In the thousands of cases handled by insurers on a monthly basis, there are allegations in a distinct sub-set that the insurer improperly handled or adjusted the claim.
The normal course for an allegedly wronged policyholder is to turn to either common law or statutory bad faith as a potential remedy. In those cases, a judge or jury analyze the reasonableness of the actions taken by the insurer and its personnel.
In a recent case by the Supreme Court of Appeals of West Virginia, the Court found that insurance adjusters might be individually liable for their alleged mis-handling of an insurance claim. Taylor v. Nationwide Mutual Insurance Company and Scarlett Tarley, 2003 WL 22762025 (W.Va. Nov.21, 2003).
In Taylor, the Court was presented with the following certified question from the United States District Court for the Northern District of West Virginia: Does a cause of action exist in West Virginia to hold an insurance company’s employee claims adjuster personally liable for violations of the West Virginia Unfair Trade Practices Act? In short, the Court found that such a cause of action does exist.
The facts of the case are relatively straightforward. In March of 1998, Thomas Taylor purchased an automobile insurance policy from Nationwide through a Maryland broker. In December of 2001, Taylor was involved in a two-car accident in which he was injured. The driver of the other vehicle was determined to be at fault, and Taylor settled for the limit of liability available on the other driver’s policy.
Taylor subsequently filed a claim with Nationwide to receive underinsured motorist coverage on his Nationwide policy. The underinsured limits on the declarations page of Taylor’s policy listed $20,000 per person and $40,000 per occurrence. Taylor contended that the stated limits were incorrect because Nationwide had failed to provide him the opportunity to purchase optional levels of underinsured coverage as required by law.
Ms. Tarley, an internal claims adjuster who was employed by Nationwide informed Taylor that Nationwide’s position was that the policy limits were $20,000. Tarley further informed Taylor, “we have found the waivers to be valid in regards to this matter,” and that Nationwide was issuing him a check for the policy limits.
Taylor subsequently filed suit in the Circuit Court of Jefferson County, West Virginia. The suit included counts alleging breach of fiduciary duty, breach of contract, and bad faith against Nationwide, and unfair claims settlement practices against both Nationwide and Tarley. Nationwide and Tarley filed a notice of removal to federal court, contending that Tarley had been fraudulently joined as a party in order to defeat diversity jurisdiction as there was no actionable claim under West Virginia law against arley. The federal district court certified the question and asked for a ruling from the West Virginia court.
In analyzing the question presented, the Court initially noted that West Virginia courts had already construed there to be a private cause of action under the state’s unfair claims practices act. See, Jenkins v. J.C. Penney Cas. Ins. Co., 167 W.Va. 597, 280 S.E.2d 252 (1981), overruled on other grounds, State ex rel. State Farm Fire & Cas. Co. v. Madden, 192 W. Va. 155, 451 S.E.2d 721 (1994). Despite arguments from the defendants premised on public policy, statutory construction, and agency law, the Court concluded that a cause of action existed against an individual insurance adjuster under the Act. Relying on the Act’s language prohibiting any “person” from engaging in an unfair method of competition, the court opined that the legislature’s broad intent was to include all individuals within the purview of the act.
There is some question as to how far-reaching this decision will be in its application.
The Court identifies in a footnote to the opinion that a majority of states do not recognize a right to bring a private cause of action under unfair claim settlement practices statutes. Thus, the concept of individual claim adjuster liability in this context would be limited to those jurisdictions where such an action is permitted. Nonetheless, public policy would appear to have mandated a different decision than is adopted by this case. One can easily see the lengths to which this decision may be used to exert undue pressure on insurers and their personnel. Such public policy concerns went unheard by this court.
In an additional footnote the Court states, “Amicus curiae … asserts … that holding a claims adjuster personally liable for violations of the Unfair Trade Practices Act fails to advance the policy of the Act, “one iota.” This Court differs in that we believe that our holding furthers the Act’s goal of preventing unfair or deceptive practices in the business of insurance. It does so by providing a powerful deterrent … to the commission of such acts.”
Questions remain whether this new sword will be used sparingly and how far policyholders will attempt to have other states adopt a similar view.
Andrew S. Boris is a partner in the Chicago office of Tressler Soderstrom Maloney & Priess. His practice is focused on litigation and arbitration of insurance coverage and reinsurance matters throughout the country, including general coverage, directors and officers liability, professional liability, environmental, and asbestos cases. Questions and responses to this article are welcome at firstname.lastname@example.org The Tip of the Month runs each month on claimsguides.com.
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