The Coverage Group posted the following “E - Lert” on a recent Court of Appeals, Division I, decision which has determined that employee adjusters of insurance companies can be held individually liable for bad faith and violation of the Consumer Protection Act (and potentially IFCA).
Keodalah v. Allstate Insurance Company, No. 75731-8-I, ___ Wn. App. ___ (Mar. 26, 2018) Forsberg & Umlauf, P.S.
In Keodalah v. Allstate Ins. Co., Division I of the Washington Court of Appeals has determined that employee adjusters of insurance companies can be held individually liable for bad faith and violation of the Consumer Protection Act (and potentially IFCA). This decision overturns longstanding precedent holding that employee adjusters of insurance companies could not be held individually liable for such claims. However, the case is the culmination of a slow erosion of that principle over the last dozen years.
No previous Washington case had held that an employee adjuster acting within the scope of their employment could be held liable in Washington for insurance bad faith, and at least one decision, International Ultimate, Inc. v. St. Paul Fire & Marine Insurance Co., had explicitly held that an individual employee adjuster could not be held liable for a CPA violation.
In 2009, a federal court in the Western District of Washington held that a third party administrator could be liable for bad faith. Lease Crutcher Lewis, WA LLC v. National Union Fire Ins. Co., 2009 WL 444762 (W.D. Wash. Oct. 20, 2009). In 2017, Division II similarly held that a third party claims administrator could be held liable for bad faith and CPA violations. Merriman v. American Guarantee & Liability Insurance Co., 198 Wn. App. 594, 396 P.3d 351 (2017). The underlying premise of these decisions was the Washington insurance statute, which provided:
The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Upon the insurer, the insured, their providers, and their representatives rests the duty of preserving inviolate the integrity of insurance.
Those courts found that third party administrators were “representatives” and thus subject to the bad faith duty set forth in the statute.
Keodalah involved a UIM claim in which the insured was driving a truck. He pulled out from a stop sign and was struck by a motorcycle, killing the motorcycle driver and injuring the insured. The motorcyclist was uninsured. The insured carried a $25,000 UIM policy with Allstate. The Seattle police investigation determined that the motorcyclist was going more than twice the speed limit, and the insured was not using his cell phone. Allstate hired an accident reconstructionist, who opined that the motorcyclist was going a minimum of 60 mph, and that his speed had caused the accident. The insured demanded the $25,000 policy limits and the Allstate adjuster offered $1,500, alleging the insured was 70% at fault. After the insured asked Allstate to explain its evaluation letter in the form of an IFCA letter, Allstate increased the offer to $5,000.
The insured sued for UM coverage, and during the litigation, the adjuster was named the 30(b)(6) witness. When asked to explain Allstate’s position, the adjuster said the insured had run the stop sign and was on the phone, neither of which was true. She later had to admit that neither fact was true. The jury concluded that the motorcycle was 100% at fault, and awarded $108,000 in damages.
The insured then sued Allstate and its adjuster individually for bad faith, CPA violation, and IFCA violation. The court properly dismissed the IFCA claim under Perez-Crisantos, because there had been no unreasonable denial. However, it upheld the claims against the adjuster for bad faith and CPA violation. With respect to the bad faith claim, the court followed the Merriman decision, and found that the bad faith statute applied to individual employees. The court rejected the adjuster’s argument that she could not be found individually liable while acting within the scope of her employment, because, under the statute, she owed a separate duty to the insured.
With respect to the CPA claim, the court overruled its prior decision in International Ultimate, which held that an employee adjuster could not be individually liable because there was no contract between the insured and the adjuster. The court in Keodalah, following the recent Supreme Court decision in Panag v. Farmers Insurance Co. of Washington, held that a contractual relationship or consumer transaction between the parties was not necessary.
There are a number of significant ramifications from this decision. At the forefront, it will be much more difficult to remove cases to federal court, when the adjuster is a Washington resident. Policyholder counsel will be more likely to specifically name Washington resident adjusters for the purpose of avoiding diversity jurisdiction. In addition, bad faith suits may require additional counsel be appointed for the employee adjuster.
One interesting, and potentially the only favorable takeaway from the case, is the possibility to assert a “reverse bad faith” claim against the insured in the appropriate circumstance. In Keodalah, the insurer had argued that the bad faith statute should not be interpreted literally to include individual employee adjusters, because to do so would also implicate potential bad faith claims against the insured. In rejecting this contention, the court stated: “But Washington courts have expressly stated that the statute does impose a duty of good faith on both the insureds and the insurer.”
Case law is subject to differing interpretations. Our E-lerts are designed to inform you of current trends in the law, and represent our best interpretation of the courts’ recent rulings. Readers should not assume that future rulings will be made in accordance with our views, and should not act upon the information contained in this E-lert without seeking the advice of counsel.