Washington Supreme Court Bars Bad Faith and CPA Claims Against Adjuster

From the desk of Joshua Hayward:  After the Washington Court of Appeals ruled that individual insurance adjusters could be sued personally for bad faith and Consumer Protection Act (“CPA”) violation claims in 2018, the Washington Supreme Court reviewed that decision. 

Case Pointer: In its 2018 decision in Keodalah v. Allstate Insurance Co., 3 Wn. App. 2d 21, the Washington Court of Appeals departed from prior Washington court decisions when it held that an insured could maintain a private cause of action for statutory bad faith and CPA violations against an individual insurance adjuster. The Washington Supreme Court granted review to determine whether RCW chapter 48.01.030 provides a basis for an insured’s bad faith and CPA claims against an employee claims adjuster. The Court reversed the Washington Court of Appeals decision and held that these claims are not available.  

Keodalah v. Allstate Insurance Co., 194 Wn.2d, 449 P.3d 1040 (October 3, 2019).  

As a preliminary matter, appellate courts review a trial court’s dismissal in this type of proceedings by assuming that the allegations contained in the plaintiff’s complaint are true and accurate. This means that the facts presented by the court in this ruling and set forth below are likely to be disputed by the defendants. The “facts” discussed below are only allegations made by the plaintiff, and no factual determination has been made. 

While driving his truck in April of 2007, Mr. Keodalah, the insured, was struck by a motorcyclist at an intersection. The Seattle Police Department, several witnesses, and an accident reconstructionist hired by Allstate Insurance Company (“Allstate”) all determined that the motorcyclist was travelling at an excessive rate of speed prior to the accident, that Mr. Keodalah was not on his cell phone, and that he did not run the stop sign. The insured requested that Allstate pay him the underinsured motorist (UIM) policy limit of $25,000. Allstate did not offer the limits, and instead offered to settle the claim for $1,600. Allstate explained the offer by stating that it had determined that the insured was 70% at fault. According to the allegations in the lawsuit, the insurance adjuster for Allstate initially maintained that Mr. Keodalah ran the stop sign and was on his cell phone at the time of the accident, despite evidence to the contrary. Mr. Keodalah then filed a UIM claim. The settlement offer was later raised to $5,000, and again to $15,000 just prior to trial. The case went to trial where the jury determined that the motorcyclist was 100% at fault.  

After the trial, the insured filed a second suit against Allstate which also included claims against the individual adjuster.  He alleged violations of the Washington Insurance Fair Conduct Act (“IFCA”), RCW 48.30, insurance bad faith, and CPA violations. The trial court granted Allstate’s motion to dismiss, certifying the partial dismissal for discretionary review.  Discretionary review was granted by the Washington Court of Appeals regarding (1) whether IFCA creates a private cause of action for violation of a regulation, (2) whether an individual insurance adjuster may be liable for bad faith, and (3) whether an individual insurance adjuster may be liable for a violation of the CPA. The Court of Appeals held that the IFCA does not create a private cause of action, and this decision was not reviewed by the Supreme Court. The Court of Appeals however, also held that an insurance adjuster’s violation of the statutory duty of good faith imposed by RCW 48.01.030 could serve as a basis for bad faith and CPA claims. 

In a 5-4 split decision, the Washington Supreme Court, reviewed en banc and reversed the decision of the Court of Appeals. The Court first examined whether RCW 48.01.030 created a private right of action. In its analysis, the Court relied on the test laid out in Bennett v. Hardy, 113 Wn.2d 912 (1990). Under this test, a statute creates an implied private right of action when (1) “the plaintiff is within the class for whose benefit the statute was enacted,” (2) “legislative intent, explicitly or implicitly, supports creating or denying a remedy,” and (3) “implying a remedy is consistent with the underlying purpose of the legislation.” This first prong is not met “if the statute in question benefits the general public rather than an identifiable class of persons. Pursuant to its determination, the court looked to RCW 48.01.030 itself, which states: 

The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Upon the insurer, the insured, their providers, and their representatives rests the duty of preserving inviolate the integrity of insurance. 

The Court explained that the statute clearly relates to the benefit of the public interest, rather than to the benefit of particular insureds, and thus it did not meet the first prong of the Bennett test.  

Next, the Court looked to the relevant statutory and historical authority and determined that the legislature did not intend to imply a cause of action for violations based on RCW 48.01.030. It relied on the fact that the insurance code provides several specific enforcement provisions, suggesting that the omission of a private cause of action was intentional. Further, the Court reiterated that the common law duty of good faith had already been established when RCW 48.01.030 was enacted and that the statute was not intended to alter the common law. The Court decided that this portion of the code was more akin to a broad statement of public policy and not an additional separate cause of action.  

In examining the last prong of the Bennett test, the Court acknowledged the overarching effect allowing such causes of action would have, and how this effect was not intended by the legislature. The Court reiterated that the legislative intent was to “support the insurance code’s specific enforcement mechanisms and the existing common law cause of action for insurance bad faith as a matter of policy.” By implying a cause of action under RCW 48.01.030, liability could potentially extend even to the insured, and would empower an insurer to sue their insureds, something the Court stated the legislature did not intend. In the Court’s view, “subjecting every person and entity listed in RCW 48.01.030 to liability would not be consistent with the legislature’s purpose.” Thus, the Court concluded that RCW 48.01.030 does not create an implied cause of action for insurance bad faith.  

The Court next analyzed whether Mr. Keodalah’s CPA claims based on WAC regulatory violations and based on the violation of RCW 48.01.030 could be brought against an individual adjuster. Mr. Keodalah’s complaint alleged per se violations of several WAC provisions, including WAC 284-30-330(2), (4), (6), (7), (8), and (13). The Court noted that these subsections are preceded by language which states that they are defined as examples of unfair methods of competition or practices of the insurer. The Court relied heavily on this language in concluding that because the adjuster is not an insurer, Mr. Keodalah cannot seek to enforce the regulations against an individual adjuster and therefore, his CPA claims based on alleged violations were not permissible.  

Finally, the Court considered whether RCW 48.01.030 was a proper basis for Mr. Keodalah’s CPA per se violation claims. The Court looked for guidance from its prior decision in Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381 (1986). In this decision, the court determined that insureds could bring a private action against the insurer for a breach of the duty of good faith under the CPA, and that a breach of the duty of good faith by an insurer constitutes a per se violation. Based on this, the Court explained that just as it had “limited bad-faith tort claims to the context of the insurer-insured relationship, so has it limited CPA claims based on breach of the statutory duty of good faith.” This means that although Mr. Keodalah can sue Allstate, he cannot also sue the adjuster, who is outside the quasi-fiduciary relationship. Accordingly, the Washington Supreme Court concluded that employee adjusters are not subject to personal liability for insurance bad faith or per se claims under the CPA.