There is an age-old saying that lawyers – especially appellate lawyers – commonly use. That phrase is “bad facts make bad law”.
This statement was proven accurate once again in the decision of Keodalah v. Allstate Ins. Co., et al., Court of Appeals of the State Washington, Case No. 75731-8-I. In the Keodalah decision, Division I of the Washington State Court of Appeals created a whole new legal theory of bad faith directly against insurance adjusters as opposed to simply insurers. A copy of the decision is attached in the below link.
In Keodalah, the insured asserted a UIM claim following a motor vehicle accident. The accident involved the insured and a motorcycle. According to the Seattle Police Department (“SPD”), the motorcyclist was traveling around 70 mph in a 30 mph zone. The SPD further determined that the insured was not using his cell phone at the time of the accident. Allstate also hired an accident reconstruction expert, who opined that the motorcyclist’s excessive speed caused the accident.
Allstate took the position that the insured was 70% liable for the accident despite the above evidence. The insured filed suit. Ultimately, the case went to trial. A jury determined the insured had no fault for the accident. The insured was awarded damages for injuries, lost wages, and medical expenses.
The insured then filed a second lawsuit against Allstate and the adjuster directly alleging extra-contractual claims. Allstate and the adjuster moved to dismiss the complaint under CR 12(b)(6). The trial court granted the motion and dismissed the insured’s claims against the adjuster.
On discretionary review, the Court of Appeals reinstated the bad faith and Consumer Protection Act claims against the adjuster. With respect to the bad faith claim, the Court reasoned that Washington law imposes a duty of good faith on “all persons” involved in insurance, including the insurer and its representatives. RCW 48.01.030. A “Person” is defined as “any individual, company, insurer, association, organization, reciprocal or interinsurance exchange, partnership, business trust, or corporation.” RCW 48.01.070. The Court determined that, under the plain language of the statute, the adjuster had an individual duty to act in good faith and could be sued for breaching this duty.
The Court also maintained the CPA claim against the adjuster, finding that a consumer or business relationship was not necessary to support a CPA claim. Without any significant analysis, the Court held that “individual insurance adjusters can be liable for a violation of the CPA.”
The Keodalah decision is a dramatic departure from the law in most jurisdictions. Previously, most Washington State trial court decisions have refused to find adjusters directly liable for causes of action involving bad faith, particularly when adjusters are direct employees of the insurer. Although third-party administrators and independent adjusters are often sued for bad faith, this decision provides for the first time a bad faith claim against individual employees of an insurer.
The impact of this latest decision will be significant on the insurance industry and will raise even further questions. For example, will insurers need to appoint separate counsel for their adjusters when their adjusters are named in litigation? How will this decision impact adjusters’ relationships with their employers? What internal HR decisions will evolve from the decision? Can this analysis be a basis for counsel to be sued? Does this decision mean insureds are liable for their own bad faith conduct?
From a practical standpoint the biggest impact may be on out-of-state insurers who attempt to remove cases to Federal Court. Insureds could destroy diversity jurisdiction by naming an in-state adjuster. This would confine insurers to Washington State Court when litigating coverage issues. As a result, non-Washington insurers may want to consider filing a declaratory judgment action first when there is a possibility that an in-state adjuster may be named to defeat diversity. This approach may preserve an insurer’s ability to litigate in Federal Court and avoid the Washington State trial courts.
As always, it is crucial to look at the facts of any case and the impact an adverse decision may have on the entire industry before you take a case to the Washington Court of Appeals.
If you would like to discuss the impact of this decision, please feel free to contact us.
