Insurance Adjusters May Now be Sued Personally for Bad Faith and CPA Violations

On March 26, 2018, Washington’s Court of Appeals released its decision in Moun Keodalah and Aung Keodalah v. Allstate Insurance Company, et al., an important new case in which the court held that insurance adjusters may be found individually liable for bad faith and for Consumer Protection Act (“CPA)” violations.

The Plaintiff, Keodalah, was involved in an auto accident with an uninsured motorcyclist. Keodalah had purchased an insurance policy from Allstate. The policy included an “uninsured motorist coverage” with a limit of $25,000.  The investigation by the Seattle Police Department, Allstate, and a company Allstate used to reconstruct the accident found that the motorcyclist was traveling well above the speed limit at the time of the accident, that Keodalah had been at a complete stop and was not using his cell phone at the time of the accident, and that ultimately the motorcyclist’s “excessive speed” caused the accident.

Keodalah requested that Allstate pay the limits on his uninsured motorist coverage. Despite the findings of the various investigations, Allstate offered Keodalah only $1,600, stating that Keodalah was found to be 70% at fault in the accident. When Keodalah asked for an explanation of the offer, Allstate increased its offer to $5,000. Later, during a deposition, Allstate’s insurance adjuster, Smith, testified that Keodalah had run a stop sign and was on his cell phone at the time of the accident. But Smith later admitted that Keodalah was not on his cell phone and had not run the stop sign.

Keodalah filed suit against Allstate and Smith, alleging bad faith and violations of the CPA. After the trial court held that Smith could not be personally liable for these causes of action, the plaintiffs appealed.

The Court of Appeals reversed the trial court’s decision, finding that RCW 48.01.030 imposes a duty of good faith on all persons involved in insurance, including the insurer and the insurer’s representatives. The Court explained that the plain language of the statute was clear, and that because the adjuster Smith “was engaged in the business of insurance and was acting as an Allstate representative,” she could be held personally liable for breaching her duty of good faith.

The Court similarly found that Smith could be held personally liable for CPA violations. The CPA prohibits “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” Under the seminal CPA case Hangman Ridge Training Stables, Inc. v. Safeco Title Insurance, a plaintiff must prove five separate elements to prevail on a CPA claim: (1) an unfair or deceptive act; (2) that act occurs in trade or commerce; (3) a public interest impact; (4) injury to the plaintiff in his or her business or property, and (5) a causal link between the unfair or deceptive act and the injury. Smith argued that there was a sixth required element: the parties must have a contractual relationship. The Court rejected this argument, finding that a Plaintiff need not show the existence of a contract between the parties to establish a CPA claim. The Court found that Keodalah satisfied the required five elements, and thus, held that Smith could be liable for CPA violations.

This Keodalah case has large implications in the insurance and construction industries. The holding exposes insurance adjusters to significant legal repercussions for their improper behavior in investigating and adjusting insurance claims. The Keodalah case makes clear that insurance adjusters may not hide behind a veil of employment, but instead they may now face the same type of liability as the employer itself.

This case serves as a strong warning to adjusters and opens significant legal possibilities to insureds who believe an adjuster has handled an insurance matter improperly. If you believe that an insurance adjuster acted in bad faith or violated the CPA in responding to your insurance claim, please feel free to contact us to help you determine the best way to proceed.