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Insurance Adjusters Not Liable Under Washington State Statutory Law
November 7, 2019The Washington Supreme Court has held that individual insurance adjusters cannot be held liable under the state’s bad faith and consumer protection statutes, reversing a state appellate court. Though the decision limits plaintiffs’ available claims, it does not impact their ability to hold insurance companies liable nor does it address individual adjuster liability for bad faith under the common law. (Keodalah v. Allstate Ins. Co., 2019 WL 4877438 (Wash. Oct. 3, 2019).)
In April 2007, an uninsured motorcyclist sped through an intersection and collided with Moun Keodalah in his truck. Keodalah was injured and the motorcyclist was killed. The Seattle Police Department found that the motorcyclist had been traveling over 70mph in a 30mph zone and that Keodalah was not using his phone at the time of the crash. Keodalah’s auto insurer, Allstate, hired an accident reconstruction firm, which agreed that the motorcyclist had been speeding and concluded that this was the cause of the collision. The firm also determined that Keodalah had stopped at the intersection’s stop sign before proceeding through the intersection.
Keodalah filed a claim with Allstate requesting $25,000, the underinsured motorist coverage policy limit. Allstate offered Keodalah only $1,600, asserting that he was 70% at fault. Keodalah sued Allstate for the full $25,000 policy limits, but Allstate claims adjuster Tracey Smith maintained that Keodalah was 70% at fault for the crash. Smith also claimed Keodalah had run the stop light and had been on his phone at the time of the collision, contrary to the police and accident reconstruction firm findings.
At trial, a jury awarded Keodalah approximately $108,000 for his injuries, lost wages, and medical expenses. Keodalah sued Smith and Allstate for bad faith and for violating Washington state’s Insurance Fair Conduct Act (IFCA) and its Consumer Protection Act (CPA). The trial court dismissed Keodalah’s claims against Smith and certified two questions to the state appellate court for discretionary review: whether the IFCA creates a private right of action and whether individual adjusters may be held liable for bad faith and violations of the CPA. The appellate court held that the IFCA claim was foreclosed by a 2017 state supreme court decision (Perez-Crisantos v. State Farm Cas. Co., 389 P.3d 476 (Wash. 2017)). The court also found that individual adjusters can be held liable for both bad faith and CPA violations because the statute imposes a duty of good faith on “all persons” and directs that the CPA be “liberally construed.”
On appeal, the state supreme court reviewed the appellate court’s statutory interpretations de novo, noting that “[t]he meaning of words in a statute is not gleaned from [the] words alone but from . . . the general object to be accomplished and consequences that would result from construing the particular statute in one way or another.”
To assess Smith’s liability under the bad faith statute, the court applied the three-part test set forth in Bennett v. Hardy: whether the plaintiff is within the class the statute was intended to benefit, whether the legislature intended to create a remedy under the statute, and whether an implied remedy is consistent with the statute. (784 P.2d 1258 (1990).) Here, the court said, the bad faith statute was enacted to “protect the ‘integrity of insurance,’” not for the particular benefit of insureds like Keodalah. The court ruled that the legislature’s omission of a private cause of action for good faith violations appears to be intentional, and inferring such a broad cause of action would be inconsistent with the legislature’s purpose.
Keodalah also alleged that Smith had committed per se violations of the CPA claims—Smith’s unfair or deceptive act affected trade or commerce, impacted the public interest, and caused Keodalah substantial damage. The state administrative code defines unfair or deceptive acts “of the insurer in the business of insurance, specifically applicable to the settlement of claims.” (Wash. Admin. Code §284-30-330.) However, the court found that it was “the insurer,” not Smith, who owed a duty under these regulations. In addition, Smith lacked a contractual, fiduciary, or quasi-fiduciary relationship with Keodalah. The court reversed, finding that the trial court properly dismissed both the bad faith and the CPA claims against Smith, individually.
In a lengthy dissent, Washington Supreme Court Justice Mary Yu argued that claims adjusters may be liable for per se CPA violations and that the elements of a CPA claim do not include the demonstration by a plaintiff of a contractual, fiduciary, or quasi-fiduciary relationship with the defendant. The CPA “is not intended to satisfy ‘reasonable expectations’ of ‘quasi-fiduciary treatment’” but is meant to “protect the public and foster fair and honest competition.” Because neither court precedent nor the CPA categorically excludes insurance adjusters from claims of per se CPA violation, Justice Yu argued that the court should have held that Keodalah stated a valid cause of action and that “the court should acknowledge that Keodalah raises a common law bad faith claim against Smith and remand to the [appellate court] to consider whether that claim is viable.”
Seattle attorney Leah Snyder, who handles bad faith cases, noted that “the court has generally acted to limit liability of companies and individuals under the IFCA, including in its recent decision in Perez-Crisantos v. State Farm Casualty Co. It was generally suspected that the court would reject individual liability as IFCA intersects with the CPA for enforcement.” Snyder added that “questions remain regarding individual liability for common law breaches, and that the decision in Keodalah does not stand for the proposition that common law does not apply individually—that was not addressed in this decision and in practice, you should reject citations for this purpose.”