Keodalah v. Allstate: Washington Supreme Court Nixes Statutory Bad Faith Claims Against Employee Adjusters
On October 3, 2019, the Washington Supreme Court issued an opinion in Keodalah v. Allstate, Case No. 95867-0. The opinion reverses a Court of Appeal decision which previously allowed a statutory bad faith claim and a claim under Washington’s Consumer Protection Act (CPA) to proceed against an individual employee claims adjuster. The opinion puts Washington with the majority of courts that have declined to allow bad faith suits against individual employee adjusters.
The underlying action in Keodalah involved a car accident between the insured and an uninsured motorcyclist. The police department and an accident reconstruction company found that the uninsured motorcyclist had caused the accident. The insured asked Allstate for its UIM policy limits, but Allstate declined on the grounds that the insured was allegedly 70% at fault. At deposition, the claims adjuster, Tracey Smith, testified that the insured had been on his phone and had run a stop sign, despite evidence to the contrary. Smith later admitted this was not true. The case was tried, and a jury found that the uninsured motorcyclist was 100% at fault and the insured was 0% at fault.
The insured then sued Allstate and Smith asserting, among other things, violation of the CPA and bad faith. The trial court dismissed the claims against Smith, but the Washington Court of Appeal reversed, holding that both a CPA claim and a statutory bad faith claim under Washington’s Regulatory Code (RCW), section 48.01.030, could lie against an individual employee adjuster. In reaching this conclusion, the Court extrapolated prior Court of Appeal and district court decisions that had previously concluded insureds could bring bad faith suits against companies that adjusted claims on behalf of insurers.
In a 5-4 decision with a strong dissent, the Washington Supreme Court reversed the Court of Appeal, holding instead that an employee adjuster cannot be found liable for bad faith under RCW 48.01.030 or under the CPA. The Court concluded that RCW 48.01.030 did not provide for a private right of action and that the regulations on which the insured based his CPA claim were limited to bad faith claims between an insured and its insurer.
The decision is a significant win for insurance companies and claims adjusters. Aside from the imposition of personal liability on claims adjusters, the Court of Appeal decision would have limited insurers’ ability to remove cases to federal court based on diversity. The majority opinion did not address whether prior precedent allowing bad faith claims against claims adjuster companies is still sound, nor did it directly address whether insureds can assert bad faith claims under common law against employee adjusters. There is language in the opinion, however, suggesting that doing so would be an uphill battle for insureds.