The Washington Supreme Court will hear a case of first impression regarding the potential for insurance adjusters to be held personally liable for bad faith. This case stems from the alleged mishandling of a driver’s accident claim by an Allstate Insurance adjuster.
The Court of Appeals, Division 1, in Washington ruled policyholder, Moun Keodalah, can assert counts for bad faith against the adjuster, as well as violations under the Consumer Protection Act, for allegedly lowballing a claim for an uninsured motorist coverage. Counsel for Allstate Insurance’s adjuster is now urging the Washington Supreme Court to reverse this ruling in order to protect public policy and the insurance industry.
In the underlying matter, policyholder, Moun Keodalah, and a motorcyclist were involved in a collision in April of 2007. Mr. Keodalah entered an intersection after stopping at a stop sign when he was struck by a motorcyclist. The resulting collision injured Mr. Keodalah and killed the motorcyclist. Subsequent police investigation revealed Mr. Keodalah was not on his phone at the time of the incident and the motorcyclist was traveling over 70 m.p.h. in a 30-m.p.h. zone.
The motorcyclist was uninsured at the time of the collision. Mr. Keodalah maintained automobile insurance through Allstate Insurance, which provided uninsured motorist coverage. The limit of Mr. Keodalah’s uninsured motorist policy was $25,000.00.
Allstate Insurance conducted its own investigation of the incident, and several witness informed Allstate the motorcyclist was traveling much faster than the speed limit. Witnesses also indicated the motorcyclist had proceeded between cars in both lanes and “cheated” at the intersection. Allstate’s own accident reconstructionist confirmed the motorcyclist’s excessive speed was the cause of the collision, and the motorcyclist had been traveling in excess of 60 m.p.h., which is at least 30 m.p.h. over the posted speed limit of the road on which he was traveling at the time of the incident.
Following Allstate Insurance’s investigation of the accident, Mr. Keodalah requested Allstate to pay him the policy limit for uninsured motorists, $25,000.00. Allstate refused, and offered to settle the claim for $1,600.00, which was less than 10% of policy limits. Allstate contended Mr. Keodalah was 70 percent at fault for the accident, despite it finding the motorcyclist’s excessive speed was the cause of the incident and several witness statements to the contrary. Mr. Keodalah asked Allstate to explain its position, at which point Allstate increased its offer to $5,000.00.
Mr. Keodalah proceeded to file suit against Allstate, asserting a claim for his policy limit. Allstate assigned adjuster Tracey Smith to the case, who claimed Mr. Keodalah ran a stop sign and was on his phone at the time of the incident, despite the facts from Allstate’s investigation and statements from numerous witnesses. Allstate offered to settle the claim for $15,000.00 prior to trial, which Mr. Keodalah refused, and the case proceeded. Mr. Keodalah was awarded $108,868.20 for his injuries at trial, and the jury found the motorcyclist was 100% at fault. Allstate’s adjuster, Tracey Smith later admitted Mr. Keodalah was not on his phone and did not run the stop sign.
Mr. Keodalah then filed a second suit against Allstate, alleging claims against Mr. Smith for insurance bad faith and violations under the Consumer Protection Act. Washington’s Court of Appeals, Division 1, considered the questions of: (1) whether an insurance adjuster may be personally liable for bad faith, and (2) whether an adjuster may be liable for violations of the Consumer Protection Act. The Court of Appeals found an adjuster may be liable for both bad faith and violations of the Consumer Protection Act. The Court of Appeal’s holding is now on appeal before the Supreme Court of the State of Washington.
What are the Potential Effects of Washington Supreme Court’s Decision?
This case, now in front of Washington’s Supreme Court, has the potential to create significant repercussions for insurance adjusters in Washington. If the Supreme Court affirms this decision, the risks faced by insurance adjusters would increase exponentially, without providing any additional benefit to policyholders. Supporters of the lower court’s decision argue that personal bad faith liability for adjusters would provide motivation to favor the interests of the insured over the interest of the insurer.
The number of bad faith claims made against insurance adjusters would almost certainly increase the cost of insurance in Washington. The cost of this increase in litigation would ultimately be borne by policyholders, whose rates would also increase. Several insurance companies have filed amicus briefs warning of these dangers.
The other potential danger of such a ruling is its unintended effects on settlement negotiations. If an insurer is unable to pay a judgment, it is highly unlikely that an individual adjuster would be able to bear the cost. However, including an adjuster as a defendant may be used as a way to hold employees of an insurance company hostage until a settlement agreement is reached.
The use of personal liability against adjusters would raise the cost of insurance policies with little benefit to policyholders. Adjusters would be unlikely to personally satisfy a judgment but would become fearful of potential bad faith suits, resulting in more generous settlement offers. These offers would come at the expense of policyholders throughout the state forced to pay higher premiums.
Pending the outcome of the Supreme Court’s decision, there may be a significant change to the potential liability an adjuster faces in Washington. If the Supreme Court affirms the lower court’s decision, adjusters will begin to face the risk of personal liability for their decisions. This decision can change the entire landscape of insurance defense in Washington and will almost certainly lead to an increase in the cost of insurance in Washington.