Bad faith poses new liability for insurers
Washington state law provides insurers with protection against fraudulent claims but a recent ruling conflicts with that policy.
There is a new threat for insurers in Washington State if a state court ruling allowing policyholders to file bad faith lawsuits against insurance carrier employees is upheld by the state’s highest court.
In an amicus brief filed with the state Supreme Court, the Coalition Against Insurance Fraud (the Coalition) says the ruling “will discourage insurers and their employees from thoroughly investigating suspect claims and sending referrals to law enforcement for prosecution.”
Currently, other states have not pursued bad faith to this degree, however, investigators, adjusters and other insurance personnel involved in a claim could be sued in Washington under a 2018 court decision.
The Coalition warns that this ruling “will result in significant individual harm to investigators, experts, doctors, lawyers, and many others who may be only tangentially involved in the handling of an insurance claim.”
In Keodalah vs. Allstate, a lower court ruled that a claims adjuster investigating an auto/motorcycle crash case with injuries could be held personally liable for bad faith and responsible for paying treble damages and attorney fees. Oral arguments in the case will take place before the state Supreme Court in February.
“Insurers should be held to high standards of good faith, and encouraged to pay legitimate claims fairly and promptly. When they don’t, courts should punish them,” said the Coalition in its brief. “But investigators and claims handlers should not be forced to decide between protecting their personal finances and fraud fighting. Organized rings likely will threaten suit to gain leverage and get suspect claims paid,” the Coalition warned.
Related: Beware of bad-faith liability
The damage from these types of suits does not stop with the suit being filed. Even if they are dismissed by a higher court, just being name in a suit can affect an adjuster’s personal credit rating, making it difficult to obtain loans or a mortgage. Other consequences may include the loss of professional licenses, jobs or promotions contends the Coalition.
“Such practice would impair the entire system of fraud detection and prevention,” the Coalition notes.
State law in Washington actually provides insurers with civil immunity to protect them when fraudulent claims are reported. However, the Keodalah ruling conflicts with that policy.