A Washington appeals court recently permitted claims to be brought against an individual insurance claim adjuster for (1) insurance bad faith, and (2) Washington Consumer Protection Act (CPA) violations, in Keodalah v. Allstate Insurance Company, No. 75731-8-I, __ Wn. App. ___, (Washington Court of Appeals, Division I, March 26, 2018).
Keodalah addressed a split of authority in Washington. Several federal court judges issued rulings from 2005 through 2016 that non-insurer entities were exempt from bad faith claims and CPA claims. In 2017, another Division of Washington’s Court of Appeals in Merriman v. American Guarantee & Liability Ins. Co., held that Washington’s generalized statute requiring good faith in the “business of insurance” applied to the insurer’s third-party administrator.
In extending Merriman to individual “persons,” the Keodalah Court pointed to the Washington statute’s duties of good faith as applying to every person involved in insurance transactions, including the insured. Keodalah also held that individual insurance adjusters could be liable for violating the CPA if they caused financial injury by engaging in unfair or deceptive acts or practices that impact the public interest.
As a consequence, insurers’ employees can now be named as defendants in Washington bad faith and CPA lawsuits. It is currently unknown whether Allstate will appeal this result to the Washington Supreme Court.
Facts of Keodalah’s Accident and Underlying Proceedings
An uninsured motorcyclist collided with Keodalah’s vehicle at a controlled intersection. Keodalah’s Allstate policy provided $25,000 in UIM coverage. Even though the motorcyclist had the right of way, the police concluded that (1) the motorcyclist’s excessive speed caused the accident, and (2) based on Keodalah’s cellphone records, he was not using his cellphone at the time of the collision. Allstate’s retained accident investigator agreed with the police department’s conclusions. Keodalah demanded Allstate pay the limits of his UIM policy, but Allstate offered $1,600 in settlement and asserted that Keodalah was 70 percent at fault.
Keodalah sued Allstate seeking UIM policy limits. Allstate designated claims adjuster Tracey Smith as its Civil Rule 30(b)(6) speaking agent for deposition. Smith initially testified that Keodalah ran a stop sign and was using his cellphone. She later admitted that Keodalah did not run the stop sign, and he was not on his phone. 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 their alleged bad faith and CPA violations. Allstate and Smith moved for an immediate dismissal under Civil Rule 12(b)(6) asserting that Keodalah failed to state a cognizable claim against them. The trial court agreed with Smith and dismissed the claims against her.
Holdings and Key Takeaways
The Washington Court of Appeals reversed the trial court’s dismissal of the bad faith claim against Smith, based on Washington’s statute RCW 48.01.030. The court pointed to the statutory definition of persons subject to the duty of good faith, as “any individual, company, insurer, association, organization, reciprocal or interinsurance exchange, partnership, business trust, or corporation.” Accordingly, the statute could equally impose bad faith liability on either a corporation serving as a third-party administrator or on individual adjusters who were employed by the insurer.
Regarding Keodalah’s CPA claim against Smith, the court did not follow its own 2004 opinion dismissing CPA claims against an individual adjuster. Its 2004 ruling in International Ultimate, Inc. v. St. Paul Fire & Marine Insurance Co., required a contractual or business relationship between a CPA claimant and an insurance provider defendant. The Keodalah Court concluded its 2004 decision was irreconcilable with a 2009 Washington Supreme Court case, Panag v. Farmers Ins. Co. of Washington. According to Panag, the CPA and its “purposes” would not support any such requirement.
Because statutory provisions and definitions are strictly applied when they provide for a remedy under law, every word potentially counts. Based on Washington’s statutes and regulations, limits still remain on permissible claims against individuals following Keodalah. First, when a CPA claim is based on an alleged regulatory violation but is not brought against an “insurer,” it does not give rise to a per se CPA claim that lowers the claimant’s burden to prove all five of the CPA’s required elements. Second, lawsuits may be brought against only an insurer under the “Washington Insurance Fair Conduct” Act statute, adopted in 2007, that prohibits an unreasonable denial of coverage or payment of benefits.