The Washington Court of Appeals just decided an important issue in insurance disputes: confirming the policyholder can sue the individual insurance adjuster as well as the insurance company itself. In Keodalah v. Allstate Insurance Company and Smith, No. 75731-8-I, the court ruled: “we hold that an individual insurance adjuster may be liable for bad faith and CPA violations.” This significant ruling has several implications for future insurance bad faith litigation.
The underlying insurance claim arose when Mr. Keodalah was in a car wreck and made an uninsured motorist (“UIM”) claim with his insurer Allstate. Allstate’s internal investigation and the police report uniformly established the motorcyclist was solely at fault for the collision. Allstate’s adjuster, Ms. Smith, nevertheless insisted Keodalah was 70 percent at fault, made up facts about the collision she later admitted were false, and refused to pay the full claim.
Keodalah sued Allstate as well as Smith individually, asserting claims for bad faith, violations of the Consumer Protection Act (“CPA”), and violations of the Insurance Fair Conduct Act (“IFCA”). The trial court dismissed Keodalah’s claims against Smith without a trial, ruling that insureds can’t sue individual adjusters for insurance bad faith.
On appeal, the Court of Appeals decided the trial court was wrong and that policyholders like Keodalah can sue individual insurance adjusters as well as the insurance company. The court relied on Washington insurance law which imposes a duty of good faith on “all persons” engaged in the business of insurance, including specifically “the insurer…and their representatives.” (emphasis added). Because Ms. Smith, as an insurance adjuster, “was engaged in the business of insurance and was acting as an Allstate representative,” the appeals court had no difficulty concluding Smith owed Keodalah a duty of good faith and could be sued for breaching that duty. The court also distinguished several other Washington and federal court decisions the adjuster relied on.
Keodalah has several potential implications for future insurance disputes. Obviously, the adjuster’s personal exposure adds a significant dimension to the dispute. And foreign insurers employing Washington adjusters could likely be sued in state court without removal to federal court (which is typically more favorable to the insurer), because federal courts typically only have diversity in insurance disputes where all the parties are citizens of different states.