A Washington court of appeals recently held “that an individual employee insurance adjuster can be liable for bad faith and a violation of the CPA,” according to Keodalah et al. v. Allstate Ins. Co., et al., No. 75731-8-I (Wash. Ct. App. Mar. 26, 2018). The issue needed to be settled as there was a split among federal judges about whether non-insurer entities were exempt from bad faith and CPA claims.
An uninsured motorcyclist struck Moun Keodalah’s vehicle in 2007 and was killed. Keodalah had underinsured motorist (UIM) coverage through Allstate Insurance Company. The Seattle Police Department’s (SPD) investigation showed that the motorcyclist was traveling around 70 mph in a 30 mph zone and that Keodalah was not using his cell phone at the time. Allstate interviewed several witnesses who claimed that the motorcyclist was traveling faster than the speed limit, was passing through cars, and “cheated” at the intersection. Traffic Collision Analysis Inc. (TCA) was hired by Allstate to reconstruct the accident and TCA found that the motorcyclist was speeding and that the speeding was the cause of the crash. The limit on the UIM policy was $25,000, of which Keodalah requested the full amount. Allstate first offered Keodalah $1,600, but later offered $5,000 after Keodalah questioned their methodology.
Keodalah then sued Allstate asserting a UIM claim. For deposition, Allstate chose claims adjuster Tracey Smith. Smith claimed Keodalah ran the stop sign and was using his cell phone; Smith later admitted that Keodalah neither ran the stop sign nor used his cell phone. At trial, Keodalah was awarded $108,868.20 for his injuries, lost wages, and medical expenses. Keodalah decided to file another suit against both Allstate and Smith alleging bad faith and CPA violations. They moved for a CR 12(b)(6) dismissal, which was granted.
Court of Appeals Decision
The Washington Court of Appeals did not agree with the trial court and reversed the dismissal of the bad faith claims and the CPA violations.
(a) Bad Faith Claims
For the bad faith claim, the court examined the statutory language in RCW 48.01.030. It “imposes a duty of good faith on ‘all persons’ involved in insurance, including the insurer and its representatives.” The court explained that Smith had a duty to act in good faith because she was engaged in the business of insurance and was acting as Allstate’s representative. The court held that Smith could be liable for breaching this duty and that the duty of good faith applies equally to individuals, as well as corporations acting as insurance adjusters.
(b) CPA Violations
For the CPA claims, the court looked at the language and purpose of the CPA. “The CPA serves to deter unfair or deceptive acts or practices, protect the public, and foster fair and honest competition.” Smith argued that a contractual relationship was required to establish liability, but the court explained that the Washington Supreme Court’s recent decision in Panag v. Farmers Ins. Co. of Washington made it clear that no such relationship needed to exist to attach liability. The court stated that “individual insurance adjusters can be liable for a violation of the CPA.”
The statutory language states that all individuals involved in the insurance process must act in good faith. This case should serve as a warning to both insureds and insurers. Look at the language of the statutes depending on the state that you are working in. This language will likely be determinative of potential liability and explain the standard that you will be held to.