A Washington Court of Appeals decision earlier this year that ruled adjusters can be named individually in bad faith lawsuits has raised concerns among adjusters and insurers across the country, according to Kevin Quinley, founder and principal of Quinley Risk Associates.
“This [case] has sent shock waves within the claim industry, and a lot of worries about the personal liability of insurance adjusters,” he said.
Quinley, who has an extensive background in claims, has served as an expert witness in bad faith lawsuits nationwide. In the last Claims Insights podcast of the year, he explains how the decision could impact insurers and adjusters going forward.
The case involves Moun and Aung Keodalah, plaintiffs who filed suit against Allstate Insurance and Tracey Smith, the adjuster who worked for Allstate and handled the claim.
In April 2007, Moun Keodalah was involved in a collision with a motorcyclist. The motorcyclist who struck Keodalah’s truck was killed and Moun was injured. The motorcyclist was uninsured and Keodalah’s auto insurance policy provided $25,000 in underinsured motorist (UIM) coverage.
Both the Seattle Police Department and Allstate determined the motorcyclist was traveling at a high rate of speed at the time of the collision.
Though Keodalah requested the policy limit, Allstate refused and offered $1600 instead. Allstate assessed 70 percent liability on Keodalah. When he requested an explanation for the liability assessment, Allstate raised its offer to $5000.
Keodalah sued Allstate, asserting a UIM claim. Allstate designated Smith as its CR 30(b)(6) representative. Despite having the police report and its own report in its possession, Smith claimed Keodalah ran the stop sign and was on his cell phone at the time of the accident. Prior to trial, Allstate upped its settlement offer to $15,000. Keodalah refused and the case proceeded to a jury trial.
Even at trial, Allstate maintained that Keodalah was 70 percent at fault. The jury sided with Keodalah, determining the deceased motorcyclist was 100 percent at fault and awarded Keodalah $108,868.20 for his injuries, lost wages and medical expenses.
Keodalah filed a bad faith lawsuit against Allstate and Smith. Allstate filed a motion to dismiss the complaint which led to the trial court dismissing Keodalah’s claims against Smith only. The court then submitted the case for review.
The appeals court reversed the lower court’s decision, finding that an individual employee insurance adjuster can be liable for bad faith and violation of the Consumer Protection Act (CPA) and the case was remanded to the trial court.
There are a few reasons why an adjuster might be brought in as an individual defendant. One reason, said Quinley, might be to defeat diversity.
“That is, help keep the case in state court and thwarting the removal to federal court. Why does that matter? Because conventional wisdom in bad faith cases hold that state courts are better for plaintiffs and that federal [courts] favors insurance companies,” Quinley explained. “So, to lessen the odds that a defendant can successfully move the case to federal court, you’ve got the plaintiffs in the state and you’ve got the local adjuster in the same state – that might help counter a common insurance company defense tactic.”
Another reason, he said, is intimidation.
“Under Keodalah, bad faith attorneys, especially at the pre-litigation stage, can tell an adjuster, ‘You’re acting in bad faith and I’m going to sue not just your employer, but you individually.’ That threat might cause an adjuster to pause and reexamine a claim or dispute,” said Quinley. “And some adjusters might be understandably intimidated and think twice about contesting a gray area claim that needs to be contested.”
Another possibility is to increase the defendant’s defense costs.
“If the adjuster defendant needs separate counsel, which they might, that will hike the legal fees involved in defending a bad faith claim. The carrier or the E&O carrier for the insurance company might be paying not just one defense attorney, but two. One for the insurer employer, and a separate one for the adjuster employee. So, hiking those legal fees puts more financial pressure on either the insurer or if it’s professional liability carrier to settle the claim,” he said.
The decision has raised concerns across the country. Adjusters are concerned because “they don’t have deep pockets to pay a judgment,” he said, adding that a pending lawsuit could have a domino effect of negative consequences for an individual adjuster.
“You apply for a mortgage, you apply for a car loan, you apply for a home equity line of credit, you may have to disclose any pending civil lawsuit, which could compromise your eligibility for financing,” he explained. “Let’s say you’re asked to serve on your homeowner’s association board. Or let’s say you’re applying for membership in a professional insurance organization. You may have to disclose current or past lawsuits.”
The claims handling process, employee retention and recruitment could all be impacted by the decision.
There are ways to reduce the chances of an adjuster being named in a bad faith lawsuit, Quinley said.
“I think this really underscores the importance – take reasoned liability stances,” he said.
“I think, given all the factors, no reasonable adjuster would assess liability on the part of the insured, much less 70 percent responsibility of the accident,” Quinley said. “So, I think overlooked in all of the hand wringing, all the apocalyptic visions of Keodalah is that fact that you need to align your liability and claim assessment with the facts of the case.”
Quinley pointed to the increased offer of $5000 without an accompanying explanation.
“I think another theme highlighted by Keodalah, often overlooked, is to explain the basis for any settlement offer. The plaintiff policyholder demanded the $25,000 UIM limit. In response, the carrier offered $1,600 based on its assessment that the insured was 70 percent at fault. And when Keodalah asked the insurance company to explain, it simply bumped the offer to $5,000. Of course, just raising the offer from $1,600 to $5,000 doesn’t really explain the insurance company’s evaluation,” said Quinley. “And, so, absent any explanation, absent any compelling rationale, it really smacks of low balling, which is a bad faith tactic.”
Quinley said insurers should immediately reach out to ex-employees if they happen to be named in a bad faith lawsuit.
“If they’re an ex-employee, reach out to them immediately. Let them know what’s coming,” he said. “Assure them that counsel will be provided for his or her defense. If an E&O carrier balks at this, I think it makes sense to pay it out of corporate coffers. But make sure that any ex-employee knows they won’t be abandoned, that they will have legal counsel.”
The same goes for current staff adjusters, he said.
Similar case decisions in Louisiana and Kentucky could push insurers to consider moving their claims handling staff out of those states.
“It’ll take some time to see if this plays out, but insurers and TPAs might consider relocating their claim handling staff outside those states that allow bad faith plaintiffs to name adjusters individually as defendants,” said Quinley.
Right now, the decision isn’t etched in stone, he said, since the Washington Supreme Court could overturn the ruling.
“We’ll certainly have a better handle on that in 2019. I anticipate there will be extensive briefing by insurance companies weighing in on the issue through amicus briefs,” Quinley said. “On the other hand, Washington state has a well-deserved reputation as being very plaintiff-friendly toward people who sue insurance companies. So even if it is an outlier, and even if it has not yet been etched in stone in Washington state, it’s a troubling sign in the great Northwest. Especially if other states embrace this notion under the banner of consumerism and customer rights.”
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