Moody v. Oregon Community Credit Union

772                      December 29, 2023                        No. 40


             IN THE SUPREME COURT OF THE
                   STATE OF OREGON

                      Christine MOODY,
             individually, and in her capacity as
         the Personal Representative of the Estate of
               Steven “Troy” Moody, Deceased,
                    Respondent on Review,
                               v.
         OREGON COMMUNITY CREDIT UNION,
                aka OCCU, an Oregon entity,
           association, union, or corporation et al.,
                          Defendants,
                              and
            FEDERAL INSURANCE COMPANY,
                   an Indiana corporation,
                     Petitioner on Review.
        (CC 19CV26557) (CA A172844) (SC S069409)

   On review from the Court of Appeals.*
   Argued and submitted November 17, 2022.
    Daniel R. Bentson, Bullivant Houser Bailey PC, Seattle,
Washington, argued the cause for petitioner on review.
R. Daniel Lindahl, Bullivant Houser Bailey PC, Portland,
filed the brief on the merits for petitioner on review, and
Daniel R. Bentson filed the reply brief. Also on the briefs
was Stuart D. Jones.
    Travis Eiva, Eiva Law, Eugene, argued the cause and
filed the brief for respondent on review.
   Ralph C. Spooner, Spooner & Much, PC, Salem, filed the
brief for amici curiae American Property Casualty Insurance
Association and National Association of Mutual Insurance
Companies. Also on the brief was David E. Smith.
______________
   * Appeal from Lane County Circuit Court, Bradley A. Cascagnette, Judge.

, 

 (2022).
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 (2023)                                                  773

  Sage R. Vanden Heuvel, Quinn Emanuel Urquhart &
Sullivan, LLP, Los Angeles, California, filed the brief for
amici curiae Chamber of Commerce of the United States of
America and Oregon Business & Industry. Also on the brief
was Paloma Sparks, Oregon Business & Industry, Salem.
    James S. Coon, Thomas, Coon, Newton & Frost, Portland,
filed the brief for amicus curiae Oregon Trial Lawyers
Association. Also on the brief were John A. McHugh, MCH
LAW LLC, Wilsonville, and Kristen William, Williams
Weyand Law LLC, Salem.
    Iván Resendiz Gutierrez, Miller Nash LLP, Portland,
filed the brief for amicus curiae United Policyholders. Also
on the brief were Seth Row and Jodi S. Green, Long Beach,
California.
  Before Flynn, Chief Justice, and Duncan, Garrett, DeHoog,
and Bushong, Justices, and Balmer and Walters, Senior
Judges, Justices pro tempore.**
    WALTERS, S.J.
   The decision of the Court of Appeals is affirmed. The
judgment of the circuit court is reversed, and the case is
remanded to the circuit court for further proceedings.
  Garrett, J., dissented and filed an opinion, in which
Duncan, J., and Balmer, S.J., joined.




______________
    ** Nelson, J., resigned February 25, 2023, and did not participate in the
decision of this case. James and Masih, JJ., did not participate in the consider-
ation or decision of this case.
774   Moody v. Oregon Community Credit Union
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 (2023)                                          775

          WALTERS, S.J.
          Plaintiff, whose husband was accidentally shot and
killed during a camping trip, brought this action against
defendant, a first-party life insurer, claiming, among other
things, that defendant had negligently failed to investi-
gate and pay her claim for policy benefits, causing her to
have fewer financial resources to navigate the loss of a
bread-winning spouse and, consequently, to suffer economic
harm and emotional distress. The trial court granted defen-
dant’s motions to dismiss plaintiff’s negligence claim and to
strike her claim for emotional distress damages. The Court
of Appeals reversed. Moody v. Oregon Community Credit
Union, 

, 

 (2022). Although
our reasoning differs, we concur in the decision of the Court
of Appeals, and we hold that plaintiff has pleaded facts suf-
ficient to give rise to a legally cognizable common-law negli-
gence claim for emotional distress damages.
         I. FACTS AND PROCEDURAL HISTORY
         Because the trial court granted defendant’s motion
to dismiss, we take the following facts from plaintiff’s com-
plaint. Paul v. Providence Health System-Oregon, 

, 

 (2012) (“When reviewing a trial court
order granting a motion to dismiss, we accept as true all
well-pleaded facts in the complaint.”). Plaintiff’s husband,
decedent, was accidentally shot and killed by a friend during
a camping trip. Plaintiff filed a claim for life insurance pol-
icy benefits, and defendant initially denied plaintiff’s claim
on the ground that decedent’s death fell within a policy
exclusion for deaths “caused by or resulting from [decedent]
being under the influence of any narcotic or other controlled
substance”—apparently based on the fact that decedent had
had marijuana in his system at the time of his death.
        Plaintiff filed this action against defendant,1 alleg-
ing claims for breach of contract, breach of an implied con-
tractual covenant of good faith and fair dealing, and negli-
gence. Plaintiff sought both economic damages—the benefits
payable under the policy—and emotional distress damages.

    1
      The complaint named other defendants who have since been dismissed
from the case.
776               Moody v. Oregon Community Credit Union

In her negligence claim, plaintiff alleged that defendant had
contracted with her husband and her to provide life insur-
ance coverage and benefits, that an Oregon statute requires
“[d]efendant to follow a standard of care in the performance
of its insurance contracts independent of, in addition to, and
outside of the terms of the insurance contract,” and that:
       “Defendant Insurance Company negligently performed
   its obligations under [ORS] 746.230 in its review, investiga-
   tion, and eventual decision to deny insurance benefits fol-
   lowing the death of [plaintiff’s husband] in one or more of
   the following ways:
      “(a) By refusing to pay the insurance benefits without
   conducting a reasonable investigation based on all avail-
   able information, in violation of [ORS] 746.230(1)(d); and
      “(b) Not attempting, in good faith, to promptly and
   equitably settle a claim in which the insurer’s liability has
   become reasonably clear, in violation of [ORS] 746.230(1)(f).”
Plaintiff further alleged that defendant “knew, or in the
exercise of reasonable care as a corporation engaged in the
business of marketing and selling insurance, should have
known, that one or more of its foregoing acts or omissions
would create an unreasonable risk of harm to the benefi-
ciaries of its insured, including [plaintiff].” Finally, plaintiff
alleged that, as a result of defendant’s negligence, she had
suffered “the noneconomic loss of increased emotional dis-
tress and anxiety caused by having fewer financial resources
to navigate the loss of a bread-winning spouse.”
         Defendant filed motions to dismiss plaintiff’s claims
for negligence and breach of the implied covenant of good
faith and fair dealing and to strike the allegations seek-
ing damages for emotional distress, arguing that plaintiff’s
only remedy under Oregon law was contractual. The trial
court granted those motions and entered a limited judgment
dismissing all but the breach of contract claim. Plaintiff
appealed the limited judgment but, while the appeal was
pending, she filed an amended complaint that alleged only
breach of contract and sought only the amount of benefits
payable under the insurance policy—$3,000. Thereafter,
defendant paid the $3,000 to plaintiff, the parties stipulated
to the entry of a judgment in favor of plaintiff and against
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defendant, and the trial court entered a conforming general
judgment.
          II. THE COURT OF APPEALS DECISION
         Meanwhile, plaintiff’s appeal from the limited judg-
ment, which challenged the dismissal of her negligence
claim and the striking of her allegations of emotional dis-
tress damages, proceeded in the Court of Appeals. That
court ultimately reversed the trial court’s ruling, holding
that plaintiff could bring a claim for “negligence per se” and
seek emotional distress damages based on defendant’s viola-
tions of ORS 746.230(1). In its opinion, the Court of Appeals
broadly described the issue before it as requiring it to deter-
mine “when a party to a contract may sue another party
to the same contract for negligence.” Moody, 

. After noting that, ordinarily, the sole remedy for a
party’s failure to meet a contractual obligation is an action
for breach of the contract, the court observed that, in specific
circumstances, an injured party also may have a negligence
claim, quoting the following passage from Georgetown Realty
v. The Home Ins. Co., 

, 

 (1992):
    “ ‘When the relationship involved is between contracting
    parties, and the gravamen of the complaint is that one party
    caused damage to the other by negligently performing its
    obligations under the contract, then, and even though the
    relationship between the parties arises out of the contract,
    the injured party may bring a claim for negligence if the
    other party is subject to a standard of care independent of
    the terms of the contract.’ ”
Moody, 

 (emphasis added). The Court of
Appeals then observed that an independent standard of
care may arise out of a special relationship between the con-
tracting parties,2 but it also may be expressed in a statute
or administrative rule. 

. The court relied—for
that latter suggestion—on its own opinion in Abraham v.
T. Henry Construction, Inc., 

, 217
    2
      As an example of such a “special relationship,” the Court of Appeals offered
the relationship between the parties in Georgetown Realty—a liability insurer
and its insured. Moody, 

. The court explained that when such
insurers undertake to defend their insureds, the insureds hand over control of
their defenses to their insurers, creating a special fiduciary relationship between
the parties. Georgetown Realty, 

.
778                   Moody v. Oregon Community Credit Union

P3d 212 (2009) (Abraham I), aff’d on other grounds, 

, 

 (2011) (Abraham II), which held that a cou-
ple who had discovered water leakage and resulting damage
in a home that had been built for them under a construc-
tion contract could sue the construction company, not only
for breach of contract, but also in tort, reasoning that the
Oregon Building Code provided “an independent standard
of care sufficient to support a claim for negligence per se.”3
Moody, 

 (discussing Abraham I).
         However, the court acknowledged, the violation of
an independent standard of care is not all that is required to
state a negligence claim against another party to a contract.
According to the Court of Appeals, a negligence claim based
on a statutory violation requires a plaintiff also to plead and
ultimately prove that
    “ ‘(1) defendants violated a statute; (2) that plaintiff was
    injured as a result of that violation; (3) that plaintiff was a
    member of the class of persons meant to be protected by the
    statute; and (4) that the injury plaintiff suffered is of a type
    that the statute was enacted to prevent.’ ”
Moody, 

 (quoting McAlpine v. Multnomah
County, 

, 

 (1994), rev den,

 (1995)).
         After briefly outlining how that test appeared
to be satisfied by plaintiff’s allegations that she had been
injured as a result of defendant’s violation of an Oregon
statute, particularly ORS 749.230(1)(d) and (f), the Court
of Appeals addressed several objections that defendant had
levelled against that approach. Of particular note, the court:
      3
        This court affirmed the Court of Appeals decision in Abraham I on a dif-
ferent ground: We concluded that the plaintiff could bring a claim for ordinary
common-law negligence against the builder and, thus, we did not decide whether
the plaintiff could bring a claim for negligence per se based on the builder’s vio-
lation of the Oregon Building Code. In doing so, we expressly agreed with the
Court of Appeals that, when a plaintiff claims to have suffered damages as a
result of the defendant’s negligent performance of contractual obligations, that
negligence claim may be viable, notwithstanding the contractual relationship
between the parties, if the other party is subject to a standard of care that is
independent of the terms of the contract. Abraham II, 

. We also
agreed that a standard of care might be deemed “independent” for that purpose,
“either because a ‘special relationship’ imposes a heightened standard of care
* * * or because the common law, statutes, or administrative rules impose liability
regardless of the contractual relationship between the parties.” 

.
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(1) rejected defendant’s contention that this court’s deci-
sion in Farris v. U.S. Fid. and Guar. Co., 

, 

 (1978) (Farris II), forecloses any negligence per se
claim based on a violation of ORS 746.230(1), 

; (2) rejected defendant’s contention that, for a neg-
ligence per se claim to stand, a plaintiff also must have a
common-law negligence claim, 

; and (3) rejected
defendant’s contention that the emotional injury that plain-
tiff had alleged that she had suffered was not of a type
that ORS 746.230(1) was enacted to prevent, 

.
Having disposed of those objections and having previously
concluded that plaintiff’s allegations of negligence per se
based on ORS 746.230(1) satisfied the “test” that it had cre-
ated in McAlpine for when a statutory violation supports a
negligence per se claim, the Court of Appeals reversed, hold-
ing that the trial court had erred in dismissing plaintiff’s
negligence per se claim and striking her allegation of emo-
tional distress damages. 

. Defendant petitioned
for, and we allowed, review.
           III. ARGUMENTS AND ANALYSIS
         We begin our analysis with the premise, acknowl-
edged by both parties, that, in addition to contract claims,
parties to a contract may assert viable tort claims. Contract
and tort claims are conceptually different and provide
remedies for breach of conceptually different obligations:
“Contract obligations are based on the manifested intention
of the parties to a bargaining transaction, whereas tort obli-
gations are imposed by law—apart from and independent
of promises made and therefore apart from the manifested
intention of the parties—to avoid injury to others.” Abraham
II, 

 (emphasis in original; internal quotation
marks omitted).
         In this case, plaintiff takes the position that her
claim for common-law negligence is analogous to the plain-
tiffs’ common-law negligence claim in Abraham II against
the builder of their home for water damage from a leak.
Plaintiff argues that she is entitled to bring a common-law
negligence claim against defendant for its failure to act
reasonably in performing the obligations of a life insurer
and that she is entitled to recover the emotional distress
780                    Moody v. Oregon Community Credit Union

damages that she alleges. To support those arguments,
plaintiff invokes a statute—ORS 746.230.
         For its part, defendant accepts our holding in
Abraham II and does not contend that the fact that defen-
dant and plaintiff have an insurance contract forecloses
plaintiff’s negligence claim. Rather, defendant counters
that, to rely on Abraham II, plaintiff must establish that
she is entitled to bring a common-law negligence claim.
The crux of defendant’s argument is that plaintiff does not
have a legally cognizable common-law negligence claim for
the emotional distress damages that she alleges. According
to defendant, that is so for three independent reasons:
(1) in Farris II, this court decided that the legislature did not
intend to permit a common-law negligence claim against a
first-party insurer; (2) even if Farris II does not resolve the
question, this court should conclude that, in enacting ORS
746.230, the legislature deliberately decided not to provide
a basis for a negligence clam against a first-party insurer
or to supply a standard of care for a negligence per se claim;
and (3) plaintiff does not have a legally protected interest
sufficient to subject defendant to liability for emotional dis-
tress damages. According to defendant, it is not enough for
plaintiff to establish that defendant violated a statute—a
claim of “negligence per se,” as plaintiff and the Court of
Appeals describe it; rather, plaintiff must demonstrate that
she has a legally cognizable common-law negligence claim,
and she must plead its elements. Critical to an analysis of
each of those arguments is the question whether plaintiff
has alleged facts sufficient to state a legally cognizable
common-law negligence claim for emotional distress dam-
ages.4 That is an important question of first impression, and
that is where we begin.
     4
       In her negligence claim, plaintiff sought to recover damages for both emo-
tional distress and economic loss. Specifically, as to the latter, plaintiff alleged
that, as a result of defendant’s negligence, she suffered an economic loss in the
amount of $3,000—the amount of the contractual benefit to which plaintiff was
entitled. Whether plaintiff would be entitled to maintain a negligence claim
for such damages also is an open question. However, in this case, we need not
address it. Here, plaintiff sought those same damages in her contract claim, and
it is undisputed that they were awarded. In its briefing to us, defendant does not
make any argument about whether plaintiff would have a common-law negli-
gence claim for such economic loss. Accordingly, that question is not presented,
and we do not decide it.
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A. Negligence per se claim depends on a viable common-law
   negligence claim.
          As set out above, the Court of Appeals viewed plain-
tiff’s negligence claim as a claim “based on a statutory vio-
lation” and opined that, to make out that claim—a claim
that the court described as “negligence per se”—plaintiff
was required to plead, and ultimately prove, the following
elements:
   “ ‘(1) defendants violated a statute; (2) that plaintiff was
   injured as a result of that violation; (3) that plaintiff was a
   member of the class of persons meant to be protected by the
   statute; and (4) that the injury plaintiff suffered is of a type
   that the statute was enacted to prevent.’ ”
Moody, 

 (quoting McAlpine, 

).
         Defendant contests that conclusion, maintaining
that a negligence per se claim can be proved in that way
only when, as this court stated in Deckard v. Bunch, 

, 761 n 6, 

 (2016), “a negligence claim other-
wise exists” (emphasis added).5 And in this case, defendant
argues, a negligence claim for violation of an insurance stat-
ute does not “otherwise exist.”
         Defendant is correct that a negligence per se claim
is not a separate type of negligence claim with its own ele-
ments; rather, negligence per se is “simply shorthand for a
negligence claim in which the standard of care is expressed
by a statute or rule.” Abraham II, 

 n 5. See
also Bob Godfrey Pontiac v. Roloff, 

, 

 (1981) (describing an action for negligence per se
as an example of a kind of case “in which liability would
be based upon violation of a statutory duty when there is
also an underlying common law cause of action”) (empha-
sis added); Caroline Forell, Statutory Torts, Statutory Duty
Actions, and Negligence Per Se: What’s the Difference?, 77 Or
L Rev 497, 529 (1998) (stating that “[n]egligence per se is
    5
      As discussed, the Court of Appeals rejected defendant’s contention that,
for a negligence per se claim to stand, a plaintiff also must have a common-law
negligence claim, on the ground that that contention was unsupported by any
pertinent case law. Moody, 

. As we explain, the Court of
Appeals was incorrect on that point.
782                Moody v. Oregon Community Credit Union

traditionally only available where a plaintiff would also have
a common-law negligence action against the defendant”).
         In Deckard, we again referred to negligence per se
as a “shorthand descriptor” of a negligence claim that other-
wise exists, where the standard of care is expressed by stat-
ute or rule and a violation of the statute or rule establishes
a presumption of negligence:
   “Negligence per se * * * is a shorthand descriptor for a neg-
   ligence claim in which the standard of care is expressed by
   a statute or rule. * * * When a negligence claim otherwise
   exists, and a statute or rule defines the standard of care
   expected of a reasonably prudent person under the circum-
   stances, a violation of that statute or rule establishes a pre-
   sumption of negligence.”

 n 6 (internal quotation marks omitted). And
in Shahtout v. Emco Garbage Co., 

, 

 (1985), we made the same point:
   “In a negligence case, the plaintiff must show that defen-
   dant did not meet an applicable standard of due care under
   the circumstances. When a plaintiff (or a defendant seek-
   ing to prove negligence on plaintiff’s part) invokes a gov-
   ernmental rule in support of that theory, the question is
   whether the rule, though it was not itself meant to create a
   civil claim, nevertheless so fixes the legal standard of con-
   duct that there is no question of due care left for a factfinder
   to determine; in other words, that noncompliance with the
   rule is negligence as a matter of law.”
         Thus, defendant is correct that, to make out a claim
of negligence per se and take advantage of a presumption
of negligence arising from a statutory violation, a plaintiff
must show not only that the statute sets out an applicable
standard of care, but also that the plaintiff has an existing
negligence claim.
        Our agreement with defendant on that issue does
not, however, resolve this case. Although the Court of
Appeals rested its decision on the idea that a plaintiff can
bring a claim for negligence per se even if the plaintiff does
not have an existing negligence claim, and the parties’
arguments are primarily directed to that point, plaintiff’s
complaint and the ruling of the trial court require that we
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 (2023)                                   783

decide whether plaintiff pleaded a cognizable common-law
negligence claim. As noted, plaintiff brought a claim for neg-
ligence and alleged that an Oregon statute requires defen-
dant to follow a standard of care “independent of, in addition
to, and outside of the terms of the insurance contract”; that
defendant negligently failed to perform its obligations; that
defendant knew, or in the exercise of reasonable care should
have known, that one or more of its acts or omissions would
create an unreasonable risk of harm to plaintiff; and that
plaintiff suffered emotional distress damages as a result.
Defendant filed a motion to dismiss that claim, arguing that
plaintiff’s only remedy was for breach of contract, and the
trial court granted that motion. To decide whether the trial
court erred in doing so, we must decide whether plaintiff’s
negligence claim “otherwise exists,” or, in other words, is
legally cognizable.
B.   To have a viable common-law negligence claim, plaintiff
     must establish that she has a “legally protected interest”
     sufficient to subject defendant to liability for purely emo-
     tional damages.
          With respect to that key question, plaintiff con-
tends that she has alleged the requisite elements of a neg-
ligence claim—in other words, that defendant engaged in
conduct that “unreasonably created a foreseeable risk to a
protected interest of the kind of harm that befell the plain-
tiff,” Fazzolari v. Portland School Dist. No. 1J, 

,

 (1987)—and that that conduct in fact caused
her economic harm and emotional distress. Plaintiff con-
tends that she is entitled to seek emotional distress dam-
ages because defendant’s conduct infringed on her statu-
torily protected interest in avoiding the wrongful denial,
delay, and evaluation of her insurance claim.
         In Fazzolari, this court stepped away from traditional
concepts of “duty,” “breach of duty,” and “proximate cause” as
aids to determine whether a plaintiff could maintain a claim
for negligence and, instead, the court reformulated the rel-
evant question as whether the defendant’s “conduct unrea-
sonably created a foreseeable risk to a protected interest of
the kind of harm that befell the plaintiff.” 

; see
also Scott v. Kesselring, 

, 

 (2022)
784                   Moody v. Oregon Community Credit Union

(discussing reformulation of the traditional tort principles of
duty, breach, and proximate cause in Fazzolari). It is now set-
tled that
    “[a] negligence complaint, to survive a motion to dismiss,
    must allege facts from which a factfinder could determine
    (1) that defendant’s conduct caused a foreseeable risk of
    harm, (2) that the risk is to an interest of a kind that the
    law protects against negligent invasion, (3) that defendant’s
    conduct was unreasonable in light of the risk, (4) that the
    conduct was a cause of plaintiff’s harm, and (5) that plain-
    tiff was within the class of persons and plaintiff’s injury
    was within the general type of potential incidents and inju-
    ries that made defendant’s conduct negligent.”
Solberg v. Johnson, 

, 

 (1988).
The dispute here centers on whether plaintiff has alleged a
foreseeable risk to “a protected interest” sufficient to subject
defendant to liability for emotional distress damages.
      1. Legally protected interests previously recognized by
         this court
         Perhaps the simplest legally protected interest is in
being “free from physical harm at the hands of another.”
Philibert v. Kluser, 

, 

 (2016).
Physical harm includes both bodily injury and property
damage.6 Generally, however, people do not have a legally
protected interest in being free from emotional distress,
and, to date, this court has permitted common-law tort
claims for emotional distress damages only in the following
three circumstances: (1) when the defendant also physically
injures the plaintiff; (2) when the defendant intentionally
causes the emotional distress; or (3) when the defendant
“negligently causes foreseeable, serious emotional distress
and also infringes some other legally protected interest.” 

; see also Hammond v. Central Lane Communications
Center, 

, 

 (1991) (stating that the
court had recognized negligence claims for “psychic injury”
in those three circumstances). In that third category of cases,
this court has looked for a legal source of liability other than
     6
       To say that a person has an actionable claim for property damage, as in
Abraham II, is equivalent to saying that the person has a legally protected inter-
est in being free from that harm.
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foreseeability: “[T]he injury’s foreseeability, standing alone,
is insufficient to establish the defendant’s liability[;] there
must also be another ‘legal source’ of liability for the plain-
tiff to recover emotional distress damages.” Philibert, 

.
         In Philibert, this court was asked to consider
whether two brothers who had watched their third brother
die in a collision had stated a negligence claim for the emo-
tional distress damages that they had alleged. We began
our analysis by explaining the reason that the court is gen-
erally reluctant to recognize common-law negligence claims
for emotional distress damages:
   “In contrast to physical harms, emotional harms occur fre-
   quently. * * * Any number of people may suffer emotional
   distress as the foreseeable result of a single negligent act.
   The Restatement provides an example: ‘a negligent airline
   that causes the death of a beloved celebrity can foresee gen-
   uine emotional harm to the celebrity’s fans, but no court
   would permit recovery for emotional harm under these
   circumstances.’ For that reason, foreseeability, standing
   alone, is not a useful limit on the scope of liability for emo-
   tional injuries. In Harris v. Suniga, 

, 

   (2008), this court explained that allowing recovery for eco-
   nomic loss on the basis of foreseeability, without requiring
   more, would invite, in the words of Judge Cardozo, ‘liability
   in an indeterminate amount for an indeterminate time to
   an indeterminate class.’ Emotional distress, like economic
   loss, ripples throughout society as a foreseeable result of
   negligent conduct. Without some limiting principle in addi-
   tion to foreseeability, permitting recovery for emotional
   injuries would create indeterminate and potentially unlim-
   ited liability.”
Philibert, 

 (some citations omitted; emphasis
in original). Nevertheless, we explained, recovery for foresee-
able emotional damage is permitted “when the defendant’s
conduct ‘infringed some legally protected interest apart from
causing the claimed distress.’ ” 

. And, in the context
of emotional distress, we defined a legally protected interest
as “an independent basis of liability separate from the general
duty to avoid foreseeable risk of harm.” 

 We then reviewed
the circumstances in which we had recognized the existence
of such an interest. Those circumstances included those
786               Moody v. Oregon Community Credit Union

in which a plaintiff had alleged (1) a right against certain
wrongful invasions of privacy, such as the invasion discussed
in Hinish v. Meier & Frank Co., 

, 

(1941) (allowing claim for emotional distress when plaintiff’s
name was signed without his consent on a telegram to the
governor); (2) a right to have a party comply with an obliga-
tion found in a court order or statute designed to protect the
plaintiff from the type of emotional harm that occurred, such
as the statute at issue in Nearing v. Weaver, 

,

 (1983) (right to have officers comply with statute
requiring arrest to protect victims of domestic violence) and
the order at issue in McEvoy v. Helikson, 

,

 (1977) (right to have lawyer comply with order
requiring retention of child’s passport to protect father’s inter-
est in child’s custody); and (3) certain other common-law rights
such those recognized in Macca v. Gen. Telephone Co. of N.W.,

, 

 (1972) (right to be free from pri-
vate nuisance) and Hovis v. City of Burns, 

, 

 (1966) (right to have the remains of a deceased spouse
remain undisturbed). Philibert, 

.
         Turning to the claim before the court in Philibert,
we described the harm that the plaintiffs had alleged as
a “palpable and distinct harm, different in kind even from
the emotional distress that comes with the inevitable loss
of our loved ones,” and we held that the defendant’s fail-
ure to protect against that harm was “a violation of [the
plaintiffs’] interest in not witnessing such a shocking and
tragic event.” 

. Finally, we analogized the plain-
tiffs’ common-law interest in being free from that kind of
injury to the interests at issue in two decisions in which “the
court [had] determined that an asserted common law inter-
est [was] sufficiently important to support the imposition of
liability” for emotional injury—the negligent handling of a
spouse’s remains in Hovis and the unauthorized political use
of the plaintiff’s signature in Hinish—and concluded that
“the interest in avoiding being a witness to the negligently
caused traumatic injury or death of a close family member
is similarly important.” Philibert, 

.
        That was not the end of our analysis, however. We
proceeded to carefully “frame the contours of that interest
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 (2023)                                     787

and identify the elements that will allow a bystander to
recover for the negligent infliction of emotional distress,
while also providing a limiting principle that will avoid
potentially unlimited claims or damages.” Id. at 708. We
decided to limit bystander emotional injury claims to those
where (1) the bystander perceives the event contemporane-
ously and (2) is a close family member of the person suffering
the bodily injury. Id. at 711. In doing so, we recognized that
our rule left open the possibility of “false or inflated claims,”
but we ultimately concluded that that possibility should not
be an impediment to claims like the plaintiffs’, stating,
   “Juries are charged with discerning truth from self-serving
   fiction when plaintiffs testify about their own injuries and
   are as competent to do this in claims for emotional injuries
   as they are in other cases. * * * Laws also may be struc-
   tured to deter false claims by sympathetic plaintiffs whose
   charisma may evoke inconsistent and unpredictable jury
   verdicts.”
Id. at 714-15 (citations omitted). We imposed the require-
ments of personal observation of the injury and injury to a
close relative because, “on the basis of human experience,”
we considered them to be “objective indicators of possibly
serious emotional injury,” and therefore more likely to be
genuine. Id. at 715. Further, and in response to the concern
that aspects of our rule could seem arbitrary, we noted “the
need to provide ex ante understanding of liability and assis-
tance in the orderly administration of justice.” Id. at 715-16.
So articulated, we were convinced that our rule would not
create a risk of “indeterminate and potentially unlimited
liability.” Id. at 704.
         Two years after deciding Philibert, this court again
took up a question of whether the plaintiffs had pleaded
facts sufficient to state common-law negligence claims for
emotional distress damages. In Tomlinson v. Metropolitan
Pediatrics, LLC, 

, 

 (2018), one set
of plaintiffs were parents who had alleged that the defen-
dant physicians had failed to timely diagnose their older
son, M’s, genetic disorder and failed to inform the parents of
that disorder. The parents had alleged that, had the defen-
dants not failed to act, the parents would not have produced
another child with the same disorder. We described the legal
788              Moody v. Oregon Community Credit Union

question there as “whether the complaint alleged sufficient
facts to establish that defendants’ conduct was negligent
with respect to the legally protected interests of the par-
ents.” 

.
          In engaging that issue, we began by noting that
the parents and the defendants did not have a patient-
physician relationship. At the same time, we also noted that
lack of privity has not always been a bar to claims against
professional service providers and that “we decide on a case-
by-case basis whether a professional’s relationship with a
third party is capable of supporting a negligence claim.”

. We reasoned that the parents had alleged facts
that, if proved, would establish that (1) the defendants and
the parents had a mutual expectation that the defendants
would provide the parents with information that implicated
the parents’ right and ability to make informed reproductive
choices; (2) meeting that expectation would not impose an
undue burden on the defendants beyond the obligation that
they already owed to their patient, M; and (3) protecting the
parents’ interest would not be detrimental to the interests
of M. We concluded that those factual allegations were suf-
ficient, if proved, to establish that, in addition to their obli-
gation to protect M’s interest, defendants also had a limited
obligation to protect the parents’ interests. 

.
         We then addressed the defendants’ argument that,
even if the parents were permitted to pursue a common-law
negligence claim in the alleged circumstances, they were
not entitled to recover emotional distress damages. We
responded by stating the general rule that, when a plain-
tiff establishes a cognizable negligence claim, damages are
recoverable to the extent necessary to make the plaintiff
whole. See 

 at 452 (citing United Engine Parts v. Ried, 

, 

 (1978) (“The purpose of awarding
compensatory damages is to make the party entitled thereto
whole.”) (Internal citation and quotation marks omitted.)).
We also cited Philibert, 

, for the proposition that,
when a plaintiff alleges negligence and claims either physi-
cal injury or the invasion of some legally protected interest,
then, generally speaking, the plaintiff can recover for all
forms of suffering, including both physical and emotional
Cite as 

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distress damages. Tomlinson, 

. Ultimately, in
Tomlinson, we concluded that the same legally protected
interest that permitted the parents’ negligence claim also
permitted the parents to seek emotional distress damages.

. We explained that the parents had alleged facts
that, if proved, could establish a legally protected interest in
receiving information from the defendants that implicated
the parents’ reproductive choices and their interest in avoid-
ing emotional harm. 

, 452 n 9.
    2. Whether plaintiff here has alleged a legally protected
       interest sufficient to subject defendant to liability for
       purely emotional damages
         In the case now before us, we must consider, as we
did in Philibert and Tomlinson and the cases that preceded
them, whether plaintiff has alleged a legally protected inter-
est sufficient to subject defendant to liability for emotional
distress damages. We therefore repeat the material allega-
tions of her complaint.
         Plaintiff alleges that defendant contracted with her
husband and her to provide life insurance coverage and ben-
efits and agreed to pay $3,000 in the event that plaintiff’s
husband died as the result of an accident. Plaintiff alleges
that her husband died as a result of an accident, but that
defendant negligently failed to pay the promised benefits
by failing to conduct “a reasonable investigation based on
all available information” and by “[n]ot attempting, in good
faith, to promptly and equitably settle a claim in which the
insurer’s liability has become reasonably clear.” Plaintiff
alleges that defendant “knew, or * * * should have known,
that one or more of its foregoing acts or omissions would cre-
ate an unreasonable risk of harm to the beneficiaries of its
insured, including [plaintiff].” And finally, plaintiff alleges
that, as a result of defendant’s negligence, she had fewer
financial resources to navigate the loss of a bread-winning
spouse and that she suffered increased emotional distress
and anxiety as a result. Thus, the interest that plaintiff
seeks to have us recognize as legally protected and sufficient
to subject defendant to liability for emotional distress dam-
ages is her interest, as the surviving spouse of a deceased
breadwinner, in having the insurance company with which
790              Moody v. Oregon Community Credit Union

she and her husband had contracted for life insurance bene-
fits conduct a reasonable investigation of, and promptly pay,
her claim for the promised benefits.
         To decide whether that alleged interest is a legally
protected interest sufficient to subject defendant to liabil-
ity for emotional distress damages, we begin, as we did in
Philibert, by acknowledging that this court is hesitant to
permit recovery for solely emotional injury but has neverthe-
less done so in limited circumstances. We have not devised
a “test” for determining when an interest is so protected;
rather we have looked for factors that demonstrate, to our
satisfaction, that we will not be creating “indeterminate
and potentially unlimited liability,” and that the interest in
question is “sufficiently important” and sufficiently circum-
scribed to support the imposition of liability for emotional
distress damages. Philibert, 

. We acknowl-
edge that such an analysis requires an application of judg-
ment, but that is the nature of the common law. It requires
that we proceed incrementally, looking at our past decisions
and applying similar reasoning to new circumstances. See,
e.g., Deep Photonics Corp. v. LaChapelle, 

, 288-
89, 

 (2021) (stability and consistency are critical
aspects of common-law decision-making; court’s decision
comported with that standard because the changes it made
to the common law were “marginal, incremental, and clearly
foreshadowed by our prior decisions”). We therefore proceed
to consider the factors that have been important to us in our
past decisions.
        a. Whether an Oregon statute indicates the exis-
           tence of the alleged legally protected interest.

         In this case, plaintiff invokes a statute in support
of her argument that she has a sufficient legally protected
interest, and she cites Philibert and its discussion of the
second category of circumstances in which this court has
recognized a legally protected interest sufficient to permit
a claim for such damages—“when another party has a legal
duty ‘designed to protect plaintiff[ ] against the type of harm
which * * * occurred.’ ” 

 (quoting Nearing, 

). In Nearing, the plaintiff had filed a common-law
Cite as 

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negligence claim seeking to recover for the emotional dis-
tress that she had suffered when police officers failed
to arrest her ex-spouse, who had been caught violating a
restraining order. This court permitted the plaintiff’s claim
and described her legally protected interest as arising from
a statute establishing “a legal duty designed to protect the
plaintiff from the type of emotional harm that occurred.”
Philibert, 

; Nearing, 

. Here, plain-
tiff argues that, like the statute in Nearing, ORS 746.230(1)
imposes a legal obligation designed to protect insureds and
thus supports plaintiff’s argument that she has pleaded the
required legally protected interest.

         In considering plaintiff’s argument, we are met with
defendant’s argument that in Farris II, this court decided
that the legislature did not intend to permit a common-law
negligence claim against a first-party insurer, as well as the
dissent’s view that, in deciding as it did in Farris II, this
court foreclosed plaintiff’s common-law negligence claim.
See 371 Or at 824 (Garrett, J., dissenting). In response to
defendant, we first observe, as noted, that plaintiff does not
ask us to hold that, in enacting ORS 746.230, the legislature
intended to create a statutory tort. Plaintiff does not argue
that the legislature expressly or impliedly intended to cre-
ate a private right of action for violation of ORS 746.230. See
Doyle v. City of Medford, 

, 

 (2014)
(“Statutory liability arises when a statute either expressly
or impliedly creates a private right of action for the viola-
tion of a statutory duty.”); Deckard, 

 (same).7
When the legislature intends to impose liability for violation
of a statute, the elements of that statutory claim are deter-
mined by the legislature, and that claim is distinct from any
other common-law claim that a party may have, including
a common-law negligence claim. Deckard, 

.
    7
       We sometimes refer interchangeably to “statutory liability” and “statutory
tort.” Compare Doyle, 

 (“statutory liability” arises when statute
creates private right of action), with Scovill v. City of Astoria, 

,

 (1996) (referring to such claims as “statutory tort” claims), and
Gattman v. Favro, 

, 

 (1988) (same). However, we have
made clear that a claim of statutory liability is not necessarily a tort. Deckard,

 n 7 (“[A] claim created by the legislature is not necessarily even a
tort claim.”); Bellikka v. Green, 

, 

 (1988) (“[s]tatutory
liability is not necessarily ‘tort’ liability”).
792                    Moody v. Oregon Community Credit Union

Here, the claim that plaintiff alleges is not a statutory tort;
rather, it is a common-law negligence claim.
        Relatedly, plaintiff does not ask this court to create
or recognize a type of tort liability different from the tort of
common-law negligence. As explained in Burnette v. Wahl,

, 

 (1978), creating a tort
based on a statutory violation is an approach that is open to
us when we deem it necessary or desirable:
    “When neither the statute nor the common law authorizes
    an action and the statute does not expressly deny it, the
    court should recognize that it is being asked to bring into
    existence a new type of tort liability on the basis of its own
    appraisal of the policy considerations involved. * * * If a
    civil cause of action based upon a statute is established by
    a court, it is because the court, not the legislature, believes
    it is necessary and desirable to further vindicate the right
    or to further enforce the duty created by statute.”
See also Bob Godfrey Pontiac, 

; Miller v. City of
Portland, 

, 

 (1980) (both dis-
cussing availability of such an approach). But that is not the
approach that we consider today. Here, our task is to decide
whether plaintiff has alleged a legally protected interest
sufficient to state a common-law claim for negligence and to
subject defendant, a first-party insurer, to liability for emo-
tional distress damages.
         That description of our task also explains the rea-
son that we disagree with the dissent. In Farris II, this
court did not consider whether the plaintiff had alleged a
legally viable claim against a life insurer for breach of an
extracontractual obligation. The plaintiffs in Farris II were
not individuals who brought a negligence claim against a
first-party life insurer. Instead, the plaintiffs in Farris II
were partners in a sandwich shop who alleged that they had
been sued by a business competitor for unfair business prac-
tices; that they had tendered the defense to the defendant, a
third-party insurer; and that the defendant had refused to
defend them in breach of its contract and in bad faith, caus-
ing them emotional distress as well as economic harm.8 The
    8
      The dissent notes that the plaintiffs’ complaint in Farris II included two
causes of action, 371 Or at 811-12 (Garrett, J., dissenting), but this court did not
draw a distinction between them in arriving at its understanding of the nature
Cite as 

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court described the issue before it as a question “whether
damages for emotional suffering may be awarded in a case
of this kind”—that is, a case involving a claim that the
defendant had breached its contract in “bad faith”:
    “There is no doubt that defendant was guilty of a clear
    breach of its contract. Plaintiffs contend that defendant is
    guilty of a tort as well as a breach of contract because it
    exercised ‘bad faith’ in its decision to deny coverage and
    to refuse a defense. The generally accepted rule is that
    emotional distress caused by pecuniary loss resulting from
    breach of contract is not recoverable.”
Farris II, 284 Or at 455-56. Thus, the court said, it “becomes
important (according to the usual doctrine) whether plaintiffs’
action for damages is one of contract or one of tort.” Id. at 456.
         The next step in the court’s analysis was to set out
the text of ORS 746.230 and the penalties for violating that
provision. Immediately after doing so, the court said the
following:
        “It is possible to contend that defendant’s violation of
    the statute is a tort, and, therefore, plaintiffs are entitled
    to recovery for emotional distress as well as for their other
    damages. It is not our understanding that plaintiffs make
    this contention. It is evident from the statutes that it was
    the intention of the legislature to prohibit insurance com-
    panies from intentionally breaching their contract to settle
    their insureds’ claims as defendant did here and to inflict
    certain consequences for so doing. However, such conclu-
    sion does not dispose of the question whether damages for
    emotional suffering were intended to be recoverable by an

of the complaint. The reason may be that the two causes of action both allege the
same breach of contract and neither alleges the breach of an extracontractual
standard of care. We have only the abstract of record and do not know how either
cause of action was denominated in the complaint. We do know, though, that in
both causes of action, the plaintiffs alleged, in the same terms, that the defendant
had denied coverage and that “[t]his denial of coverage and refusal to defend was
a breach of the insurance policy issued by defendant and the denial and refusal
were not made in good faith.” In both causes of action, the plaintiffs sought the
same economic and emotional distress damages. In the first, the plaintiffs also
sought attorney fees; in the second, the plaintiffs also sought punitive damages,
adding an allegation that the defendant’s rejection of coverage and refusal to
defend plaintiffs “was made with the knowledge that such action would inflict
mental distress and anguish upon plaintiffs.” In neither did the plaintiffs assert,
generally, that the defendant’s actions were in breach of an extracontractual stan-
dard of care or, in particular, that the defendant’s actions were negligent.
794                    Moody v. Oregon Community Credit Union

    insured for such a breach. Because the statutes did pro-
    vide for the payment of damages not usually recoverable in
    such a situation, it would appear that had the legislature
    intended to enlarge the damages further, it would have so
    provided. It was certainly not intended by the legislature
    that additional pressure to perform the contract be exerted
    by allowing the recovery of damages for emotional distress,
    since the statute provides for civil damages recoverable by
    the state for that purpose. There is nothing to indicate that
    the legislature intended, when it prohibited certain claims
    settlement practices in ORS 746.230, that actions for
    breach of insurance contracts would be transformed, in all
    of the covered instances, into tort actions with a resulting
    change in the measure of damages. The statutes express no
    public policy which would promote damages for emotional
    distress. Concern about the insured’s peace of mind does
    not appear to be the gravamen of the statutory policy.”
Farris II, 284 Or at 457-58.9 We understand that paragraph
to explain that the plaintiff’s claim was a claim for breach of
contract and that, in enacting ORS 746.230, the legislature
did not intend to provide “tort”—or emotional distress—
damages for such a claim.
        The court then went on to consider whether, as a
matter of common law, a claim based on a “bad faith” breach
of a contractual obligation should be considered a claim
sounding in tort. After discussing various California court
decisions, the court rejected that view, specifically holding
that the plaintiffs’ claim was one for breach of contract:
        “Contrary to the California holdings, * * * we believe
    defendant’s failure to undertake representation of plain-
    tiffs which required them to represent themselves could
    only have been a breach of contract, and, in cases of breach,
    the law is clear that no recovery for mental distress because
    of threat of pecuniary loss is recoverable.”
Id. at 464-65.
     9
       The Court of Appeals concluded that, because the court in Farris II had
stated, after introducing the issue, that “[i]t is not our understanding that plain-
tiffs make this contention,” the court’s subsequent discussion and conclusion that
the legislature did not intend to create a private right of action for the violation
of the statute were merely dictum. Moody, 

-44 (citing Farris II,
284 Or at 458). We do not agree with that assessment of the Farris II decision.
The court clearly intended to foreclose the statutory tort “contention,” whether or
not the plaintiffs had meant to raise it.
Cite as 

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         Finally, the court considered the plaintiffs’ argu-
ments that, even if their claim was for breach of contract,
they should be permitted to recover emotional distress dam-
ages because “one who enters into a contract of insurance
does so to guarantee himself peace of mind in case an action
or claim is made against him and, therefore, he should
receive reimbursement for that for which he has bargained
and not received,” and “the insurance business is tinged
with a public interest similar to that of a public utility, and
public policy dictates that full responsibility for the results
of failure to perform should be imposed without respect to
the rules applicable to other contracting parties.” 

 at 465-
66. The court disagreed, adhering to “the universal rule”
that recovery for breach of contract does not include recov-
ery for emotional distress damages. 

         In Farris II, this court understood its task as decid-
ing whether the plaintiffs’ claim was “one of contract or one of
tort,” holding, as indicated, that the plaintiffs’ claim was for
breach of contract.10 Farris II, 284 Or at 456, 463. In argu-
ing otherwise, the dissent contends that the complaint at
issue in Farris II could be understood as alleging one count
for breach of contract and one count in tort. 371 Or at 819

    10
       That this court understood the plaintiffs’ claim to be one in contract is also
clear from its prior decision. Farris v. U.S. Fidelity & Guaranty, 

, 

 (1975) (Farris I). There, the court held that an unaggravated breach of
contract could not support a claim for emotional distress damages, and it stated
that it did not decide whether such damages would be available for “an aggra-
vated breach.” 

. Thus, it makes sense that, in Farris II, the issue before
the court would be whether emotional distress damages would be available for
the aggravated breach of contract that the plaintiffs apparently attempted to
plead and not whether such damages would be available for breach of an extra-
contractual obligation to avoid injuries to others.
     We also disagree with the dissent’s contention that this court “has repeatedly
characterized Farris II as declining to recognize a tort.” __ Or at __ (Garrett, J.,
dissenting) (slip op at 13:16-17). The two cases that the dissent cites, Georgetown
Realty and Goddard v. Farmers Ins. Co., 

, 

 (2008), describe
this court’s holding in Farris II as we do here—that is, as holding that the plain-
tiff’s claim in Farris II was for breach of contract and that, as a result, tort dam-
ages were not recoverable. In Georgetown Realty, for example, the court stated,
    “The issue for decision in [Farris II] was whether damages for mental
    anguish and punitive damages are recoverable in a contract action against
    the insurer. The court again noted ‘that the present action is not one in tort.’ ”
Georgetown Realty, 

 (citing Farris II, 284 Or at 460); Goddard, 

 (“The court [in Farris II] concluded that such denials of coverage are a
breach of contract only and support only normal contract damages.”).
796                    Moody v. Oregon Community Credit Union

(Garrett, J., dissenting). That stretch cannot hold. As noted,
both counts expressly alleged a breach of contract and both
sought the same economic and emotional distress damages.
And, most importantly, the difference between contract and
tort claims is that they provide remedies for breach of con-
ceptually different obligations. Again, as noted, “[c]ontract
obligations are based on the manifested intention of the par-
ties to a bargaining transaction, whereas tort obligations
are imposed by law—apart from and independent of prom-
ises made and therefore apart from the manifested inten-
tion of the parties—to avoid injury to others.” Abraham II,

 (emphasis in original; internal quotation marks
omitted). In Farris II, the plaintiffs’ complaint did not allege,
in either count, that the defendant owed them an obligation
other than that specified in the contract between them. In
particular, the plaintiffs’ complaint did not allege that the
defendant’s actions were negligent.11
          We conclude that Farris II does not bar our consider-
ation of the viability of plaintiff’s alleged common-law negli-
gence claim. We therefore return to our consideration of the
following factor in that analysis: whether ORS 746.230(1)
imposes a legal obligation designed to protect insureds and
their beneficiaries from the type of emotional harm that
results from delayed payment of claims. In conducting that
analysis, we find it helpful to consider, as we did in Doyle,

, whether a decision permitting plain-
tiff’s claim “would be consistent with the statute, appro-
priate for promoting its policy, and needed to ensure its
effectiveness.”12 In citing Doyle, we recognize that Doyle is
    11
       In arguing for a different understanding of Farris II, the dissent observes
that, in Farris II, the court described the plaintiffs’ argument as an argument
that the defendant was “guilty of a tort as well as a breach of contract” because
it had “ ‘exercised “bad faith” in its decision to deny coverage and to refuse a
defense.’ ” 371 Or at 812 (Garrett, J., dissenting) (quoting Farris II, 284 Or at 455-
56). We acknowledge that, in Farris II, the plaintiffs contended that the defen-
dant’s intentional, bad faith, breach of contract, could give rise to tort damages,
but we do not understand the plaintiffs to have contended, or the court to have
considered, the separate question, as explained in Abraham II, of whether the
defendant had a tort obligation that was “apart from the manifested intention of
the parties—to avoid injury to others.” Abraham II, 

 (emphasis in
original). As noted, in Farris II, the plaintiffs’ complaint did not allege that the
defendant acted negligently.
    12
       As discussed in Doyle, 

, those factors are drawn from the
Restatement (Second) of Torts section 874A comment h (1979) and are not exclusive.
Cite as 

 (2023)                                     797

not a negligence case. Rather, it is a case in which the plain-
tiff could not establish that the legislature intended to create
a private right of action but, nevertheless, asked this court
to create a new type of tort liability. Although that is not
our undertaking here, plaintiff’s invocation of ORS 746.230
requires a similar analysis. We will not permit recovery of
emotional distress damages based in part on the existence
of a statutory obligation if the claim for such damages is
not consistent with the statute, appropriate for promoting
its policy, and needed to ensure its effectiveness.
          We therefore begin, as we did in Doyle, by examin-
ing the statute’s provisions and the policies it is intended to
promote. Defendant argues that, in enacting ORS 746.230,
the legislature considered what remedies to provide for its
violation and that its deliberate decision to limit those rem-
edies to civil penalties payable to the state indicates that
the statute was not enacted to impose liability on insurers
for its violation. As we have explained, plaintiff accepts that
the legislature did not intend to create such liability, but
she nonetheless contends that imposition of liability in neg-
ligence is consistent with the legislative intent to prohibit
certain unfair claims processing practices.
         As a reminder, ORS 746.230 prohibits (1) “[r]efus-
ing to pay claims without conducting a reasonable investi-
gation based on all available information,” ORS 746.230(1)
(d); and (2) “[n]ot attempting, in good faith, to promptly and
equitably settle claims in which liability has become rea-
sonably clear,” ORS 746.230(1)(f). We agree with plaintiff
and the Court of Appeals that those prohibitions are evi-
dently designed to protect insureds and their beneficiaries
from the type of emotional harm that plaintiff in this case
allegedly suffered. As the Court of Appeals reasoned, that
intention is apparent from the context in which the statute
was adopted—an insurance marketplace in which insur-
ers advertise and sell their products as providing “peace of
mind” to their policyholders:
   “[W]e note that an elementary principle of insurance law is
   that insurance policies do not merely provide for the pay-
   ment of funds in case of loss; they also provide the policy-
   holder peace of mind. See, e.g., 14 Couch on Ins. § 198:4
798               Moody v. Oregon Community Credit Union

   n 1 (3d ed 2021) (‹security and peace of mind are principal
   benefits of insurance[.]›) * * * The Oregon Supreme Court
   recognized that principle in Farris [II], noting that ‘insur-
   ance contracts * * * are made for economic and financial
   peace of mind.’ * * * A corollary to that principle is that
   statutes regulating the business of insurance—notice of
   cancellation requirements, for instance—are likewise
   intended to ensure peace of mind for policyholders. See, e.g.,
   43 Am Jur 2d Insurance § 385 (2021) (‘The primary pur-
   pose of such statutes is to ensure peace of mind for a poli-
   cyholder.’). Thus, when the Oregon legislature enacted the
   Insurance Code ‘for the protection of the insurance-buying
   public,’ ORS 731.008, we take that to mean that the legisla-
   ture enacted the code to ensure that the insurance-buying
   public gets what it pays for, including the peace of mind
   that is a principal benefit of an insurance policy.
       “That certainly appears to be the point of a number
   of the provisions of ORS 746.230, which are directed at
   unfair claim settlement practices that implicate not only
   adverse economic consequences to the policyholder but also
   the stresses of dealing with insurance company bad faith
   and delaying tactics. * * * Violations of those provisions cer-
   tainly have economic consequences. But it cannot be denied
   that such violations commonly have significant emotional
   consequences for policyholders as well. The legislature may
   well have declined to provide a private right of action for
   damages when it enacted ORS 746.230. Especially given
   that the very nature of insurance is that it is purchased to
   ensure peace of mind, it is hard to imagine that the legis-
   lature did not intend the law, at least in part, to prevent
   policyholders from being forced to experience the stress of
   dealing with unfair insurance claim settlement practices.”
Moody, 

 (some citations omitted).
         As the Court of Appeals also observed, the con-
duct that ORS 746.230 proscribes includes conduct that is
independent of the obligation to pay benefits due under the
insurance policy. For example, ORS 746.230 prohibits insur-
ers from, “[f]ailing to acknowledge and act promptly upon
communications relating to claims,” ORS 746.230.230(1)(b);
“[f]ailing to affirm * * * coverage of claims within a reason-
able time,” ORS 746.230.230(1)(e); and “[c]ompelling claim-
ants to initiate litigation to recover amounts due,” ORS
746.230(1)(g). Those prohibitions suggest that the harm
Cite as 

 (2023)                                                      799

that the legislature sought to prevent was not limited to the
financial harm that occurs when insurance benefits are not
paid.13
          Next, as the court did in Doyle, we consider how spe-
cific the statute is—that is, whether it provides advance warn-
ing of the specific conduct that is prohibited. Id. at 353; see
also Philibert, 

 (emphasizing the importance
of providing “ex ante understanding of liability”). We find that
the statute provides explicit notice to insurers of the conduct
that is required and, in requiring insurers to conduct reason-
able investigations and to settle claims when liability becomes
reasonably clear, does so in terms that are consistent with the
standard of care applicable in common law negligence cases.
        Under Doyle, we also consider the adequacy of exist-
ing remedies and the extent to which a common-law negli-
gence action “will aid, supplement, or interfere with exist-
ing claims and remedies and other means of enforcement.”
Doyle, 

. One existing common-law remedy
is a breach of contract action, but, in such an action, emo-
tional distress damages are not recoverable. Permitting a
common-law negligence claim for emotional distress dam-
ages would supplement, but would not interfere with, the
availability of a contract claim.
         The same is true with respect to the remedies pro-
vided by the statute. As discussed, in ORS 731.988 the leg-
islature provides for a civil penalty. However, we conclude
that permitting a negligence claim for emotional distress
damages would not interfere with the ability of the direc-
tor of the Department of Consumer and Business Services
to seek that remedy. The legislature has strengthened the
ability of insurance regulators to protect insureds by per-
mitting the director to bring actions for “actual damages” or
    13
       The dissent states that the court in Farris explicitly rejected the proposi-
tion that the prohibitions set forth in ORS 746.230(1) are designed to protect pol-
icyholders’ peace of mind. 371 Or at 823 (Garrett, J., dissenting). In Farris II, the
court reasoned that that purpose was not a sufficient basis for concluding either
that the legislature intended to provide a private right of action or that insurance
contracts were not subject to the “universal rule” that emotional distress dam-
ages are not recoverable in a claim for breach of contract. Here, we consider that
factor for a different purpose—to determine whether plaintiff’s common-law neg-
ligence claim for emotional distress damages is consistent with the legislature’s
purpose in enacting the statute.
800                   Moody v. Oregon Community Credit Union

other equitable relief, on their behalf. ORS 731.256. There
is no reason to believe that the director’s apparently discre-
tionary authority to do that would be negatively impacted
by allowing insureds to bring their own negligence claims.
Doyle instructs us to consider whether a tort action will
“provide a greater deterrent and be more likely to [e]nsure
compliance with the law.” 

. We conclude that
permitting a common-law negligence claim could have
that effect, making it more likely that an insurer would be
deterred from unreasonably engaging in prohibited conduct
and thereby advancing the statute’s purpose.
         Nevertheless, we acknowledge, as defendant argues,
that the legislature’s decision not to create a statutory pri-
vate right of action may reflect a concern that allowing
plaintiff to recover emotional distress damages in this con-
text would expose defendants to new and unfairly burden-
some liability. It is important that our analysis account for
such concerns, and we proceed to that undertaking.
           b.    Whether permitting recovery of emotional dis-
                tress damages is consistent with recovery of emo-
                tional distress damages in other common-law
                actions and would not place an undue burden on
                defendants.
          In this case, plaintiff alleges a claim against a party
with whom she had a relationship, like that in Tomlinson,

, that entailed a “mutual expectation of service
and reliance.” Plaintiff alleges that she and defendant were
in a contractual relationship in which defendant undertook
to provide her, as the named beneficiary of that contract,
with certain insurance benefits. That is important because,
in such a relationship, the service provider knows the iden-
tity of the person who contracts for or is the named benefi-
ciary of those services and can be expected to act reason-
ably with respect to that person.14 As a result, any concern
    14
        When a party undertakes to provide services to another, that undertak-
ing, and the contractual relationship that it reflects, may require that the ser-
vice provider act with reasonable care. Thus, as this court explained in Currey
v. Butcher, 

, 

 (1900), the contract serves as a “mat-
ter of inducement,” and tort law imposes the “duty” to act with reasonable care.
Accord, Dowell v. Mossberg, 

, 

 (1960) (in professional
relationships, “the contract of employment is a matter of inducement,” and the
Cite as 

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that providing a claim for emotional distress damages could
expose a defendant to unanticipated and indeterminate lia-
bility is ameliorated. See Tomlinson, 

 (peo-
ple not generally required to affirmatively protect economic
and emotional interests of others, and some limiting princi-
ple is therefore necessary to confer liability); Philibert, 

 (without some limiting principle, liability for emo-
tional harms is potentially limitless).
         That is particularly true when the defendant under-
takes to provide services that, absent the exercise of reason-
able care, may foreseeably create a risk of emotional harm.
For instance, in Curtis v. MRI Imaging Services II, 

, 

 (1998), a patient alleged that his physi-
cians had negligently failed to guard against the predict-
able psychological consequences of an MRI procedure, caus-
ing him severe emotional distress but not bodily injury. In
upholding the patient’s claim, this court observed that medi-
cal professionals may be required to protect against medical
risks that “happen to be psychological in nature,” when they
violate a standard of care that contemplates adverse psycho-
logical reactions. 

. We said that,
    “where the standard of care in a particular medical pro-
    fession recognizes the possibility of adverse psychological
    reactions or consequences as a medical concern and dic-
    tates that certain precautions be taken to avoid or mini-
    mize it, the law will not insulate persons in that profession
    from liability if they fail in those duties, thereby causing
    the contemplated harm.”

.
        Similarly, in Rathgeber v. James Hemenway, Inc.,

, 

 (2003), the court again accepted

“failure to exercise due care” makes the action one in tort). As this court stated
in Georgetown Realty, “[t]he rule stated in Currey * * * has been followed * * * in
cases involving physicians, lawyers, real estate brokers, architects, engineers,
and landlords.” 

. See, e.g., Lindemeier v. Walker, 

, 

 (1975) (contracting party has negligence claim against real estate broker for
failure to obtain best price for real property); Bales for Food v. Poole, 

,

 (1967) (contracting party has negligence claim against architect for
misplacing building on property); Dowell, 

 (contracting party has
negligence claim against chiropractor for failure to diagnose disease); Ashmun
v. Nichols, 

, 

, 

 (1919) (contracting party has
negligence claim against landlord for failure to repair leased premises).
802              Moody v. Oregon Community Credit Union

the premise that a defendant in a professional relationship
with a client, there a real estate professional, could be lia-
ble for emotional damages, but it emphasized that, in such
cases, the relevant standard of care must include protecting
the client from such harms. Id. at 417-18. See also Paul, 

 (assuming without deciding that physicians have
a duty, based on common law and health care information
statutes, to protect patients against disclosure of health
care information and emotional harm).
         In Tomlinson, the parties were not in a direct
physician-patient relationship, but one step removed, in a
relationship of “mutual expectation of service and reliance.”

. Accordingly, we did not employ an analysis
that considered whether the plaintiff had alleged a “stan-
dard of care that includes the duty to protect a client from
emotional harm.” Curtis, 

. Rather, we deter-
mined, as a matter of common law, that the parents had
alleged facts that, if proved, could establish a legally pro-
tected interest in receiving information from the defendants
that implicated the parents’ reproductive choices and their
interest in avoiding emotional harm. Tomlinson, 

.
         We used a similar approach in Hovis, a case decided
before Tomlinson and which was discussed in Philibert. In
Hovis, the plaintiff had purchased a burial plot from the
defendant city. The city had mistakenly buried the body
of the plaintiff’s husband in the wrong plot, and, without
permission from or notification to the plaintiff, the city had
disinterred the remains and moved them to the proper plot.
At that time, Oregon statutes required private cemeteries
to obtain consent before moving a deceased’s body, but those
statutes did not apply to municipal cemeteries. Therefore,
the city argued, it had no obligation to obtain the plaintiff’s
consent and she had no common-law negligence claim for
her emotional distress damages. 

. This
court disagreed, recognizing the common-law right of a sur-
viving spouse to have a cemetery act reasonably in deal-
ing with her deceased husband’s remains. 

.
In Philibert, this court explained Hovis as a decision that
recognized the common law as an extracontractual “legal
Cite as 

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source” of liability for emotional distress damages. Philibert,

.
         Here, as in Tomlinson and Hovis, the parties are
in a relationship of “mutual expectation of service and reli-
ance.” And, as in Curtis, the services that defendant under-
took to provide are services that, absent the exercise of
reasonable care, may foreseeably create a risk of emotional
harm. The existence of that relationship reduces the risk
that, in allowing plaintiff’s claim, this court will be extend-
ing “indeterminate and potentially unlimited liability.” In
fact, contracts may, at times, provide a means for a defen-
dant to control the extent of its liability. That is, a contract
between a service provider and recipient potentially may
alter or eliminate tort liability or remedies:
   “Because tort liability is imposed by common law negli-
   gence principles, that responsibility exists unless altered
   or eliminated by a contract or some other source of law.”
Abraham II, 

. As the court further stated in
Abraham II,
   “Parties may limit tort remedies by defining their obliga-
   tions in such a way that the common law standard of care
   has been supplanted, * * * or, in some circumstances, by
   contractually limiting or specifying available remedies.”

 (citations omitted).15
          The relationship between the parties is not, of
course, determinative. In deciding whether a plaintiff has
a legally protected interest sufficient to subject a defendant
to liability for emotional distress damages, this court also
has looked for other indicators that permitting such recov-
ery will not impose an unfair burden on defendants. Thus,
in Philibert, we looked to the nature of the injury and, in rec-
ognizing the plaintiffs’ claim, called out the “objective indi-
cators of possibly serious emotional injury.” 

.
Those indicators are present here as well. Life insurance is
intended to provide peace of mind and necessary resources
for a beneficiary, and a life insurer’s unreasonable denial of
promised benefits can certainly cause the beneficiary seri-
ous emotional injury. There are objective indicators of such
   15
        The insurance contract at issue here included no such provision.
804                   Moody v. Oregon Community Credit Union

injury in that the death of a spouse is a significant loss, and
that loss is compounded when the death is sudden and the
person who loses the spouse is dependent on the spouse for
their financial well-being. The spousal relationship and the
need for insurance benefits can be objectively established, as
can the unreasonable conduct of the insurer.
           c.    Whether plaintiff’s interest is “of significant
                importance.”
          Furthermore, this court will not permit recovery
of purely emotional injury unless we determine that the
claimed harm is “of sufficient importance as a matter of
public policy.” Philibert, 

. In this case, plain-
tiff alleges that she is the surviving spouse of the decedent
and was financially dependent on him. Plaintiff alleges
that defendant failed to reasonably investigate and pay life
insurance proceeds to which she was contractually entitled.
Requiring reasonable investigation and prompt payment of
such proceeds benefits not only those in plaintiff’s shoes, but
also society at large. When life insurance proceeds enable
survivors to obtain basic needs such as food and shelter,
the survivors are not dependent on society for those needs.
Importantly, Oregon statutes governing the insurance
industry indicate that the legislature has made a public
policy choice to protect against the unfair processing and
payment of insurance claims, which includes claims made
by life insurance beneficiaries. When a surviving spouse
incurs serious emotional distress as a result of the violation
of those statutes, the harm and the statutory purpose are of
sufficient importance to merit protection.16

     16
        In reaching that conclusion, we are not alone. Many other states, by stat-
ute or judicial decision, permit claims for emotional distress damages against
first-party insurers in some circumstances. See, e.g., Nassen v. National States
Ins. Co., 

 (Iowa 1992) (insurer liable in tort for emotional distress
damages for bad faith denial of claim); Curry v. Fireman’s Fund Ins. Co., 

 (Kentucky 1989) (permitting recovery in tort for consequential and
punitive damages for bad faith breach of insurance contract); White v. Unigard
Mut. Ins. Co., 

, 

 (1986) (insurer liable in tort for bad
faith denial of claim); Noble v. Nat’l Am. Life Ins. Co., 128 Ariz 188, 

 (1981) (permitting emotional distress damages in tort action arising out of
insurer’s willful refusal to pay a valid claim); Gruenberg v. Aetna Ins. Co., 9 Cal
3d 566, 

 (1973) (insurer liable in tort for emotional distress damages
for violation of implied covenant of good faith and fair dealing).
Cite as 

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    3.   On balance, we conclude that plaintiff has alleged a
         legally protected interest sufficient to subject defen-
         dant to liability for emotional distress damages.
         We began this opinion by stating the reasons that
this court has been reluctant to permit recovery of emo-
tional distress damages in the absence of physical injury or
property damage and the need for a limiting principle, in
addition to foreseeability, to avoid indeterminate and poten-
tially unlimited liability. Philibert, 

. In this
case, we are convinced that plaintiff has alleged a legally
protected interest that provides that limiting principle; that
is, plaintiff, as the surviving spouse of a deceased breadwin-
ner, has a legally protected interest sufficient to support a
common-law negligence claim for emotional distress dam-
ages against her husband’s life insurer for failure to reason-
ably investigate and promptly pay her claim for insurance
benefits. As in Nearing, Oregon statutory law imposes an
obligation to protect that interest. In undertaking to pro-
vide insurance benefits, an insurer not only undertakes to
provide necessary financial resources but also undertakes
to provide the peace of mind that comes with knowing that
those resources will be promptly paid, alleviating emo-
tional distress and avoiding further psychological harm.
As in Tomlinson and Hovis, the parties are in a relation-
ship of “mutual expectation of service and reliance.” As in
Curtis, the services provided are intended to avoid inflicting
emotional, as well as financial, harm. And, as in Philibert,
there are objective indicators of possibly serious emotional
injury. Considering all of those factors, and not relying on
any one of them alone, we conclude that the insurance claim
practices that ORS 746.230 requires and the emotional
harm that foreseeably may occur if that statute is violated
are sufficiently weighty to merit imposition of liability for
common-law negligence and recovery of emotional distress
damages.
        Accordingly, we answer the question whether plain-
tiff has alleged a viable common-law negligence claim
against defendant for emotional distress damages in the
affirmative. We caution that our conclusion here does not
make every contracting party liable for negligent conduct
806              Moody v. Oregon Community Credit Union

that causes purely psychological damage, nor does it make
every statutory violation the basis for a common-law negli-
gence claim for emotional distress damages. Far from it. Few
contracting parties promise to provide necessary financial
resources on the death of a spouse knowing that their obli-
gation to act reasonably in doing so is required by statute.
And few statutes impose obligations on contracting parties
designed to protect the parties from the type of emotional
harm that plaintiff in this case allegedly suffered. Our deci-
sion in this case is a narrow one that applies and accords
with the limiting principles that have guided our past deci-
sions and does not unfairly expose defendant to liabilities
that it could not have expected and guarded against.
                    IV. CONCLUSION
         To summarize, we conclude that plaintiff has alleged
a viable common-law negligence claim against defendant for
emotional distress damages. Therefore, we also conclude
that the trial court erred in granting defendant’s motions
to dismiss plaintiff’s negligence claim and in striking her
claim for emotional distress damages.
        The decision of the Court of Appeals is affirmed.
The judgment of the circuit court is reversed, and the case
is remanded to the circuit court for further proceedings.
        GARRETT, J., dissenting.
         Forty-five years ago, this court held that an insur-
er’s bad-faith denial of an insurance claim constitutes only
a breach of contract and, therefore, cannot support an action
in tort to recover damages for emotional distress. Farris v.
U.S. Fid. and Guar. Co., 

, 

 (1978)
(Farris II). That decision followed settled common-law prin-
ciples: where parties have a contractual relationship, a
breach of obligations resulting in damages will, ordinarily,
support only a breach of contract claim, not a tort claim.
         In this case, defendant insurer failed to pay out
under the terms of a $3,000 life insurance policy after plain-
tiff’s husband died. Plaintiff sued defendant for breach of
the insurance contract. In addition, plaintiff’s complaint
purported to allege a tort claim for negligence—specifically,
Cite as 

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“negligent performance of an insurance contract”—and
sought damages of over $45,000 for emotional distress. The
trial court dismissed that tort claim, as it should have under
Farris II.
         Today, the majority announces that an insurer’s
denial of coverage can support liability in tort—the propo-
sition that Farris II rejected. As a result of today’s decision,
Oregon not only ceases to be among the jurisdictions that do
not recognize tort claims for bad-faith denial of insurance
benefits; Oregon joins the minority of jurisdictions that rec-
ognize the broadest version of such claims—premised only
on an insurer’s negligence. The majority avoids expressly
overruling Farris II (which no one has asked us to do) by
reasoning that that case did not address the issue raised
here. I disagree. This court in Farris II was asked to recog-
nize tort liability based on an insurer’s bad-faith denial of
coverage. It declined to do so, following an extensive discus-
sion that is irreconcilable with the analysis that the major-
ity adopts today. The considerations that the majority relies
on to create tort liability for negligent denial of an insurance
claim are the same considerations that the court in Farris II
rejected when it held that the insurer’s bad-faith denial
“could only have been a breach of contract.” 284 Or at 465.
In effect, Farris II has been abrogated in the absence of any
request that we do so and without undertaking the analysis
that applies when this court is asked to overrule one of its
precedents.
A. For plaintiff to win, this court must recognize a new basis
   for tort liability.
         The first obstacle that we encounter in assessing
plaintiff’s tort claim is that the claim is based, in part, on
defendant’s failure to perform contractual obligations. We
have said that a tort claim cannot be predicated on a defen-
dant’s failure to perform contractual obligations unless the
defendant’s conduct in breaching the contract also breached
an independent standard of care that exists separate from
the contract terms. See Georgetown Realty v. The Home Ins.
Co., 

, 

 (1992) (party may bring a
tort claim in addition to or in lieu of a contract claim “if the
808              Moody v. Oregon Community Credit Union

other party is subject to a standard of care independent of
the terms of the contract”).
         For example, in Abraham v. T. Henry Construction,
Inc., 

, 

 (2011) (Abraham II), the
defendants contracted to build a home “in a workmanship
like manner and in compliance with all building codes and
other applicable laws.” (Internal quotation marks omitted.)
The plaintiffs alleged that the defendants had been negli-
gent, causing water damage to the property. 

 The plain-
tiffs asserted both contract and tort claims. 

 The defen-
dants argued that there could be no tort liability because the
contract already covered the alleged conduct. 

. This
court disagreed, noting that the defendants’ alleged conduct
breached the common-law tort obligation that imposes liabil-
ity for negligently caused and foreseeable physical injuries.

. Although the conduct underlying the contract
and tort claims was the same, the tort obligation existed
under the common law independent of the contract. 

.
         In this case, plaintiff argues that the Insurance
Code—specifically, ORS 746.230—provides a standard of care
independent of the terms of the contract. As the majority cor-
rectly explains, however, not all statutes that govern private
conduct can support private tort actions if violated. A court
must conclude either that the legislature intended to create a
so-called statutory tort or that the common law nevertheless
recognizes a tort claim under the circumstances. Here, citing
ORS 746.230 as an “independent standard of care” assumes
what must be established as a threshold matter, which is that
a tort cause of action exists for which that statute supplies the
applicable standard of care. If the underlying conduct that
ORS 746.230 addresses is not actionable in tort law, then
the statute does not provide an independent standard of care
capable of supporting such a tort claim.
         To overcome that obstacle, plaintiff argues that
a violation of the statutory standard of care imposed by
ORS 746.230 should establish negligence per se. But, as the
majority opinion recognizes, negligence per se applies only
when there is an underlying negligence claim that imposes
the usual reasonableness standard of care. As we have said,
negligence per se may apply “[w]hen a negligence claim
Cite as 

 (2023)                                809

otherwise exists, and a statute or rule defines the standard
of care expected of a reasonably prudent person under the
circumstances[.]” Deckard v. Bunch, 

, 761 n 6, 

 (2016). Negligence per se replaces the reasonable-
ness standard of care with a statutory standard of care—or,
at least, a violation of the statutory standard of care cre-
ates a presumption of unreasonableness. 

 Such a claim
thus assumes that, without the statute, tort law would still
recognize a negligence claim based on the reasonableness
standard of care. See Gattman v. Favro, 

, 15 n 3,

 (1988) (“Strictly speaking, the doctrine of ‘neg-
ligence per se’ does not create a cause of action. Rather, it
refers to a standard of care that a law imposes within a
cause of action for negligence.”). If there is no reasonable-
ness standard of care imposed by tort law under the circum-
stances alleged by a plaintiff, then there is nothing for the
statutory standard of care to replace.
         That brings us to the question whether the negli-
gence claim that plaintiff advances here “otherwise exists,”
i.e., whether Oregon tort law would recognize plaintiff’s
claim for negligence in these circumstances under the rea-
sonableness standard of care. The answer, until today, was
no. Plaintiff asserts a claim for a purely emotional injury
allegedly resulting from defendant’s negligence. As the
majority notes, negligently caused emotional injuries are
not generally actionable in tort law. 371 Or at 784. Unlike
physical injuries, which are generally actionable whenever
the defendant unreasonably created a risk of physical harm
and the risk of the plaintiff’s physical injury was foresee-
able, negligently caused emotional injuries are actionable
only in certain circumstances. See Norwest v. Presbyterian
Intercommunity Hosp., 

, 

 (1982)
(“Oregon has few precedents for liability for negligent injury
to solely psychic interests.”). This court decides, as a mat-
ter of law, those narrow circumstances in which negligently
caused emotional injuries are actionable, as in Philibert
v. Kluser, 

, 

 (2016) (recognizing
common-law claim for negligently inflicted emotional dis-
tress suffered by family members who witnessed the victim
being struck and killed by a vehicle).
810                   Moody v. Oregon Community Credit Union

         Plaintiff’s argument, properly understood, asks this
court to recognize another new circumstance in which a
negligently caused emotional injury is actionable in tort—
specifically, that an insurer may be liable to an insured (or
insured’s beneficiary) for an emotional injury that results
from the insurer’s failure to exercise reasonable care in han-
dling a claim for benefits.
         Although plaintiff’s theory requires recognizing
a new basis for tort liability, that is not how plaintiff has
framed her argument; in fact, she expressly disavows any
need for this court to recognize something new. That fail-
ure to properly frame the argument likely stems from the
confusing language that this court has used to discuss the
existence and scope of obligations that, if breached, are
actionable in tort. An obligation actionable in tort has tra-
ditionally been called a “duty.” Courts properly use “duty”
to identify what types of facts give rise to what types of tort
obligations. This court has, at times, been hesitant to frame
tort issues in terms of “duty” because of its uncertain status
following Fazzolari v. Portland School Dist. No. 1J, 

,

 (1987). But defining the existence and scope
of obligations is a logically necessary component of tort law.
When the court fails to use “duty” to describe the existence
or scope of an obligation actionable in tort law, then the
court must find other terms to do that work.
         The court has not always been consistent in the ter-
minology that it has used to replace the duty element. The
majority opinion uses the concept of “legally protected inter-
est” to describe its conclusion that, under the facts alleged,
defendant may be liable for plaintiff’s emotional distress
damages. A more straightforward way to state that con-
clusion would be to say that defendant, because of its rela-
tionship to the insured, had an obligation (or duty) to avoid
negligently creating a foreseeable risk of emotional injury
to plaintiff. To say that a defendant is liable for negligently
causing a type of injury is to say that the defendant had an
obligation to avoid negligently causing a type of injury.1
    1
      The majority opinion cites Fazzolari as prompting a move away from “duty.”
That is a common reading, but one that, in my view, overstates what Fazzolari
did. The purpose of this court’s extensive discussion in Fazzolari was to correct
a misapplication of “duty”—an element that properly raises a question of law—to
Cite as 

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B.    In Farris II, this court decided that an insurer’s bad-
      faith denial of coverage is not actionable in tort.
         The majority concludes that the relationship
between an insurance provider and an insured gives rise
to an obligation, actionable in tort law, to avoid wrong-
fully denying an insured’s claim. This court considered and
rejected that idea in 1978, when it decided Farris II.
        In Farris II, the plaintiffs purchased a liability
insurance policy from the defendant. 284 Or at 455. After
being sued, the plaintiffs tendered the case to the defendant,
which denied coverage. Id. The plaintiffs defended the case
themselves and subsequently sued the defendant, seeking
damages for emotional distress. Id. The plaintiffs alleged
two causes of action. The first claim alleged a breach of the
insurance contract, asserted that the breach had not been
in good faith, and sought damages for emotional distress.

describe fact questions about reasonableness or foreseeability. But that does not
mean that there are no cases in which duty plays a role. In Fazzolari itself, the
court first defined, and identified the facts giving rise to, the defendant’s “duty”
before concluding that the defendant’s liability turned on fact questions for the
jury. See 

 (describing the “duty of supervision” that a school owes to
its students as “a special duty arising from the relationship between educators
and children entrusted to their care apart from any general responsibility not
unreasonably to expose people to a foreseeable risk of harm”); 

 (“The
scope of this obligation does not exclude precautions against risks of crime or
torts merely because a third person inflicts the injury.”).
     While “duty” plays no independent role in cases involving physical injuries
caused by a risk of harm that the defendant created, “duty” continues to play an
affirmative role in other cases, such as cases involving purely economic injuries,
purely emotional injuries, and affirmative duties of care. See Fazzolari, 

(“[B]ecause common-law negligence traditionally has excluded some categories
of quite predictable injuries and claimants (familiar illustrations include solely
economic or psychic injuries, injuries due to a bystander’s failure to rescue and
injuries to trespassers), courts still find lack of a ‘duty’ a convenient label for
these categorical rulings.”); see, e.g., Onita Pacific Corp. v. Trustees of Bronson,

, 

 (1992) (“[W]here the recovery of economic losses
is sought on a theory of negligence, the concept of duty as a limiting principle
takes on a greater importance than it does with regard to the recovery of dam-
ages for personal injury or property damage.”); Hale v. Groce, 

, 283-
84, 

 (1987) (opinion of the court by Linde, J.) (“[W]ithout a duty to
plaintiff derived from defendant’s contractual undertaking, plaintiff’s tort claim
would confront the rule that one ordinarily is not liable for negligently causing
a stranger’s purely economic loss without injuring his person or property.”);
Nearing v. Weaver, 

, 

 (1983) (opinion of the court by
Linde, J.) (“[T]here is no cause of action for negligent infliction of purely psychic
or emotional injury as such, unsupported by a violation of some more specific duty
toward the plaintiff.”).
812              Moody v. Oregon Community Credit Union

The second cause of action was not denominated as either a
tort or a contract claim, and it alleged that the “[d]efendant’s
rejection of coverage and refusal to defend plaintiffs was not
made in good faith and was made with the knowledge that
such action would inflict mental distress and anguish upon
plaintiffs.” In addition to seeking damages for emotional
distress, that second claim added a demand for punitive
damages.
         The plaintiffs demonstrated at trial that the defen-
dant had denied their claim for benefits in bad faith: “At the
time of final rejection of coverage, [the] defendant was aware
that there was coverage but, nevertheless, chose to deny it.”
See 

 The defendant’s claim manager indicated an intent
to “bluff it out[.] [W]e can always buy out at a later date.” 

(internal quotation marks omitted). A jury entered a verdict
for the plaintiffs and awarded damages for emotional dis-
tress. 

         In assessing whether emotional distress damages
were available on those facts, this court recognized the
importance of determining “whether [the] plaintiffs’ action
for damages is one of contract or one of tort.” Id. at 456. We
noted the general rule that a plaintiff may not recover for
emotional distress caused by pecuniary loss resulting from
breach of contract. Id. However, the plaintiffs had contended
that the defendant was “guilty of a tort as well as a breach
of contract.” Id. at 455. The plaintiffs premised that claim
on the fact that the defendant had “exercised ‘bad faith’ in
its decision to deny coverage and to refuse a defense.” Id. at
456. The court explained that, “if the facts justify an action
of tort, courts are inclined to allow recovery for emotional
distress as part of the damages flowing from a tort cause
of action.” Id. As a result, the court’s analysis that followed
addressed whether the facts established at trial justified an
action in tort.
         The court first considered whether a violation of the
Insurance Code was actionable as a statutory tort, specifi-
cally the provision prohibiting insurers from “ ‘[n]ot attempt-
ing, in good faith, to promptly and equitably settle claims in
which liability has become reasonably clear.’ ” Id. (quoting
ORS 746.230(1)(f)). We noted that an insurer may be subject
Cite as 

 (2023)                                     813

to civil penalties payable to the state for violations of the
Insurance Code. Id. at 457. We concluded from the legisla-
ture’s specific inclusion of a system of regulatory sanctions
that the legislature did not implicitly intend for violations
also to be a basis for civil tort claims:
   “There is nothing to indicate that the legislature intended,
   when it prohibited certain claims settlement practices in
   ORS 746.230, that actions for breach of insurance contracts
   would be transformed, in all of the covered instances, into
   tort actions with a resulting change in the measure of dam-
   ages. The statutes express no public policy which would
   promote damages for emotional distress. Concern about the
   insured’s peace of mind does not appear to be the gravamen
   of the statutory policy.”
Id. at 458.
         After concluding that the legislature did not intend
for the defendant’s violation of the statute to be a tort, we
went on to consider the plaintiffs’ separate argument that
“the common law of the construction of insurance contracts
dictates that defendant was guilty of the kind of ‘bad faith’
conduct which gives rise to tort liability and that damages
for emotional distress are, therefore, recoverable along with
[the] plaintiffs’ other damages.” Id. at 458-59 (emphasis
added). The plaintiffs drew on cases recognizing that, upon
accepting an insured’s tendered claim for defense, a liability
insurer must carry out that defense with due care. In those
situations, “courts have held the insurer to a duty of ‘good
faith’ in investigating the facts and in attempting to settle
within the policy limits.” Id. at 459. The plaintiffs in Farris II
alleged a similar duty of good faith. As we described it, the
plaintiffs sought emotional distress damages “arising out of
a tort action for failure to exercise good faith in denying cov-
erage.” Id. (emphasis added).
        At that time, this court had not clarified whether
the failure-to-settle cases that the plaintiffs cited recog-
nized an action in contract or in tort. We assumed, with-
out deciding, that the failure-to-settle cases were based in
tort but declined to extend them to the plaintiffs’ claim,
explaining, “it is our opinion that the rationale of such [a
814                   Moody v. Oregon Community Credit Union

failure-to-settle] action has no application to the present sit-
uation and that the present action is not one in tort.” Id. at
460.
         The court in Farris II identified the key distinction
as being that the insurer takes on a fiduciary obligation in
the failure-to-settle context but not in the denial-of-benefits
context. We explained that, “[i]n an action for failure to settle
within the policy limits, the insurance company is charged
with acting in a fiduciary capacity as an attorney in fact
representing the insured’s interest in litigation.” Id. That
fiduciary relationship is never created when the insurer
simply denies coverage. See id. (“In the present case, [the]
defendant did not undertake this fiduciary duty to represent
the insured’s interest in the litigation—it refused it.”).
         The court in Farris II then quoted at length from a
previous case making the same distinction between failure
to settle and bad-faith denial, Santilli v. State Farm, 

, 

 (1977). Santilli involved, like this case,
an alleged bad-faith denial of life insurance benefits. 

. The plaintiff there sought to have this court “rec-
ognize a cause of action for tortious breach of an insurer’s
duty of ‘good faith and fair dealing’ when dealing with its
insured.” 

. The court in Santilli ultimately did not
resolve the issue of whether to recognize a tort, but noted
that,
    “[i]n cases involving the insurer’s duty to pay under poli-
    cies for theft, fire, health, disability or life insurance, the
    unique relationship which gives rise to the special duty of
    liability insurers to attempt to settle within their policy
    limits does not arise. The insured, or his beneficiary, is not
    subject to the imposition of excess liability, and his rights
    and responsibilities are limited to those set forth in his
    contract.”

, quoted in Farris II, 284 Or at 463.2
     2
       The court did not resolve whether bad-faith denial of insurance benefits
may establish a claim for tortious breach of an insurance contract because the
court concluded that, even if the insurer had been wrong to deny the life insur-
ance benefits, the parties’ stipulated facts provided the insurer with “just cause
for contesting liability,” which would be sufficient to defeat a claim for tortious
breach of an insurance contract. Santilli, 

.
Cite as 

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          The court in Farris II acknowledged that the plain-
tiff in Santilli had asserted a first-party claim for life insur-
ance benefits, while the plaintiffs in Farris II sought relief
from the insurer’s failure to tender a defense on a third
party’s claim. Farris II, 284 Or at 463. But the court noted
that, like Santilli, the plaintiffs’ claim in Farris II “does not
involve a failure to settle within the policy limits and the
rationale expressed in Santilli is equally applicable.” Id.
          Similarly, the court in Farris II cited two cases
involving the bad-faith denial of first-party claims for
medical and fire insurance in which the Supreme Court
of California had allowed recovery for emotional distress
damages based on tortious breach of an insurance contract.
Id. (citing Silberg v. California Life Ins. Co., 11 Cal 3d 452,

 (1974); Gruenberg v. Aetna Ins. Co., 9 Cal 3d
566, 

 (1973)). The court in Farris II described
those California cases as “sufficiently similar to this case
that they are not able to be distinguished.” 

 But, “for the
reasons given in Santilli,” the court in Farris II declined to
follow those California cases in recognizing bad-faith denial
of an insurance claim as actionable in tort. Id. at 464-65.3
          The court then addressed the plaintiffs’ policy
arguments offered in support of their contention that the
court should permit emotional distress damages. The plain-
tiffs had argued that “one who enters into a contract of
insurance does so to guarantee himself peace of mind * * *
and, therefore, he should receive reimbursement for that
for which he has bargained and not received.” Id. at 465.
In support of that argument, the plaintiffs cited two other
California cases allowing emotional distress damages based
on an insurer’s tortious breach of contract. Id. (citing Crisci
v. Sec. Ins. Co. of New Haven, Conn., 66 Cal 2d 425, 

 (1967); Fletcher v. W. Nat’l Life Ins. Co., 10 Cal App 3d
376, 89 Cal Rptr 78 (Cal Ct App 1970)). This court rejected
that argument, stating that it “does not furnish a logical
basis for recovery for emotional distress because many con-
tracts for services, materials or financial assistance, as well
    3
      The majority references one of those California cases, Gruenberg, as being
in accord with the negligence claim that the majority is creating. 371 Or at 804
n 16). This court in Farris II, however, expressly rejected Gruenberg. Farris II,
284 Or at 464-65.
816                 Moody v. Oregon Community Credit Union

as insurance contracts, are similarly made for economic and
financial peace of mind.” Id.
         Plaintiffs also appealed to the public interests
involved in the insurance business, arguing that “public pol-
icy dictates that full responsibility for the results of failure
to perform should be imposed” without respect to the tra-
ditional rule concerning contract damages. Id. at 466. This
court responded that the plaintiffs
      “point[ed] out no reasons why such public interest should
      change the measure of damages which has resulted in the
      rule against recovery for mental distress brought about by
      an intentional breach of a contract. Any idea of punishment
      or warning to others is within the province of punitive
      damages and has no place in consideration of the propriety
      of a recovery for emotional distress.”
Id.
         As those passages show, this court in Farris II
determined that the bad-faith claim denial by the insurer in
that case was not actionable in tort. The court held that an
insurer’s decision whether to allow or deny a claim for insur-
ance benefits does not trigger the kind of fiduciary relation-
ship with the insured needed to implicate tort law. Rather
than sounding in tort, the insurer’s bad-faith denial “could
only have been a breach of contract, and, in cases of breach,
the law is clear that no recovery for mental distress because
of threat of pecuniary loss is recoverable.” Id. at 465.
         This court has repeatedly characterized Farris II as
declining to recognize a tort. See Goddard v. Farmers Ins.
Co., 

, 

 (2008) (characterizing
Farris II as rejecting an insured’s argument that “the insur-
er’s denial of liability insurance coverage sounded in tort, so
that the insured could recover for emotional distress caused
by that denial”); Georgetown Realty, 

 n 5 (“This
court [in Farris II] held that damages in tort were not recov-
erable because performance was never undertaken.”).
        The Court of Appeals has understood Farris II the
same way. See Shin v. Sunriver Preparatory School, Inc., 

, 

, rev den, 

 (2005)
(“[W]here the insurer does not undertake the defense of the
Cite as 

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insured, the carrier does not assume the fiduciary duty that
would result from having done so, and its responsibilities
are confined to the contract terms.” (Citing Farris II, 284 Or
at 460.)); Warren v. Farmers Ins. Co. of Oregon, 

, 

 (1992), rev den, 

 (1993) (“In
[Farris II], the Supreme Court held that an insurer’s failure
to exercise good faith in denying coverage is a breach of con-
tract, not a tort.”); Employers’ Fire Ins. v. Love It Ice Cream,

, 

 (1983) (“In [Farris II], the
court held that an insurer’s bad faith refusal to defend its
insured under a liability policy gives rise only to a breach
of contract claim, for which punitive and emotional distress
damages cannot be recovered, rather than a tort claim.”).
Federal courts are in accord.4
C. Farris II disposes of this case.
         Farris II answered the question whether an insur-
er’s bad-faith denial of coverage can support liability in tort.
The majority’s contrary conclusion is based on a strained
reading of that decision.
         At the outset, the majority distinguishes Farris II
on the ground that that case arose in the third-party con-
text. 371 Or at 792. That is true but irrelevant to the rule of
     4
       Federal courts have read Farris II to preclude treating an insurer’s bad-
faith denial of insurance benefits as a tort claim. See, e.g., Vail v. Country Mut.
Ins. Co., No 2:13-CV-02029-SU, 

, at *7 (D Or May 11, 2015)
(holding that “recovery for emotional distress is typically not allowed” for bad-
faith denial of insurance benefits (citing Farris II, 284 Or at 464)); Russell v.
Liberty Mut. Ins. Co., No 3:13-cv-00163-SU, 

, at *3 (D Or Aug 2,
2013) (holding that “a special relationship [giving rise to a tort claim] does not
exist because defendant merely refused to defend plaintiff against the underlying
CERCLA action” (citing Farris II, 284 Or at 462-65)); Malbco Holdings, LLC v.
AMCO Ins. Co., No CV-08-585-ST, 

, at *5 (D Or Dec 11, 2008)
(relying on Farris II to hold “the type of breach of duty of good faith and fair
dealing claim alleged here [bad-faith denial and failure to investigate] to be a
contractual claim, not a tort claim”).
    Federal courts have also refused to apply the Court of Appeals’ decision in
this case, holding that recognizing a violation of the Insurance Code as negligence
per se conflicts with this court’s refusal in Farris II to recognize bad-faith denial
of benefits as a tort. See Koa v. Allstate Indem. Co., No 1:22-cv-00658-CL, 

, at *2 (D Or Mar 23, 2023) (“This Court recently declined to follow
Moody in a nearly identical case, ruling that the Oregon Court of Appeals deci-
sion blatantly contradicts over 40 years of Oregon Supreme Court precedent.”);
but see Butters v. Travelers Indem. Co., No 3:22-cv-726-SB, 

, at
*2 (D Or May 18, 2023) (agreeing with magistrate judge’s conclusion that “Moody
and Farris do not clash”).
818              Moody v. Oregon Community Credit Union

law announced in Farris II, which applies with equal force
here. In Farris II, as discussed above, we held that the rela-
tionship between an insurer and insured imposes no obli-
gation on the insurer to act in the interest of the insured
unless an insurer accepts an insured’s claim for liability cov-
erage. Thus, when an insurer denies a claim altogether, the
insurer is not subject to an obligation actionable in tort to
act in good faith. We rejected the plaintiffs’ argument that
the nature of an insurance contract is one for which a breach
should give rise to such tort liability. See Farris II, 284 Or at
465 (concluding that protecting an insured’s “peace of mind”
in the denial-of-coverage context “does not furnish a logical
basis for recovery for emotional distress because many con-
tracts for services, materials or financial assistance, as well
as insurance contracts, are similarly made for economic and
financial peace of mind”).
         Nothing about that reasoning is specific to a third-
party liability insurer refusing a tender of coverage in bad
faith. The court’s analysis demonstrates that the reasoning
applies equally to the bad-faith denial of first-party claims.
In considering the plaintiff’s argument in that case, we relied
on Santilli, a first-party coverage case like this one. Farris II
 284 Or at 463. And we rejected the reasoning of first-party
cases from California that we described as so similar that
“they are not able to be distinguished.” Id. While some of the
facts in this case are different than in Farris II, the salient
facts are the same: as in Farris II, plaintiff seeks to impose
tort liability for a denial of coverage, as opposed to the breach
of obligations that might arise after coverage is accepted.
          The majority appears to view Farris II as declin-
ing only to award tort “damages” for a breach of contract
“claim,” without making a policy judgment about whether
the underlying facts should be actionable in tort. 371 Or at
794. That reading is problematic for several reasons. First,
although the majority opinion takes pains to suggest that
the plaintiffs in Farris II had only alleged contract claims, it
is far from clear that that is true. Second, it does not matter
whether that is true: Regardless of what the plaintiffs called
their claims in their pleading, this court understood that
Cite as 

 (2023)                                                      819

the plaintiffs were asking the court to recognize a tort. We
said so repeatedly.
          As noted earlier, the plaintiffs in Farris II alleged
two claims, but it is not clear how the claims were denomi-
nated. According to the abstract of record, the first claim was
alleged in terms of breach of contract. The second claim was
more ambiguous. It incorporated the earlier contract allega-
tions by reference, but it emphasized the “bad faith” denial
of coverage, requested damages for emotional distress, and,
significantly, added a demand for punitive damages that the
first claim omitted. Thus, although the second claim was
not expressly denominated as a tort claim, the context sug-
gests that the plaintiffs asserted a tort cause of action. That
interpretation is consistent with what had happened earlier
in that case. The plaintiffs had initially made a demand
for emotional distress damages as part of their contract
claim, but the trial court struck that demand, and this court
affirmed that ruling. Farris v. U.S. Fidelity & Guaranty, 

, 

 (1975) (Farris I). In that case,
we held that, “when there is an unaggravated breach, such
as alleged in the complaint, damages are not awarded for
mental anguish. We do not decide what the result would be
if there was evidence of an aggravated breach; that is, one,
for example, made in bad faith or otherwise.” 

 Because we
had warned that a breach of contract claim might not sup-
port emotional distress even with an allegation of bad faith,
it is logical to interpret the plaintiffs’ amended pleading as
asserting a noncontract claim. That explanation is more
plausible than the majority’s suggestion that the plaintiffs
tried to cure the deficiency in Farris I by stating two duplica-
tive contract claims. 371 Or at 792 n 8, 795 n 10.5

    5
      The majority also relies on Abraham II to assert that the plaintiffs in
Farris II failed to allege the breach of a tort obligation that was distinct from the
insurance contract. 371 Or at 796 n 11. It is unclear what the majority means.
Abraham II was decided more than 30 years after Farris II, states that tort
obligations and contract obligations may sometimes overlap, and explains that
courts decide the existence of tort obligations under their common-law authority.
See Abraham II, 

. Farris II is merely an example of the court exercis-
ing that authority in deciding not to recognize a tort obligation. In any event, it
is unclear how plaintiff’s negligence claim in this case is any more distinct from
the insurance contract than the plaintiffs’ claim in Farris II. Both claims assert
that the insurer denied benefits owed under the insurance contract without a
reasonable basis for doing so.
820              Moody v. Oregon Community Credit Union

         More important than how the plaintiffs’ claims were
denominated in their pleading is how they were argued and
understood by this court. The idea that the court’s analysis
in Farris II was driven solely by the plaintiffs’ pleading
is undermined by the fact that the case had been tried to
a jury, and the opinion never references the complaint or
pleading standards. Instead, in Farris II, we noted that emo-
tional distress would not normally be available for a breach
of contract but observed that the plaintiffs were arguing
that the insurer was “guilty of a tort as well as a breach of
contract.” 284 Or at 455 (emphasis added). The court further
explained that, “if the facts justify an action of tort, courts
are inclined to allow recovery for emotional distress as part
of the damages flowing from a tort cause of action.” Id. at
456 (emphasis added). The plaintiffs contended that their
case was analogous to cases in which this court had recog-
nized an insurer’s liability for duty of good faith in defend-
ing and settling claims against an insured. Id. at 459. At
that time, it was unsettled whether those claims sounded
in contract or tort. Id. at 459-60. That explains why this
court in Farris II found it necessary to address how those
cases should be understood. We assumed that they sounded
in tort, then explained that the denial-of-coverage context
in Farris II was different than the failure-to-settle cases. Id.
Further, the dissent in Farris II characterized the majority
opinion as refusing to recognize a common-law tort claim
because an insurer’s bad-faith denial of a claim did not raise
the same policy implications as an insurer’s failure to set-
tle, a policy judgment with which the dissent disagreed. Id.
at 473, 476 (Lent, J., dissenting). Although the distinction
between an insurer’s failure to settle and an insurer’s denial
of coverage was the central point of the court’s opinion in
Farris II, that aspect of this court’s reasoning is overlooked
by the majority in this case.
          In characterizing Farris II as holding that the plain-
tiffs’ claim “was one for breach of contract,” 371 Or at 794,
the majority seems to view that as merely a descriptive state-
ment about what the plaintiffs had alleged. On the contrary,
this court was making a prescriptive statement: when we
said that the plaintiffs’ claim “could only have been a breach
of contract,” we were holding that the facts of that case could
Cite as 

 (2023)                                                       821

not support a claim sounding in tort, which the plaintiffs
needed in order to win emotional distress damages. See
Farris II, 284 Or at 464-65 (emphasis added). The court was
stating a legal conclusion about the facts that the plaintiffs
had established at trial, not describing the legal theory that
the plaintiffs had alleged in their complaint.
         The majority also stresses that the plaintiffs in
Farris II did not style their tort theory as a “negligence
claim,” but it is unclear what significance the majority thinks
can be drawn from that. It is true that the court in Farris II
did not explicitly address the standard of care that the
plaintiffs were asking the court to impose. The court, how-
ever, noted that the defendant’s denial of insurance benefits
was intentional. See id. at 458 (referring to the defendant’s
conduct as an example of insurance providers “intentionally
breaching their contract to settle their insureds’ claims”). If
the court was unwilling to recognize tort liability even for
the intentional conduct proven in that case, it necessarily
follows that the court implicitly rejected such liability for
mere negligence.6
       In the end, the majority acknowledges that Farris
II makes repeated references to whether to recognize a tort.
The majority explains away those references by proposing
     6
       Further, the plaintiffs in Farris II relied on negligence case law. The plain-
tiffs argued for the creation of tort liability by drawing on case law recognizing an
insured’s claim for a liability insurer’s bad-faith failure to settle. As noted above,
this court had not resolved at that time whether such claims sounded in tort or
contract. Nevertheless, both before and after Farris II, this court described the
tort theory of recovery in those cases as a negligence claim.
    In the leading case addressing the issue before Farris II—a case cited in
Farris II—this court had repeatedly framed the tort theory of recovery as a “neg-
ligence” theory. See Radcliffe v. Franklin Nat’l Ins. Co., 

, 

 (1956) (“Some courts employ the negligence or due care theory in determin-
ing whether or not the insurer rendered itself liable to the insured when it dealt
with a settlement matter.”); 

 (“The foregoing New Hampshire decisions
are good representatives of those which employ the negligence theory.”); 

 (“It will be observed that in the decision just reviewed the court held that
actions based upon a negligently conducted defense may employ both the contract
and the negligence theory.”).
     And, when this court did finally resolve that issue, concluding that a liabil-
ity insurer’s bad-faith failure to settle sounds in tort, this court recognized that
claim as a negligence claim. See Georgetown Realty, 

 (“[P]laintiff’s
excess claim can be brought as a claim for negligence.”). Thus, the plaintiffs’
reliance on that line of cases in Farris II does not appear to be grounds for distin-
guishing the majority’s opinion in this case.
822                    Moody v. Oregon Community Credit Union

that Farris II was considering only whether to allow tort
“damages” for a breach of contract “claim.” 371 Or at 795 n 10.
But the court described its task in Farris II more broadly
than that, and its analysis admits of no such parsing. The
court was deciding whether a set of facts should permit an
award of damages for emotional distress as a matter of pol-
icy that turned on substantive considerations, not the fortu-
ity of what labels the plaintiffs happened to attach to their
legal theories. The court in Farris II could hardly have been
clearer that it was grappling with those policy questions:
        “It may logically be asked what difference it makes
    whether the action is considered one of contract or of tort. In
    a case like the present where plaintiffs received no injury
    or fright resulting in serious physical manifestations, why
    should it be of moment, when considering whether to allow
    recovery for the emotional distress, whether a plaintiff’s
    concern about his financial plight arose out of a breach of
    contract or of a breach of contract which is also a tort? In
    reality, there probably isn’t any reason for a distinction.
    Either people should be able to recover for their fear of
    financial disaster as the result of the other party’s inten-
    tional breach of a contract or they should not. Calling an
    intentional breach of contract a tort has no magical con-
    sequences which change anything. Neither is there any-
    thing inherent in a contract of insurance which makes the
    suffering any greater, any less, or any more certain than
    in numerous other business contracts which are generally
    breached intentionally and for which no recovery for emo-
    tional distress is allowed.”

284 Or at 465 n 3 (emphasis added). Farris II rejects the
availability of emotional distress damages for an insurer’s
bad-faith denial of coverage, full stop. It did not leave the
door open for the next plaintiff to give the same claim a dif-
ferent name.7

     7
       The majority’s analysis creates uncertainty about the remaining preceden-
tial effect of Farris II. If the majority means to distinguish Farris II on its facts,
then courts may still rely on Farris II as rejecting tort liability for third-party
insurers that have denied coverage in bad faith, which were the facts presented
in that case. On the other hand, if the majority is distinguishing Farris II based
on the pleadings or based on the legal theory that the plaintiffs asserted in that
case, then Farris II might have no precedential effect in any case styled as a neg-
ligence claim.
Cite as 

 (2023)                                   823

          The majority’s analysis is contrary to Farris II in
other respects. The majority relies heavily on the relation-
ship between the parties as support for recognition of a
common-law negligence claim. The majority explains that the
parties here are in a relationship of “mutual expectation of
service and reliance,” and that defendant “undertook to pro-
vide [ ] services that, absent the exercise of reasonable care,
may foreseeably create a risk of emotional harm.” 371 Or at
803. This court in Farris II, however, took full measure of the
nature of the relationship in the simple denial-of-coverage
context. Contrasting it to the fiduciary obligations that are
triggered once an insurer accepts the defense of a liability
claim, the court concluded that, when coverage is denied alto-
gether, an insurer does not “undert[ake] any fiduciary duty
by purporting to act in the interests of the insured.” Farris II,
284 Or at 460. That lack of additional responsibility led the
Farris II court to conclude that, when an insurer denies cover-
age in bad faith, the insured’s action sounds only in contract.
Without using the term “fiduciary relationship,” the majority
has in effect recognized a new special relationship between
an insurer and insured, which Farris II refused to do outside
the defense-of-liability context.
         Separate from the special relationship issue, the
Farris II court also considered and rejected the same pol-
icy arguments that the majority advances today as reasons
to recognize a common-law negligence claim. The majority
reasons, for example, that the prohibitions set forth in ORS
746.230(1) are “evidently designed” to protect policyhold-
ers’ “peace of mind.” 371 Or at 797. The court in Farris II
expressly rejected that proposition: “The statutes express no
public policy which would promote damages for emotional
distress. Concern about the insured’s peace of mind does not
appear to be the gravamen of the statutory policy.” 284 Or
at 458.
        The majority also opines that the claimed harm
here—emotional distress resulting from an insurer’s bad-
faith denial of an insurance claim—is “of sufficient impor-
tance to merit protection,” supporting recognition of a
common-law negligence claim. 371 Or at 804. That is not
a new idea, either, and Farris II rejected it, finding “no
824                Moody v. Oregon Community Credit Union

reason[ ] why such public interest should change the mea-
sure of damages which has resulted in the rule against
recovery for mental distress brought about by an intentional
breach of a contract.” 284 Or at 466.
         In short, Farris II did what it appeared to do. It
stated the rule that the bench and bar have understood it
to state for nearly fifty years: there is no tort liability for
emotional distress damages arising from an insurer’s denial
of coverage. In concluding otherwise today, the majority
changes the landscape of insurance litigation in Oregon.
Under Farris II, Oregon was among those jurisdictions that
did not recognize tort claims for bad-faith denial of insur-
ance benefits, even when the insurer’s conduct was knowing
and intentional. Today, Oregon joins the minority of jurisdic-
tions recognizing the broadest form of those claims, requir-
ing a plaintiff to establish only an insurer’s negligence. See
Stephen S. Ashley, Bad Faith Actions Liability & Damages
§ 5:2 (2d ed 1997) (identifying the negligence standard as the
minority position among jurisdictions that recognize first-
party bad faith insurance claims); Dobbs et al, 3 The Law of
Torts § 702, 772 (2d ed 2011) (“A little authority requires only
proof of negligence as ground for the insurer’s tort liability.
But the mainstream core test for judging tortious bad faith
requires the plaintiff to prove that (1) the insurer lacked a
reasonable basis for denying policy benefits to the insured
and (2) that the insurer acted with knowing or reckless dis-
regard of the inadequate ground for denying the benefits.”).
         In my view, Farris II disposes of this case. “[T]he
principle of stare decisis dictates that this court should
assume that its fully considered prior cases are correctly
decided.” Farmers Ins. Co. v. Mowry, 

, 

 (2011) (internal quotation marks omitted). If Farris II
is to be abrogated, then plaintiff “must assume responsibil-
ity for affirmatively persuading [this court] that we should
abandon that precedent.” 

 (internal quotation marks omit-
ted). In the absence of that showing, the trial court’s judg-
ment dismissing plaintiff’s claim was correct and should be
affirmed. I respectfully dissent.
           Duncan, J., and Balmer, S.J., join in this dissenting
opinion.