October 21, 2019

In a highly anticipated decision, the Supreme Court of Washington held that insurer-employed adjusters cannot be held liable for statutory bad faith claims. The case is Moun Keodalah and Aung Keodala v. Allstate Insurance Company, Tracey Smith., and John Doe Smith, P.3d – (2019, 2019 WL 4877438 (Wash. Oct. 3, 2019).

In 2007 the vehicle Moun Keodalah was driving collided with an uninsured motorcyclist, killing the motorcyclist and injuring Keodalah. The police investigation of the scene revealed that the motorcycle had been traveling faster than 70mph in a 30mph zone, and found that Keodalah was not using his cell phone at the time of the accident. Allstate hired an accident reconstructionist who also found that the motorcyclists excessive speed was the cause of the accident. Keodalah asked for the uninsured motorists policy limit of $25,000. Allstate, functioning off of the analysis by its claims adjuster that Keodalah was 70% at fault, only offered $15,000 to settle the claim. Keodalah refused and requested the policy limits.

Keodalah filed a lawsuit against Allstate and the adjuster alleging violations of the Washington Insurance Fair Conduct Act (IFCA), the Washington Consumer Protection Act (CPA), and of bad faith. The trial court granted a motion to dismiss the claims against the adjuster, and the court of appeals reversed, finding that the statutory duty of good faith that was imposed by the Revised Code of Washington 48.01.030 applied to individual insurance adjusters, as it requires "all persons" to act in good faith in insurance matters.

The Washington Supreme Court was closely split on this decision, ultimately reversed the court of appeals and ruled that RCW 48.01.030 did not give the plaintiff the authority to sue the adjuster. In it's analysis, the supreme court looked to a previous three-prong test to help determine whether a statute includes an implied cause of action.

  1. Is the victim a member of the class that the statute was enacted to benefit?
  2. Does the legislative intent support creating or denying this cause of action, and,
  3. Is allowing a cause of action consistent with the underlying purpose of the legislation.

For the first factor, the court found that RCW 48.01.030 applied to the public in general, rather than to the plaintiff in particular. For the second factor, the supreme court found that the legislature did not intend to imply a cause of action based on violations of the statute. The court then found that the third factor did not support the plaintiff's claims because it concluded that recognizing a cause of action under RCW 48.01.030 would arguably apply to both insureds and insurers, would not align with the legislature's intent in enacting the statute. The supreme court also concluded that the claims against the adjuster under the CPA failed because claims were premised on the alleged breach of provisions of the administrative code that applied only to insurers and not to adjusters.

Editor's Note: Often, a plaintiff will attempt to join an employee adjuster to keep the claim in state court, thought to be more favorable to policyholders. This decision should lessen the likelihood of that scenario occurring, and insurers having to settle for higher amounts because an employee adjuster is being held liable.

Although the adjuster was ultimately found not to be guilty of functioning in bad faith in this case, employees should be wary of following direction and company policy blindly.

Among Washington on this side of the split of authority on the issue of whether adjusters can be sued individually for bad faith are Alabama, California, Hawaii, Indiana, New Mexico, New York, Oklahoma, Pennsylvania, Tennessee, and West Virginia.

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