by Kerri Lether | May 20, 2020 | Featured, Insurance Law, News & Updates
As many of you likely recall, the Washington Supreme Court affirmed the trial court’s dismissal of the statutory extra-contractual claims asserted against an employee-adjuster on October 3, 2019 in Keodalah v. Allstate, 194 Wn.2d 339, 449 P.3d 1040 (2019). However, as we noted in our newsletter discussing the opinion, the Court seemingly left open the possibility that certain extra-contractual claims could be brought against adjusters based on the common law.
In particular, we noted that the majority opinion did not address whether a common law bad faith claim against an adjuster was legally sustainable in Washington. In fact, the dissent expressed a belief that such a claim should be recognized in Washington. Further, all of the Consumer Protection Act (“CPA”) claims addressed in Keodalah were per se claims based on violations of statutes and regulations applicable to insurers. The Keodalah court did not address so-called traditional common law CPA claims based on the Hangman Ridge elements proscribing any deceptive or unfair act or practice that occurs in trade or commerce, affecting the public interest and proximately causing injury to business or property.
A recent federal court decision has once again addressed the dispute over whether adjusters can be held liable under certain extra-contractual claims post-Keodalah. In Leonard v. First Am. Prop. & Cas. Ins. Co., 2020 U.S. Dist. LEXIS 23680 (W.D. Wash. 2020), Judge Ronald B. Leighton was confronted with a Motion to Remand after First American removed the Leonards’ state court action asserting various extra-contractual claims against First American and its adjuster. The Removal was based on the premise that the claims asserted against the non-diverse adjuster were fraudulently joined and precluded by Keodalah.
In granting the Motion to Remand, Judge Leighton expressly recognized that the Keodalah court left open the possibility that a common law bad faith claim against an insurance adjuster could be a viable cause of action in Washington. He also cited to Panag v. Farmers Ins. Co. of Washington, 166 Wn.2d 27, 41-42 (2009), wherein the Court held that no contractual relationship was necessary to prevail on a CPA claim, to support the proposition that a traditional CPA claim against an insurance adjuster could also be viable. While Judge Leighton recognized that these causes of action might eventually be dismissed or precluded, he ultimately ruled that “it is better to leave such novel questions of Washington State law to Washington State courts.”
Based on Judge Leighton’s analysis in Leonard, it appears that the Supreme Court’s decision in Keodolah may have only been a partial step in addressing the viability of direct causes of action against insurance adjusters in Washington. We will likely not know with certainty what, if any, claims may be brought against adjusters in Washington until common law bad faith claims and common law CPA claims against adjusters are tested in Washington appellate courts.
If you have any questions regarding the effect of the cases discussed herein or any other issues involving Washington insurance law, please do not hesitate to contact our offices.
by Kerri Lether | Oct 3, 2019 | Insurance Law
A split Washington Supreme Court issued its decision in Keodalah v. Allstate on October 3, 2019. The majority opinion, joined by five of the nine justices, held that there is no cause of action against an employee insurance adjuster for three types of claims:
- Insurance Bad Faith based on alleged violation of RCW 48.01.030 by an adjuster;
- Consumer Protection Act per se claims based on alleged violations of WAC 284-30-330 (The Unfair Claims Settlement Practices Act); and
- Consumer Protection Act per se claims based on alleged violation of RCW 48.01.030.
To recap, in Keodalah, the insured asserted a UIM claim following a motor vehicle accident. Allstate took the position that the insured was 70% at fault for the accident, despite substantial evidence to the contrary. Following trial, a jury determined the insured had no fault for the accident and awarded damages well in excess of the coverage limits. The insured then filed a second lawsuit against Allstate and the adjuster, which included extra-contractual claims against the adjuster. The trial court then granted a motion to dismiss the extra-contractual claims against the adjuster. The Court of Appeals reversed the trial court’s dismissal of the bad faith and CPA claims against the adjuster, finding that an adjuster’s alleged bad faith conduct could support those claims.
On review, the Supreme Court held that a bad faith claim based on the good faith insurance statute (RCW 48.01.030) was not available because the statute did not imply a cause of action under the applicable test. In particular, the Court explained that the statute was enacted to benefit the general public, as opposed to a certain class of individuals. It further reasoned that the legislature did not intend for the statute to form the basis of a civil action because, in part, doing so would also create a bad faith cause of action against insureds.
The Court then quickly dispensed with CPA claims against adjusters based on violations of WAC 284-30-330 because the express language of that regulation applies the standards contained therein to “insurers” only.
Finally, the majority stated that CPA claims against adjusters based on violations of RCW 48.01.030 are not cognizable because that statute does not imply a private right of action and prior case law (primarily, Tank v. State Farm) shows that CPA claims based on bad faith arise from the quasi-fiduciary relationship between insurers and insureds. The Court reasoned that, because there is no quasi-fiduciary relationship between adjusters and insureds, there is no CPA claim based on the alleged bad faith of an adjuster.
The dissenting opinion, joined by four justices, agreed that there is no cause of action against employee insurance adjusters for bad faith claims based on violation of RCW 48.01.030 and CPA claims based on violations of WAC 284-30-330.
However, the dissenting justices believed that there should be a CPA cause of action against adjusters based on violation of RCW 48.01.030. Their primary arguments were that a CPA claim based on violation of a statutory duty can exist, even when that statute does not imply a right of action, and the existence of a quasi-fiduciary relationship is not a requirement for a CPA claim in any context.
Most interestingly, the dissenting opinion further stated that a bad faith cause of action based purely on the common law should be available against an adjuster.[1]Whether an adjuster has a common law duty of good faith has never been addressed before by a Washington court. In analyzing whether it should recognize such a duty, the dissenting court noted that the majority of jurisdictions that have addressed the issue have found there is no such duty in common law. Nevertheless, the dissenting court believed it should follow the minority of states that do impose a common law duty on adjusters based on the similarities regarding the other principles of common law bad faith between Washington and those states. The dissent further stated that public policy, common sense, logic and justice support imposing a common law duty of good faith on adjusters because they are most directly responsible for how a claim is handled. The dissenting court did note that this duty should be limited to knowing bad faith conduct within their control and that adjusters should not held responsible for improper policies imposed upon them by their employers.
This opinion provides both clarity and questions for insurance litigation moving forward. There is clearly no cause of action against adjusters based on violation of the good faith statute and any WACs expressly directed at insurers. However, whether an adjuster could face a cause of action for common law bad faith remains an open question of law in Washington. Unfortunately, the only source of Washington law addressing this issue is the dissenting opinion in this case.
If you have any questions regarding the effect of this case or any other issues involving Washington insurance law, do not hesitate to contact our offices.
[1] This type of claim was not addressed by the majority court apparently because it was not addressed by the Court of Appeals. The dissenting justices believe the majority court should have addressed this claim because it was part of the insured’s pleadings, briefing and arguments throughout this case.
