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Legal Updates for Coverage and Bad Faith

October 23, 2019

Washington Supreme Court Holds that Employee Adjusters Are Not Subject to Personal Liability for Insurance Bad Faith or Per Se Claims Under the CPA.

Keodalah v. Allstate Ins. Co., et al., No. 95867-0 (Washington Sup. Ct. 10/3/19)

The insured was involved in a motor vehicle accident with an allegedly underinsured motor vehicle. He subsequently made a claim for underinsured motorist (UIM) benefits under his Allstate policy and demanded policy limits of $25,000. Allstate made multiple offers up to $15,000 prior to trial and argued that the insured was 70% at fault for the accident. The insured argued in response that both the police and Allstate’s accident reconstruction expert had determined that the accident was caused by the other vehicle, not by the insured. The UIM claim eventually went to trial, and the jury returned a verdict of $108,868.20 in favor of the insured. The verdict was molded to reflect the $25,000 policy limits. The jury also determined that the other vehicle was 100% at fault for the accident. The insured then sued Allstate and the handling claim adjuster for bad faith and violations of the Consumer Protection Act (CPA).

The trial court dismissed the claims against the individual adjuster, but the Court of Appeals reversed. The case was then accepted by the Washington Supreme Court. The court considered that the Court of Appeals’ decision turned on the statutory duty it found in the Washington Insurance Fair Conduct Act (IFCA), chapter 48.01.030 RCW, which states: “The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Upon the insurer, the insured, their providers, and their representatives rests the duty of preserving inviolative the integrity of insurance.” The insured and the Court of Appeals argued that by imposing a duty on “all persons” to act in good faith, the plain language of the statute subjects adjusters to bad faith and CPA claims. The adjuster argued in response that not every duty imposed by a statute is an actionable tort, that the RCW does not expressly create a private right of action, and that the Court of Appeals did not employ the three-pronged test articulated in Bennett v. Hardy, 113 Wn.2d 912 (1990) for determining whether a statute includes an implied cause of action.

The Supreme Court employed the test articulated in Bennett v. Hardy, to wit: (1) whether the plaintiff is within the class for whose benefit the statute was enacted; (2) whether legislative intent supports creating or denying a remedy; and (3) whether implying a remedy is consistent with the underlying purpose of the legislation. After applying each of the Bennett factors, the court held that RCW 48.01.030 does not create an implied cause of action for insurance bad faith.

The Supreme Court then turned to the insured’s CPA claims against the adjuster. The court considered that to establish a CPA claim, a plaintiff must prove: (1) an unfair or deceptive act or practice that (2) affects trade or commerce and (3) impacts the public interest, and (4) the plaintiff sustained damage to business or property that was (5) caused by the unfair or deceptive act or practice. After applying these factors, the court held that the insured’s CPA claims against the adjuster, premised on regulatory violations, were properly dismissed. The court also found that while the insured could sue Allstate, he did not have an independent cause of action against the adjuster.

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