Opinion
Civil No. 01-1226-FR.
April 3, 2002
Megan E. Glor, Swanson, Thomas Coon, Portland, Oregon, John L. Zenor, Of Counsel, Corbett Gordon Associates, Portland, Oregon, Attorneys for Plaintiff.
Paul C. Buchanan, Andrew M. Altschul, Stoel Rives LLP, Portland, Oregon, Attorneys for Defendant.
OPINION AND ORDER
The matter before the court is the defendant's motion to dismiss plaintiff's second and third claims for relief (#32).
BACKGROUND
The plaintiff, Patricia W. Zenor, filed this action against the defendant, Standard Insurance Company (Standard Insurance), alleging that the insurer breached the terms of her long-term disability policy in denying her claim for benefits. In addition, plaintiff Zenor alleges that Standard Insurance acted negligently by misrepresenting to her and by failing to disclose to her prior to the onset of her disability Standard Insurance's onerous procedures and criteria for evaluating long-term disability claims relating to chronic pain conditions, including fibromyalgia, one of the conditions that plaintiff Zenor alleges disables her. Plaintiff Zenor further alleges that Standard Insurance has engaged in a scheme under which it intentionally and routinely denies, regardless of medical evidence of actual disability, long-term disability claims based on a diagnosis of chronic pain conditions such as fibromyalgia.
Plaintiff Zenor alleges the following claims for relief: 1) First Claim for Relief — Breach of Contract; 2) Second Claim for Relief — Negligence; 3) Third Claim for Relief — Breach of Duty of Good Faith and Fair Dealing.
CONTENTIONS OF THE PARTIES
Standard Insurance moves the court to dismiss plaintiff Zenor's second and third claims for relief for negligence and for breach of the duty of good faith and fair dealing on the grounds that 1) common law tort claims for negligence and breach of the duty of good faith and fair dealing are first-party bad faith claims which are not recognized under Oregon law; and 2) Oregon case law makes it clear that punitive damages are not available for an alleged bad faith refusal to honor an insurance contract. In addition, Standard Insurance contends that plaintiff Zenor's alleged tort claims would be subject to dismissal because she has pled the same facts to support both her contract and tort claims.
Plaintiff Zenor contends that breach of the insurer's duty to act with due care toward the insured in administering and making disability determinations should give rise to tort liability where the insurer's conduct is egregious. Plaintiff Zenor concedes that an insurer's bad faith refusal to pay policy benefits to its insured sounds in contract under Oregon law, but argues that no Oregon appellate court has decided whether an insured may maintain a claim for punitive damages based upon a claim for negligence or breach of the duty of good faith and fair dealing within the context of a first-party insurance contract. In addition, plaintiff Zenor contends that Oregon case law has recognized a negligence claim by an insured against an insurer for failure to honor a duty to defend against the claim of a third party. Plaintiff Zenor asserts that this rule should be extended to apply to the first-party insurance contract in this case.
ANALYSIS
In Employers' Fire Ins. Co. v. Love It Ice Cream Co., 64 Or. App. 784, 791 (1983), the Oregon Court of Appeals stated: "We hold that, under Farris [v. U.S. Fid. and Guar. Co., 284 Or. 453 (1978)], an insurer's bad faith refusal to pay policy benefits to its insured sounds in contract and is not an actionable tort in Oregon." The allegations of tortious conduct in the second and third claims for relief are the same conduct that plaintiff Zenor relies upon in her first claim for relief for breach of contract, that is, nonpayment of benefits under the long-term disability policy. The allegations in plaintiff Zenor's second and third claims for relief describe a claim for bad faith refusal to pay benefits which sounds in contract and is not an actionable tort in Oregon.
In Georgetown Realty, Inc. v. The Home Ins. Co., 313 Or. 97 (1992), the Oregon Supreme Court concluded that an insured may sue an insurer in tort based upon the insurer's failure to honor its duty to defend the insured against claims from a third party. The Court explained that the "standard of care independent of the terms of the contract" derive from the relationship between the contracting parties:
When a liability insurer undertakes to "defend," it agrees to provide legal representation and to stand in the shoes of the party that has been sued. The insured relinquishes control over the defense of the claim asserted. Its potential monetary liability is in the hands of the insurer. That kind of relationship carries with it a standard of care that exists independent of the contract and without reference to the specific terms of the contract.
Id. at 110-11 (footnote omitted).
The standard of care described by the court in the Georgetown Realty case does not apply in the case before the court wherein plaintiff Zenor contends that defendant Standard Insurance has a duty to pay benefits under the policy. The Oregon Court of Appeals explained in Strader v. Grange Mut. Ins. Co., 179 Or. App. 329, 334 (2002), that:
the relationship between an insurer and its insured is special with respect to the insurer's performance of its duty to defend, so that negligent performance of that duty gives rise to a tort claim, but the same relationship is not special with respect to the insurer's refusal to settle within policy limits, which sounds only in contract; in the former context, the insurer is in something resembling a fiduciary role, whereas in the latter it and the insured are adversaries.
The standard of care relied upon by the court in Georgetown Realty to support a tort claim by an insured against an insurer for failure to defend against the claims of a third party does not extend to create a tort claim by an insured against an insurer for failure to pay benefits.
CONCLUSION
IT IS HEREBY ORDERED that the defendant's motion to dismiss plaintiff's second and third claims for relief (#32) is GRANTED.