In a closely contested 5-4 decision, the Washington Supreme Court held in Keodalah v. Allstate Insurance Company, et al., Slip. Op. No. 95867-0, ___ P.3d ___ (Oct. 3, 2019), that a claims adjuster cannot be held personally liable to an insured for bad faith. Reversing the Court of Appeals, the Supreme Court found that claims adjusters owe no statutory or common law duty of good faith to the insured, the breach of which Keodalah argued supported his claim against an individual adjuster for personal liability for alleged bad faith. The dissenting justices, not unexpectedly, would have permitted such claims.
An uninsured motorcyclist collided with Keodalah’s vehicle at a controlled intersection. Keodalah suffered significant injuries. Although the motorcyclist had the right of way, the police concluded that the motorcyclist’s excessive speed caused the collision and that Keodalah was not using his cellphone at the time of the accident. Allstate’s accident investigator concurred with the police’s conclusions. Keodalah requested the full $25,000 policy limit under his Allstate UIM coverage. Asserting that Keodalah was 70 percent at fault, Allstate offered only $1,600.
Keodalah sued Allstate for policy limits. During discovery, Allstate’s claims adjuster, Smith, initially testified that Keodalah ran a stop sign and was on his cellphone; but later recanted those assertions. At trial, the jury found that the motorcyclist was 100 percent at fault and awarded Keodalah $108,868.20. Keodalah then filed a second lawsuit against Allstate and Smith for bad faith under Washington’s Insurance Fair Conduct Act (IFCA), Consumer Protection Act (CPA), and the common law. Smith moved to dismiss the lawsuit because no duty of good faith applies to claims adjusters. The trial court agreed and dismissed Smith from the suit.
The Court of Appeals reversed the trial court’s dismissal of the CPA and common law claims based on RCW 48.01.030 that imposes a duty of good faith on “all persons” engaged in the “business of insurance,” including insurers and insureds. The appellate court reasoned that the statute imposed a duty of good faith on all persons engaged in the business of insurance, and that a breach of that duty gave rise to a private cause of action for bad faith against such persons or entities, including personal liability against claims adjusters. The appellate court also held that breaches of Washington’s insurance regulations constituted per-se violations of the CPA. The Court of Appeals did affirm one of the trial court’s dismissals: Keodalah’s IFCA claim; holding the IFCA does not permit insureds to sue for breaches of the Insurance Code under prior Supreme Court precedent.
Supreme Court Reversal
The Supreme Court reversed the appellate court’s holdings regarding the CPA and common law claims. The settled law in Washington is now that individual claims adjusters cannot be held personally liable for bad faith under the main levers of Washington’s punitive bad faith regime: Washington’s Insurance Code, IFCA,1 or the CPA.
The Supreme Court held that insureds may not sue under RCW 48.01.030 because the statute protects the whole public interest — not the interest of any single individual — the legislature intended only the Insurance Commissioner to enforce the Insurance Code and has given him or her a variety of tools to do so, and creating a private cause of action would not further the statute’s purpose of “preserving inviolate the integrity of insurance.” On this last point, the court noted that although it may seem that permitting private suits may better enforce the Insurance Code, interpreting RCW 48.01.030 to permit private suits would allow insurers to sue insureds for bad faith as the statute’s good faith duty is equally imposed on insureds.
Prior to the Supreme Court’s decision in Keodalah, policyholder counsel sought to expand the class of individuals subject to bad faith claims to include insurance agents and insurance defense and coverage counsel, who were alleged to be “engaged in the ‘business of insurance.’” The Keodalah opinion should effectively preclude any further attempted expansion.
Keodalah’s CPA claim was likewise dismissed because Smith had no duty to Keodalah. The court rejected Keodalah’s argument that violations of the Insurance Code were per-se violations of the CPA, instead holding that because the Insurance Code provisions Smith purportedly violated only apply to insurers and Smith was not an insurer, the CPA had no application to a claims adjuster. Further, the court held that an insurer’s duty of good faith under Tank v. State Farm Fire & Casualty Co., 105 Wn.2d 381 (1986), could not support a CPA claim because the claims adjuster was not part of the “quasi-fiduciary” relationship between the insured and the insurer supporting that duty.
Although the dissenting justices disagreed with much of the majority’s statutory analysis, their most poignant argument was that a claims adjuster should have a duty of good faith to insureds given an adjuster’s crucial role in claims handling. The dissenters argued that the “high stakes and an elevated level of trust are clearly implicated by the work of a claims adjuster[.]” Although the adjuster may not always be the decision-maker regarding coverage, that “decision is directly informed by the work of the claims adjuster.” Therefore, the dissenting justices would have created a common law duty of good faith running from adjusters to insureds. Notably, the dissent agreed with the majority’s holding concerning IFCA’s inapplicability to claims adjusters.
Regardless, the majority’s decision forecloses bad faith claims against claims adjusters and others employed by insurers.