Insurer Not Liable in Tort for Alleged Failure to Remediate Mold Problem
April, 2002
The Oregon appellate court, following Georgetown Realty v. The Home Ins. Co., 831 P.2d 7 (Ore. App. 1992), affirmed that an insured may only maintain a tort claim against an insurer in connection with its contractual performance where the insured alleges that: (1) the insurer’s conduct violated a standard of care apart from the contractual obligation; and (2) the independent standard of care arose from a “special relationship” between the parties. Strader v. Grange Mut. Ins. Co., 39 P.3d 903 (Ore. App. 2002).
Facts
Plaintiffs David and Kathy Strader were insureds under a homeowner’s policy issued by Grange Mutual Insurance Company (“Grange”). Three months after purchasing the insured home, a windstorm stripped shingles off of the roof causing extensive water damage to the house and its contents. Grange made temporary repairs to the house but the repairs did not succeed in preventing further water damage. Following a permanent repair of the roof, Mrs. Strader began having health problems which her physician identified as asthma aggravated by an allergy to mold spores. Her physician advised her to reduce her exposure to her home. The plaintiffs informed Grange of the diagnosis and showed Grange’s executives areas which were still moist and where mold flourished. Grange refused to pay the plaintiffs any amounts requested to rectify the water damage, including the mold.
The plaintiffs filed suit against Grange alleging breach of contract and a separate claim for Mrs. Strader’s personal injuries based upon Grange’s unreasonable delay in repairing the roof and its failure to correct the moisture and mold problem. The trial court dismissed the bodily injury claim. The breach of contract claim went to trial resulting in a jury verdict of $195,000. Plaintiffs appealed the dismissal of the bodily injury claim.
Analysis
On appeal, plaintiffs argued that by delaying the repair of the roof and refusing to pay for the mold abatement, Grange breached two duties: first, a duty to exercise reasonable care to prevent further harm to a person and second, a duty to provide aid which arises once a person has undertaken efforts to aid another. The appellate court found that the allegedly tortious conduct identified as the personal injury was precisely the same conduct that was identified within the breach of contract claim. The court held that when a relationship involves contracting parties, an injured party may bring a claim for negligence if the other party was subject to a standard of care independent of the terms of the contract. For example, the court noted that when a liability insurer undertakes to defend its insured, the insured relinquishes control of the defenses and places its liability in the hands of the insurer. This kind of relationship gives rise to a standard of care that exists independent of the contract and without reference to the specific terms of the contract.
Therefore, in order to bring a tort claim based on conduct that is also breach of a contract, a plaintiff must allege that the insurer's conduct violated a standard of care that was not part of the contractual obligation and that the independent standard of care arose from a particular special relationship between the parties. The court stated that one "particular special relationship" exists where one party has relinquished control over the subject matter of the relationship to the other party, such as where the insurer assumes control of the insured's defense. However, there is no "special relationship" with respect to an insurer's refusal to settle within policy limits, which only sounds in contract. The court explained that when fulfilling its defense obligation to the insured, the insurer stands in a fiduciary position; when refusing to settle a claim, by contrast, the insurer and insured stand as adversaries.
In the present case, the plaintiffs did not delegate to the insurer the full authority to determine how much money they would receive as compensation for the damage to their house. Therefore, Grange had no independent duty to exercise independent judgment for the sole benefit of the plaintiffs. As a result, the plaintiffs were not in the kind of relationship that gives rise to a standard of care independent of the contract terms. The dismissal of plaintiff’s tort claim was accordingly affirmed.
Learning Point:
Under Oregon law, a separate tort claim may be brought against an insurer based upon conduct that is also a breach of contract only if the plaintiff alleges that the insurer’s conduct violated some standard of care apart from its contractual obligation and that the independent standard of care arises from a particular special relationship between the parties. A special relationship does not arise where the parties are in an adversarial relationship, as in this case where the insureds were making a first party claim for damages to their home.
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