In a highly anticipated decision, the Supreme Court of Washington closed the door on statutory bad faith claims against insurer-employed adjusters. The case is Moun Keodalah and Aung Keodala v. Allstate Insurance Company, Tracey Smith., and John Doe Smith, — P.3d – (2019, 2019 WL 4877438 (Wash. Oct. 3, 2019).
The case arose out of a 2007 accident, when an uninsured motorcyclist struck the plaintiff’s truck, killing the motorcyclist and injuring the plaintiff. The police investigated the collision and determined the motorcyclist had been traveling more than 70 mph in a 30 mph zone and that the plaintiff had not been using his cellphone at the time of the crash. An accident reconstructionist, hired by the insurer to analyze the collision, found that the motorcyclist’s excessive speed was the cause of the accident. The plaintiff demanded the insurer pay his UIM policy limit of $25,000. However, the insurer, based on the assessment of its claims adjuster that the plaintiff was 70 percent at fault, refused to offer more than $15,000 to settle the claim.
The plaintiff filed a lawsuit against the insurer and the adjuster, alleging violations of the Washington Insurance Fair Conduct Act (IFCA), the Washington Consumer Protection Act (CPA), and bad faith. The trial court granted a motion to dismiss the claims against the adjuster, and the Washington Court of Appeals reversed, finding that the statutory duty of good faith imposed by RCW Section 48.01.030 applied to individual insurance adjusters, since the statute requires “all persons” to act in good faith in insurance matters. Therefore, the court of appeals ruled that the breach of that duty could serve as a basis for the plaintiff’s bad faith and CPA claims against the adjuster.
A closely split Washington Supreme Court reversed the court of appeals and ruled that RCW Section 48.01.030 did not authorize a private cause of action against insurance company adjusters. The supreme court analyzed a three-factor test it laid out for a prior decision in Bennett v. Hardy[1], determining whether a statute includes an implied cause of action:
- Whether the plaintiff is within the class for whose benefit the statute was enacted
- Whether the legislative intent supports creating or denying a cause of action, and
- Whether allowing a cause of action is consistent with the underlying purpose of the legislation
As to the first factor, the supreme court found that RCW Section 48.01.030 applied to the public in general, rather than to plaintiff specifically. As to the second factor, the supreme court concluded that the legislative intent, as manifested in the state’s insurance code, suggested that the legislature did not intend to imply a cause of action based on violations of section 48.01.030. The court also found that the third factor did not support the plaintiff’s claim, since it concluded that recognizing a cause of action under the statute, which arguably would apply to both insurers and insureds, would not be consistent with the legislature’s purpose in enacting the statute.
The supreme court also concluded that the plaintiff’s claims against the adjuster under the CPA failed, since the claims were premised on the adjuster’s alleged breach of provisions of Washington’s Administrative Code that applied only to insurers, and not to insurance adjusters. The court similarly dismissed the plaintiff’s CPA claims based on the adjuster’s alleged breach of RCW Section 48.01.030, since it found that such claims are limited to the context of the “quasi-fiduciary” insurer-insured relationship, and therefore, could not support a CPA claim by the insured against an insurance adjuster.
Although the insurance company itself will continue to be a target of statutory and common law bad faith claims, plaintiffs often seek to join an employee adjuster to keep bad faith claims in state court, which is thought to be a more favorable venue for policyholders or assignee claimants. The supreme court’s decision in Keodalahshould hamper those efforts, and also lessen insurer worries that the strategy of “holding the insurer’s employee hostage” will be used to increase settlement value. Nationally, there remains a split of authority on the issue of whether adjusters can be sued individually for bad faith. Washington now joins Oklahoma, Indiana, Hawaii, Alabama, Tennessee, New Mexico, West Virginia, California, New York and Pennsylvania, which have held that adjusters generally cannot be liable for bad faith.
[1] Bennet v. Hardy, 113 Wn.2d 912, 784 P.2d 1258 (1990).