By Sally Kim and Stephanie Ries on April 17, 2018
As a general proposition, an adjuster working for an insurance company is not subject to personal liability under the common law or under state insurance laws for conduct within the scope of his/her employment. Recently, however, the Washington Court of Appeals, Division One, in Keodalah v. Allstate Ins. Co., 2018 Wash. App. LEXIS 685 (2018), held that an individual adjuster, employed by an insurance company, may be held liable for bad faith and violation of the Washington Consumer Protection Act (“CPA”).
In Keodalah, Moun Keodalah (“Keodalah”) was involved in an accident with a motorcycle, after which Keodalah sought uninsured/underinsured motorist (“UIM”) benefits of $25,000 under his auto policy issued by Allstate. Allstate offered $1,600 based on an assessment that Keodalah was 70 percent at fault, even though the Seattle Police Department and the accident reconstruction firm hired by Allstate concluded that the accident was caused by the excessive speed of the motorcyclist. When Keodalah questioned Allstate’s evaluation, Allstate increased its offer to $5,000. Thereafter, Keodalah sued Allstate for UIM benefits. Despite having the police investigation report, its own accident reconstruction firm’s findings, and the 30(b)(6) deposition testimony of the Allstate adjuster, who acknowledged that Keodalah had not run a stop sign and had not been on his cell phone at the time of the accident, Allstate maintained its position that Keodalah was 70 percent at fault. At trial, the jury determined that the motorcyclist was 100 percent at fault and awarded Keodalah $108,868.20 for his injuries, lost wages, and medical expenses.
Keodalah then filed a second lawsuit against Allstate and the adjuster, including claims under the Insurance Fair Conduct Act (“IFCA”), the CPA, as well as for insurance bad faith. The adjuster moved to dismiss the claims against her under Rule 12(b)(6). The trial court granted the motion but certified the case for discretionary review. First, the court held that there was no private cause of action for violation of a regulation under the IFCA, following the recent Washington Supreme Court decision in Perez-Cristantos v. State Farm Fire & Cas. Ins. Co., 187 Wn.2d 669 (2017).
The Court of Appeals then addressed whether an individual insurance adjuster may be liable for bad faith and for violation of the CPA. The court looked to the Revised Code of Washington (“RCW”) 48.01.030, which serves as the basis for the tort of bad faith. RCW 48.01.030 imposes a duty of good faith on “all persons” involved in insurance, including the insurer and its representatives, and a breach of such duty renders a person liable for the tort of bad faith. The term “person” is defined as “any individual, company, insurer, association, organization, reciprocal or interinsurance exchange, partnership, business trust, or corporation.” RCW 48.01.070. Because the adjuster was engaged in the business of insurance and was acting as an Allstate representative, she had the duty to act in good faith under the plain language of the statute. As a result, the Court of Appeals held that the adjuster can be sued for bad faith.
With respect to the CPA claim, the court noted that the CPA prohibits “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” RCW 19.86.020. The Court of Appeals, Division One, previously ruled that under “settled law,” the “CPA does not contemplate suits against employees of insurers.” International Ultimate, Inc. v. St. Paul Fire & Marine Ins. Co., 122 Wn. App. 736, 87 P.3d 774 (Wash. App. 2004). There, the court held that to be liable under the CPA, there must be a contractual relationship between the parties and because there is no such relationship between an employee of the insurer and the insured, the employee cannot be liable for a CPA violation. The court in Keodalah, however, rejected the adjuster’s reliance on International Ultimate, holding that the prior decision was without any supporting authority, and it was inconsistent and irreconcilable with the Washington Supreme Court case of Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 208 P.3d 885 (2009) (Washington Supreme Court declined to add a sixth element to the Hangman Ridge elements that would require proof of a consumer transaction between the parties). It appears that the holding in International Ultimate may be losing ground, as at least two federal district court cases have questioned the validity of that case. Lease Crutcher Lewis WA, LLC v. National Union Fire Ins. Co. of Pittsburgh, Pa., 2009 U.S. Dist. LEXIS 97899, *15 (W.D. Wash. Oct. 20, 2009), (statement at issue in International Ultimate “is unsupported by any citation or analysis); Zuniga v. Std. Guar. Ins. Co., 2017 U.S. Dist. LEXIS 79821, *5-6 (W.D. Wash. May 24, 2017) (pointing out at least two problems with the statement at issue in International Ultimate).
While the adjuster’s actions in Keodalah appear to have been extreme, presumably policyholders in Washington will rely on this case to sue an insurance company’s adjusters in their individual capacities for bad faith and CPA violations. The court’s holding may have far reaching consequences. For example, will insurers need to appoint separate counsel for their adjusters when the adjusters are personally named in litigation? How will this affect the practice of removing cases from state to federal court? To the extent an insured wants to destroy diversity jurisdiction for its out-of-state insurer, it may choose to name an in-state adjuster, which would limit the insurer to Washington State Court when litigating coverage issues. This is an extremely alarming development for insurers and their employee adjusters in Washington State, who should take this as a reminder to be vigilant in ensuring good faith claims handling and the aggressive defense of bad faith claims.