Fraud fighting could be seriously compromised if a state court ruling allowing bad faith suits against insurer employees is allowed to stand, the Coalition Against Insurance Fraud warns Washington state’s highest court.
The court ruling will cause a chilling effect. It will discourage insurers and their employees from thoroughly investigating suspect claims and sending referrals to law enforcement for prosecution, the Coalition says in an amicus friend-of-the-court brief filed recently with the state Supreme Court.
No other state extends bad faith to individuals to this degree. Yet investigators and other insurer personnel involved in a claim can be personally sued under a 2018 court decision in Washington, the Coalition contends.
This ruling “will result in significant individual harm to investigators, experts, doctors, lawyers, and many others who may be only tangentially involved in the handling of an insurance claim,” the Coalition warns.
A claims adjuster in a crash injury case can be held personally liable for bad faith, and forced to pay treble damages and attorney fees, the lower court ruled in Keodalah vs. Allstate. The case was appealed to the state Supreme Court, with oral arguments set for late February.
Insurers should be held to high standards of good faith, and encouraged to pay legitimate claims fairly and promptly. When they don’t, courts should punish them.
But investigators and claims handlers should not be forced to decide between protecting their personal finances and fraud fighting. Organized rings likely will threaten suit to gain leverage and get suspect claims paid, the Coalition warns.
Even suits that are later dismissed can damage an investigator’s or adjuster’s personal credit and ability to get a mortgage. Fraud fighters also could lose jobs, promotions and professional licenses when these civil actions show up on background checks, the Coalition contends.
“Such practice would impair the entire system of fraud detection and prevention,” the Coalition notes. Consumers would receive no added protections from bad faith, and premiums would rise under the weight of increased fraud in the state.
Fraud fighters have a statutory duty to combat fraud in Washington. State law gives insurers civil immunity to encourage them to report suspect claims. The Keodalah ruling runs counter to both of these public policies to reduce fraud.
“By upsetting the balance between an insurer’s duty to treat claims in good faith and their duty to ferret out fraud, the Court of Appeals has unwittingly given a free pass to fraudsters,” the Coalition contends.
Source: Coalition Against Insurance Fraud
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