In Keodalah v Allstate Ins. Co, ___ Wn App ___ (March 26, 2018), Division One of the Washington Court of Appeals resolved a split created in the federal courts, holding that an individual insurance adjuster taking part in a coverage or benefits denial can be personally liable for bad faith. The Court’s holding not only expands the number of potential targets for claimants’ attorneys’ bad faith threats-—already abundant in Washington-—but also gives claimants’ attorneys a powerful counter-punch to use against defense counsel making strategic decisions to remove to federal court.
In Keodalah, the plaintiff claimed bad faith by his insurer, Allstate, alleging that Allstate made illegal “lowball” offers in response to the plaintiff’s UIM claim. Moreover, in addition to suing Allstate, the plaintiff personally sued Tracey Smith, the Allstate adjuster who made the alleged “lowball” offers. The trial court granted a CR 12(b)(6) motion and dismissed the claims against Smith, but certified the case for discretionary review.
The Court of Appeals reversed dismissal of the claims against Smith. The Court based its decision on RCW 48.01.030, which imposes a duty of good faith on “all persons” involved in insurance, and RCW 48.01.070, which defines “Person” to include “any individual, company, insurer…or corporation.” The Court noted that Division Three (as well as federal courts) had used the same analysis to permit bad faith claims against corporate insurance adjusters.
The Court then rejected a number of distinctions used in prior Washington state and federal court cases. The Court found no distinction, in this context, between a third-party adjuster and an employee, finding that both fit the definition of “Person” in RCW 48.01.070. Further, the Court found no significance to Smith’s acting within the scope of her employment, because an adjuster has an affirmative duty of good faith to the insured. Likewise, the Court found it irrelevant whether Smith had a contractual relationship with the insured, because Smith had a statutory duty under RCW 48.01.030.
The ramifications of the Court’s holding in Keodalah are, at minimum, twofold. First, the decision substantially broadens the scope of the threats available to claimants’ counsel when it comes to bad faith. The holding arguably expands exposure beyond the primary adjuster to any employee involved in the adjustment process. Claims against multiple insurer-employees could lead to dangerous litigation where employees point fingers in an attempt to avoid personal liability.
Second, the Keodalah decision, along with previous decisions opening claims to third-party adjusters, gives claimants’ counsel an important weapon against potential removal to federal court. Claimants’ counsel can use RCW 48.01.030 (and CPA) claims against individual employees or third-party adjusters working in the insured’s home state to destroy diversity jurisdiction that may have existed if the insurance company was the lone defendant. Without diversity jurisdiction, defense counsel is forced to litigate in the state courts.
The evolution of bad faith law in Washington continues to be fast and furious. To stay in the know and learn how to best avoid exposure, continue to follow its course on the DREX blog.
The Court additionally held that an individual adjuster can be held liable under the Washington Consumer Protection Act.
The Court of Appeals also affirmed dismissal of the plaintiff’s IFCA claims based upon the Washington Supreme Court’s decision in Perez-Cristanos v. State Farm Fire & Casualty Insurance Co. For more on that decision, click here: Unreasonable Denial of Coverage or Benefits Required for IFCA Acceptance.
Merriman v. American Guarantee & Liability Insurance Co., 198 Wn. App. 594, 396 P.3d 351 (2017).
Generally, a plaintiff cannot seek retribution personally from an agent acting within the scope of his or her employment unless “the agent’s conduct breaches a duty that the agent owes to the [plaintiff].” Annechino v. Worthy, 175 Wn.2d 630,638, 290 P.3d 126 (2012) (emphasis added).
See e.g. Zuniga v. Std. Guar. Ins. Co., C17-5176RBL, 2017 U.S. Dist. LEXIS 79821 (W.D. Wa. May 24, 2017) (relying on Merriman, among other cases, to state claim against local adjuster and defeat removal to state court).