The 5-4 decision holds that employee adjusters have no personal liability in Washington State for bad faith claims and per se claims under the CPA
The opinion reverses a lower court ruling that employee adjusters could be personally liable for these claims
The result should protect employee adjusters from the harm that personal liability can have on their assets and personal lives, deter forum shopping by insureds, and serve as persuasive authority in other jurisdictions
On October 3, 2019, the Washington Supreme Court issued its opinion in Keodalah v. Allstate Insurance Company, holding that employee insurance adjusters are not subject to personal liability for bad faith or per se claims under the Washington Consumer Protection Act (CPA). The opinion reverses the contrary holding by a lower appellate court that employee adjusters could be personally liable for these claims.
The plaintiff, Moun Keodalah, was injured when his truck collided with an uninsured motorcycle in April 2007. His Underinsured Motorist (UIM) carrier investigated the accident and learned that at the time of the accident, Keodalah had neither run a stop sign nor was on his cell phone. Nevertheless, the carrier claimed during the claims process, and at trial, that Keodalah was largely at fault because he ran the stop sign and was on his cell phone. The jury found the motorcyclist 100 percent at fault and assessed damages in excess of Keodalah’s UIM limits.
Keodalah then sued the carrier and its employee claims adjuster for bad faith and violation of the CPA. The trial court dismissed the claims against the adjuster, but on appeal the claims were reinstated. The appellate court found that employee insurance adjusters owed a statutory duty to insureds under Revised Code of Washington (RCW) 48.01.030 that could support claims of bad faith and CPA violations.
Supreme Court Opinion
The Washington Supreme Court, in a 5-4 decision, found that the statutory duty relied on by the appellate court did not create a right of action against the employee adjuster. First, RCW 48.01.030 was intended to protect the public at large, rather than insureds more specifically. Second, while the Washington insurance code contains several specific enforcement mechanisms, a private right of action under RCW 48.01.030 is not one of them. Finally, the statute was not intended to broadly extend bad faith liability to all participants engaged in the business of insurance, including individual adjusters. In light of these factors, the court found the statute “does not create an implied cause of action for insurance bad faith.”
Regarding the CPA claim, the court found that the unfair claims settlement practices alleged by Keodalah were applicable only to insurers, not employee adjusters. Moreover, “CPA claims based on breach of the statutory duty of good faith” are limited “to the context of the insurer-insured relationship”–a relationship to which an employee insurance adjuster is not a party.
The impact of the Washington Supreme Court opinion is wide-ranging. While a minority of jurisdictions recognize some form of good faith duty on the part of individual claims adjusters, the court placed Washington firmly among the majority that reject individual adjuster liability for bad faith. This provides comfort to employee adjusters handling Washington claims, who should no longer face the specter of personal liability, as well as the damage that merely being a named defendant can do to credit reports, employment applications, etc. For carriers located in other states, this outcome reduces the concern that employee adjusters in Washington will be joined as defendants solely to keep bad faith suits out of federal court. The opinion may also serve as key persuasive authority for courts in jurisdictions that have not yet considered whether employee adjusters can be liable for bad faith. However, the narrow majority decision in Keodalah, illustrates the perils that remain as future courts address the issue.