about whether the property was “vacant” under the policy and whether Huynh had adequately protected the sprinkler system from freezing to qualify for partial coverage. The court engaged in a detailed interpretation of the policy’s ambiguous terms, such as “vacant” and “under construction or renovation,” highlighting that such ambiguities must be construed against the insurer and in favor of coverage. Despite these interpretations, the court found unresolved questions of material fact, including whether Huynh’s actions to mitigate freezing risks met the policy’s standards and whether she relied on the policy’s protection in a way that created a reasonable expectation of coverage.

The Huynh court’s analysis then applied the framework established in Moody, which recognizes ORS 746.230 as creating a standard of care independent of the contractual relationship between insurer and insured. In particular, the court noted that insurers are required to handle claims fairly and reasonably to avoid foreseeable harm, including emotional distress. While Moody involved a life insurance policy and a deeply personal loss, the court in Huynh extended the reasoning to a commercial property policy. It recognized that bad-faith handling of claims could foreseeably cause significant emotional and financial distress to insureds who rely on insurance for peace of mind and financial security.

Importantly, the court rejected the insurer’s argument that Moody should not apply to commercial insurance claims, emphasizing that ORS 746.230 is not limited to personal lines policies. It also recognized that emotional distress damages could be recoverable if bad-faith practices disrupted the insured’s peace of mind or caused significant harm. In denying summary judgment, the court left the door open for Huynh to present her negligence per se and bad-faith claims to a jury.

This case underscores the evolving landscape of bad-faith law in Oregon post-Moody. It reinforces that insurers must not only comply with statutory claims-handling obligations but also consider the broader impacts of their conduct, regardless of whether the policyholder is an individual or a business. The decision signals a heightened level of accountability for insurers, expanding the scope of remedies available to insureds with commercial insurance policies.

• LiquidAgents Healthcare LLC v. Evanston Insurance Company.[5] This decision—the first federal district court case to apply Moody to a commercial-lines policy or a third-party liability claim—involved a healthcare staffing company suing its insurer for refusing to defend or indemnify it in litigation over alleged sexual abuse. The court (Magistrate Judge Clarke) cited Huynh v. Truck Insurance Exchange for the proposition that “ORS 746.230 is not limited to noncommercial policies.” The court applied Moody to deny Evanston’s motion to dismiss the plaintiff’s negligence per se claims, ruling that under Moody plaintiffs are not limited to seeking emotional distress damages, but can seek extracontractual economic damages (including, in LiquidAgents’ case, lost profits). This case further extended Moody’s reach into commercial insurance disputes.

Expanding Policyholder Remedies

Moody has broadened the scope of insurer liability in Oregon, introducing emotional distress damages, economic damages, and punitive damages as extracontractual remedies for statutory claims-handling violations. For policyholders, this represents an opportunity to seek compensation for the impacts of bad-faith insurance practices. For insurers, it serves as an important reminder of the need for rigorous compliance with statutory mandates.

Yet, the practical application of Moody remains a work in progress. Recent rulings reveal a tension between the expansive potential of the decision and the evidentiary demands imposed by courts. To succeed, plaintiffs must not only show a statutory violation but also substantiate the harm incurred—a threshold that has proven challenging in several cases.

Broader Implications for Oregon Insurance Law

The Moody decision reflects a broader trend toward enhancing consumer protections in insurance disputes. By recognizing extracontractual damages more broadly than before, the Oregon Supreme Court has moved the state closer to alignment with neighboring states. This shift may inspire legislative efforts to codify additional protections or clarify the boundaries of insurer liability.

For now, Moody v. Oregon Community Credit Union stands as a beacon for policyholders navigating the murky waters of bad-faith insurance practices. Its influence continues to unfold, shaping a legal landscape where fairness and accountability are paramount. As courts and litigants grapple with its nuances, one thing is clear: Moody may have shifted the balance of power between insurers and the insured in Oregon, offering harmed policyholders with an opportunity to recover not just contractual financial loss, but for their extracontractual emotional or economic distress.

About the authors:

Cameron C. Zangenehzadeh | Stoel Rives LLP represents corporate policyholders in the recovery of insurance assets. Cam regularly advises companies on a wide range of risk management issues and has represented Fortune 500 companies in complex insurance recovery matters, including in coverage litigation involving significant environmental property damage. Cam has recovered millions of dollars for clients under various commercial insurance policies and in a variety of contexts.

Seth H. Row | Stoel Rives LLP is a highly experienced insurance litigation attorney, exclusively representing policyholders in negotiating and litigating insurance recovery disputes. His practice spans various industries, offering a mix of litigation, counseling, and advocacy to help clients secure coverage under commercial insurance policies. Over his 20+ year career, Seth has recovered millions of dollars for clients across nearly every type of commercial insurance policy, including general liability, employment practices, property and business income loss, builder’s risk, D&O, representations and warranties, marine, and cyber-risk.

[1] Butters v. Travelers Home & Marine Ins. Co., No. 3:22-CV-00726-SB, 2024 WL 3201984 (D. Or. Apr. 22, 2024), report and recommendation adopted sub nom. Butters v. Travelers Indem. Co., No. 3:22-CV-726-SB, 2024 WL 3914871 (D. Or. Aug. 23, 2024).

[2] Hinzman v. Foremost Ins. Co., No. 6:22-CV-01798-AA, 2024 WL 1329036 (D. Or. Mar. 28, 2024).

[3] Mohammad v. Liberty Ins. Corp., No. 1:23-CV-000691-CL, 2024 WL 4627462 (D. Or. Oct. 30, 2024).

[4] Order Denying Plaintiff’s Motion for Partial Summary Judgment and Denying and Granting in Part Defendant’s Cross-Motion for Partial Summary Judgment (2d loss), Huynh v. Truck Ins. Exchange, No. 22CV05568 (Multnomah Cnty. Cir. Ct. June 24, 2021).

[5] LiquidAgents Healthcare, LLC v. Evanston Ins. Co., No. 1:20-CV-02225-CL, 2024 WL 4874288 (D. Or. Oct. 30, 2024).