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Washington Supreme Court: Employee Adjusters Not Personally Liable for Insurance Bad Faith

We won! On October 3, 2019, in a 5 to 4 decision, the Washington Supreme Court held in Keodalah v. Allstate Insurance Company, No. 95867-0 that “employee adjusters are not subject to personal liability for insurance bad faith or per se claims under the CPA [Consumer Protection Act].” The decision, which has been closely monitored across the nation, protects claims professionals, insurance agents, experts, and lawyers who represent insurers from being drawn into disputes between insureds and insurers as parties.

The insured, Moun Keodalah, was injured in an accident where a motorcyclist struck his truck while crossing an intersection. The facts uncovered by the Seattle Police Department (“SPD”) investigation, Allstate’s witness interviews, and the accident reconstruction firm hired by Allstate to analyze the collision all suggested that the motorcyclist was at fault and that his “excessive speed” caused the collision. Keodalah made a claim under his underinsured motorist (“UIM”) coverage and requested that Allstate pay him the $25,000 limit. Allstate refused, finding Keodalah to be 70 percent at fault, and made a series of offers to settle the claim.

Keodalah filed suit asserting a UIM claim. During discovery, an adjuster employee of Allstate was designated as Allstate’s corporate representative for a Civil Rule 30(b)(6) deposition. The adjuster contradicted the conclusions reached by the SPD and Allstate’s accident reconstruction analysis by testifying, for example, that Keodalah had run the stop sign and had been on his cell phone at the time of the accident. At trial, Allstate continued to contend that Keodalah was 70 percent at fault. The jury determined that the motorcyclist was 100 percent at fault and awarded Keodalah $108,868.20 for his injuries, lost wages and medical expenses.

Keodalah then filed a second lawsuit against Allstate that included claims against the adjuster for bad faith and CPA violations. Allstate moved to dismiss the claims on the pleadings under CR 12(b)(6). The trial court dismissed the claims against the adjuster and certified the issue for interlocutory appeal. The Court of Appeals disagreed with the trial court and concluded that the bad faith and CPA claims against the adjuster could proceed. The Court of Appeals found that a Washington statute, RCW 48.18.030, imposes a duty of good faith on an individual adjuster, not just the insurance company, and applies equally both to individuals and to corporations acting as insurance adjusters. The Court of Appeals similarly found that the adjuster could be liable for a CPA violation even absent a contractual relationship between them.

The Washington Supreme Court reversed the Court of Appeals and reinstated the trial court’s dismissal of claims against the adjuster. In its analysis, the Court applied Washington’s three-pronged test for an implied statutory right of action under Bennett v. Hardy, 113 Wn.2d 912, 784 P.2d 1258 (1990) to determine whether RCW 48.01.030 includes an implied cause of action against an adjuster for bad faith. The Court held:

    [A]pplication of the Bennett factors does not support the imposition of an implied cause of action here. In light of RCW 48.01.030’s plain language, indicating that the statute is intended to benefit the general public, and the broader statutory and historical context in which the statute appears, we hold that RCW 48.01.030 does not create an implied cause of action for insurance bad faith.

Next, the Court held that an insured cannot sue an adjuster under the CPA. The Court explained that Keodalah’s CPA claim based on RCW 48.01.030 failed because CPA claims based upon a breach of the statutory duty of good faith are limited to the context of the insurer-insured relationship. Thus, although Keodalah may sue his insurer under the CPA, he cannot sue the adjuster:

    Because Keodalah claims a breach of the duty of good faith by someone outside the quasi-fiduciary relationship, his CPA claim based on RCW 48.01.030 was properly dismissed.
    The majority decision will prevent plaintiffs from bringing specious claims against insurance adjusters and other insurance professionals for purposes of intimidation and to destroy diversity jurisdiction.

Soha & Lang, P. S. attorneys Paul Rosner and Geoff Bedell co-authored an amicus brief on behalf of Washington Defense Trial Lawyers (WDTL). Based upon questions by the court during oral argument, the WDTL brief appears to have helped sway the Washington Supreme Court to make the right decision.

Disclaimer: Any opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha and Lang, P.S. or its clients.

Article re Keodalah v. Allstate by Soha & Lang, P.S. Shareholder published in Coverage Opinion’s List of the “Ten Most Significant Insurance Coverage Decisions Of 2018”

For the past 18 years, Randy Maniloff of White and Williams, LLP in Philadelphia has published a special edition of his Coverage Opinions Newsletter on the year’s ten most significant liability insurance coverage decisions.  The Keodalah v. Allstate decision by the Washington Court of Appeals, which held that adjusters can be personally sued for bad faith and for violations of Washington’s Consumer Protection Act, made the list of the “Ten Most Significant Insurance Coverage Decisions Of 2018.”

Soha & Lang, P.S. Shareholder, Paul Rosner was honored to accept Mr. Maniloff’s invitation to examine the implications of the Keodalah decision as the sole guest author for the 2018 edition of his top ten list.

Mr. Rosner’s article is available at: http://coverageopinions.info/Vol8Issue1/Keodalah.html

The current edition of Coverage Opinions with links to articles on all of the top ten decisions and other content is available at:  http://coverageopinions.info/Vol8Issue1/CurrentIssue.html

If you have questions about Keodalah v. Allstate or any other coverage issues, please feel free to contact Paul Rosner or any other Soha & Lang, P.S. Shareholder.

The opinions expressed in this blog and in the linked articles are those of the authors and do not necessarily reflect those of Soha & Lang, P.S. or its clients.

Paul Rosner to Speak on Insurance Bad Faith at PSAA Spring Symposium on April 6th

Soha & Lang, P.S. Shareholder Paul Rosner will be speaking about insurance bad faith as part of a panel on reputational management at the Puget Sound Adjuster Association’s Spring Symposium on April 6th in Seattle.    For more information, go to the PSAA website or click on the link below.

 

https://drive.google.com/file/d/1PbDj39us_TK3X41mJxW6aklXt1VQtqNL/view

Washington Court of Appeals Sides with Insurer – No Presumption of Harm in Stipulated Settlement

In Mutual of Enumclaw Ins. Co.  v. Myong Suk Day; Division I, No. 75633-8-I, the  Washington Court of Appeals held that the insured suffered no harm where  the plaintiff  had  fully and unconditionally released its claims against the insured, reversing the trial court’s imposition of coverage by estoppel.

Usually, when an insured enters a stipulated judgment with a covenant not to execute, the insured agrees to a judgment and assigns claims against its insurance carrier to the claimant in exchange for a covenant not to execute on the insured’s other assets. If the insurer has engaged in bad faith while defending under a reservation of rights, then the claimant pursuing the assigned bad faith claim against the insurer may be entitled to a rebuttable presumption of harm and coverage by estoppel.

In this case, however, the insured retained her claims against her insurer and assigned only her claims against her independent insurance agent to the tort plaintiffs.  Also, the settlement agreement included language that required the tort plaintiffs to sign a full satisfaction of judgment of their claims against the insured once the assigned claims against the agent were concluded. After the tort plaintiffs settled with the agent, the trial court (in a consolidated action) conducted a reasonableness hearing, concluded that the settlement amount was reasonable, and imposed coverage by estoppel.

In Werlinger v. Clarendon Nat. Ins. Co., 129 Wn. App. 804, 120 P.3d 593 (2005), the Washington Court of Appeals held that an insured could not establish harm where the insured and his spouse were shielded from personal liability by their bankruptcy status and there was no competent evidence that they suffered emotional distress as result of insurer’s actions. Here, relying on Werlinger, the Court of Appeals held that the trial court erred when it imposed the remedy of coverage by estoppel since the insured was legally insulated from any exposure on the agreed judgments because of the settlement provision granting her the right to full satisfaction of the judgments against her, independent of any claims against her insurance carrier.

 

Article by Paul Rosner and Jennifer Dinning.

 

Soha and Lang attorneys are available to assist insurer clients in understanding and addressing the impact of this decision both during the claims handling process and after an allegation of bad faith claims handling has been made.

Disclaimer: The opinions expressed in in this blog are those of the authors and do not necessarily reflect those of Soha and Lang, P.S. or its clients.

Washington Supreme Court Rules on Meaning of “Collapse”

On June 18, 2015, the Washington Supreme Court answered the following certified question from the Ninth Circuit Court of Appeals regarding the meaning of the undefined term “collapse” under the first party property coverage of a  policy State Farm issued to a homeowners association:

What does “collapse” mean under Washington law in an insurance policy that insures “accidental direct physical loss involving collapse,” subject to the policy’s terms, conditions, exclusions, and other provisions, but does not define “collapse,” except to state that “collapse does not include settling, cracking, shrinking, bulging or expansion?”

The Washington Supreme Court first held that the undefined term “collapse” is ambiguous.  The court then turned to the language of the State Farm policy and held:

“Collapse” in the Policy means the substantial impairment of structural integrity of a building or part of a building that renders such building or part of a building unfit for its function or unsafe in a manner that is more than mere settling, cracking, shrinkage, bulging, or expansion.

Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Co.  No. 90651-3, *8 (June 18, 2015).

The Supreme Court explained that under the terms of the State Farm policy, “collapse” must mean something more than mere “settling, cracking, shrinking, bulging or expansion.”  Id.  at *7.  The court also noted that “structural integrity” of a building means a building’s ability to remain upright and “substantial impairment” means a severe impairment.  Id.  Taken together, the court said “’substantial impairment’ of ‘structural integrity’ means an impairment so severe as to materially impair a building’s ability to remain upright.” Id.

Soha and  Lang attorneys are available to assist insurer clients in understanding and addressing the impact of this decision both during the claims handling process and after an allegation of bad faith claims handling has been made.

Disclaimer: The opinions expressed in in this blog are those of the author and do not necessarily reflect those of Soha  and Lang, P.S. or its clients.