Cases addressing whether an insurance adjuster can be liable for bad faith don’t come about every day. But they are not total eclipses either. However, when this type of bad faith question does arise, it often involves the conduct of an outside adjusting company. But in Keodalah v. Allstate Insurance Co., No. 75731-8 (Wash. Ct. App. Mar. 26, 2018) the Washington Court of Appeals examined whether an adjuster, employed by an insurer, could be liable for bad faith. The answer – yes (as well as for violation of the state’s Consumer Protection Act, but I do not address that here).
The facts here are not good. Moun Keodalah was driving a truck. He stopped at a stop sign and then began to cross the street. A motorcyclist collided into his truck. The motorcyclist was killed and Keodalah was injured. The motorcyclist was uninsured. Keodalah made a claim under his Allstate underinsured motorist policy.
The Seattle Police Department determined that the motorcyclist was traveling between 70 and 74 m.p.h. in a 30 m.p.h. zone and that Keodalah was not using his cell phone at the time of the collision. Allstate investigated the accident and determined that the motorcyclist was traveling faster than the speed limit, had proceeded between cars in both lanes, and had “cheated” at the intersection. Allstate’s accident reconstruction firm concluded that Keodalah stopped at the stop sign, the motorcyclist was traveling at a minimum of 60 m.p.h. and the motorcyclist’s “excessive speed” caused the collision.
But despite all this, Allstate only offered to pay Keodalah $1,600 and not the UIM policy’s $25,000 limit. Allstate based its decision on the assessment of its adjuster that Keodalah was 70 percent at fault. Allstate eventually increased its offer to $5,000.
This part is remarkable: “Keodalah sued Allstate, asserting a UIM claim. Allstate designated Smith [the adjuster] as its CR 30(b)(6) representative. Although Allstate possessed both the [Seattle Police Department] report and [the Allstate accident reconstruction analysis], Smith claimed that Keodalah had run the stop sign and had been on his cell phone. Smith later admitted, however, that Keodalah had not run the stop sign and had not been on his cell phone. Before trial, Allstate offered Keodalah $15,000 to settle the claim. Keodalah refused and again requested the $25,000 policy limit. The case proceeded to a jury trial. At trial, Allstate contended that Keodalah was 70 percent at fault. The jury determined the motorcyclist to be 100 percent at fault and awarded Keodalah $108,868.20 for his injuries, lost wages, and medical expenses.”
Not surprisingly, Mr. Keodalah was not finished with his business at the court house. He filed suit against Allstate and the adjuster for, among other things, bad faith. Putting aside some procedural steps, the case made its way to the Washington Court of Appeals. At issue: whether insureds may bring bad faith claims against individual insurance adjusters. The court had little trouble answering the question in the affirmative, noting that the relevant Washington statute, RCW 48.01.030, imposes a duty of good faith on “all persons” involved in insurance, including the insurer and its representatives.
The court held: “A person who violates this duty may be liable for the tort of bad faith. RCW 48.01.070 defines ‘person’ as ‘any individual, company, insurer, association, organization, reciprocal or interinsurance exchange, partnership, business trust, or corporation.’ Smith was engaged in the business of insurance and was acting as an Allstate representative. Thus, under the plain language of the statute, she had the duty to act in good faith. And she can be sued for breaching this duty.”
Most notably, the court was not persuaded that, if adjusters can be liable for bad faith, it should be limited to third-party adjusting companies, which, admittedly, have been found liable for bad faith: “The code’s broad definition of ‘person’ includes both individuals and corporations and does not make any distinction between the duties they owe. Nothing in the statute limits the duty of good faith to corporate insurance adjusters or relieves individual insurance adjusters from this duty. The duty of good faith applies equally to individuals and corporations acting as insurance adjusters.”
The court was also not persuaded by the adjuster’s argument that she could not be liable for bad faith because she was acting within the scope of her employment. The court looked back to its decision that, under the Washington statute, the adjuster – and not only its employer -- owes a duty of good faith to the insured.
Despite this decision, the real target in bad faith cases will still be insurers. But will policyholders, who are threatening to bring a bad faith claim against an insurer, now up the ante and threaten to include the adjuster in the action? If so, it may be an incentive for an adjuster to revisit a claim denial. That may be the real impact of Keodalah.
