When considering hiring a public, or independent, adjuster for work in Washington, the claims person must begin the process of vetting possible candidates and documenting their reason behind their choice. Based on two recent Washington court rulings, one state court case and one federal district court case, the actions of the public adjuster may be imputed to the claims person under certain circumstances. The number of proponents of bad faith claims is growing and their ability to sue additional parties is reaching farther.
Judge Marsha Pechman of the United States District Court for the Western District of Washington recently determined that misrepresentations made by a public adjuster can be imputed to an insured. See Reverse Now v. Oregon Mutual Ins., 2:16-cv-00209-MJP, Dkt.#106. On September 20, 2018, Judge Pechman issued an Order granting an insurer’s Motion for Summary Judgment seeking a finding of misrepresentation and concealment by its insured, thereby effectively voiding the policy. The insured in Reverse Now v. Oregon Mutual Ins., Reverse Now, owned an apartment complex that was insured by Oregon Mutual and was damaged in a fire. Oregon Mutual retained an independent adjuster to investigate the scope of repairs and cost for such. Reverse Now also hired a public adjuster to do the same. Later, the parties entered into an appraisal process allotted in the policy. Part of the appraisal process was for each party to select a “competent and impartial appraiser.” The appraisal process concluded that Oregon Mutual owed additional sums for the repairs.
Before the appraisal process concluded, Reverse Now filed suit against Oregon Mutual asserting breach of contract, bad faith, IFCA violations, fraud and CPA violations. During the discovery process, Oregon Mutual learned that Reverse Now’s public adjuster was not licensed in the Washington State. Moreover, Reverse Now’s adjuster was “best friends” and long-time business partner with Reverse Now’s selected impartial appraiser. Given this, Oregon Mutual amended their Answer to include claims for misrepresentation and concealment.
Both parties moved for summary judgment. In order to prevail, Oregon Mutual had to prove Reverse Now knowingly made a material misrepresentation, i.e., knowingly concealed the extent of the loss, the public adjuster’s lack of a license, and lack of impartiality by the appraiser. Accordingly, the Court found that Reverse Now knowingly misrepresented material information to Oregon Mutual and that Reverse Now knew that its public adjuster did not have a valid license during the time he worked on the fire damage claim. Also, the Court found that Reverse Now knew that its adjuster and the appraiser had a long term friendship which they failed to disclose to Oregon Mutual. Finally, the Court determined that Reverse Now’s principal had knowledge of these misrepresentations and failed to disclose them to Oregon Mutual.
Most importantly, Judge Pechman ruled that, as a case of first impression, the facts in Reverse Now v. Oregon Mutual Ins. enabled the Court to impute the misrepresentations by the adjuster to Reverse Now, the insured. Accordingly, the Court found that the adjuster was acting as an agent for the insured, and in so doing, had authority to act. However, if the Court did not impute the misrepresentations on Reverse Now, then Reverse Now would have been able to disclaim the adjuster’s acts. Thus, as a matter of public policy, such a disclaimer could not be allowed because it would lead to windfalls, as seen here. As such, Judge Pechman found that Reverse Now knowingly misrepresented and concealed material facts to Oregon Mutual, which then led to the policy being voided.
In accordance with the issues addressed in Reverse Now v. Oregon Mutual Ins., Washington State courts are starting to critique the entire claims adjusting process. For example, in Keodalah v. Allstate ins. Co., the Washington Court of Appeals found that a claims person could be sued for bad faith. The Keodalah court held that Washington’s statute requiring “good faith” in the business of insurance applies to insurers and those acting on behalf of insurers: “Smith was engaged in the business of insurance and was acting as an Allstate representative. Thus, under the plain language of the statute, she had the duty to act in good faith. And she can be sued for breaching this duty.”
Additionally, Tyson & Mendes had the opportunity to represent an engineer whom was hired to assist with investigating the cause of, and scope of repair for, commercial property water damage. The claims against the engineer were that he assisted with bad faith and unfair dealings by the insurer and the claims person, when the claims were denied. This case, in addition to Keodalah v. Allstate ins. Co., are just a few examples of the trend toward the assertion of bad faith actions against persons throughout the entire claims adjustment process, and that it is getting worse. Judge Pechman’s decision appears to be made in the same vein, that is, the claims adjustment process will be further scrutinized and the tenants of good faith with fair dealings will be increasingly enforced.