Seventh Circuit Holds Insurance Adjusters Owe No Legal Duty to the Insured

In Lodholtz v. York Risk Services Group, Inc. (Feb. 11, 2015), the Seventh Circuit afforded liability protection to outside claims adjusters by holding that they owe no legal duty to the insured. As background, York Risk Services Group, Inc. (“York”) was an insurance adjuster retained by Granite State Insurance Company (“Granite”), the insurer of Pulliam Enterprises, Inc. (“Pulliam”). Robert Lodholtz, the plaintiff, sustained injuries in a factory belonging to Pulliam and subsequently sued Pulliam. There was some confusion with regard to whether Granite would provide a defense to Pulliam, which resulted in a default judgment being entered against Pulliam. Lodholtz and Pulliam then entered into a settlement agreement whereby Pulliam assigned its claims against Granite and York to Lodholtz in exchange for a covenant not to execute.

Shortly thereafter, Lodholtz filed a complaint against, in pertinent part, York for negligence. The district granted York’s motion for judgment on the pleadings. Lodholtz appealed.

In its analysis, the Seventh Circuit looked to the Court of Appeals of Indiana, which has consistently held that insurance adjusters are agents of the insurer and therefore have no direct relationship with the insured. The Seventh Circuit acknowledged that this is the majority approach nationwide. The Seventh Circuit further found compelling the general principle of Indiana agency law that agents are not liable for actions taken on behalf of their principal. Accordingly, the Seventh Circuit held that York was a claims adjuster, and in turn, only Granite’s agent. As a result, York owed no legal duties to Pulliam. Moreover, the Seventh Circuit rejected Lodholtz’s argument that York either owed a common law duty to Pulliam or assumed a duty to Pulliam.

This opinion upholds accepted principles of agency law in shielding claims adjusters from liability to insureds.