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Vol. 4, Iss. 7
July 15, 2015

Two Courts Hold That Adjuster Can Be Personally Liable For Wrongful Claims Handling Conduct



Needless to say, claims adjusters won’t be happy with the Texas federal court’s decision in Linron Properties v. Wausau Underwriters Insurance Co., No. 15-293 (N.D. Tex. June 16, 2015). The court held that an adjuster could be personally liable for her wrongful conduct in handling a claim.

Linron Properties sued Wausau Insurance and insurance adjuster Sara Springman for the improper handling of an insurance claim under a property policy. Linron sought coverage for the cost of repairs from a storm. Wausau hired Springman to serve as the adjuster. Linron asserted that Springman “conducted an outcome-oriented investigation and also hired experts she knew would under-scope Plaintiff's damages in order to allow Wausau to avoid payment on the claim.” Linron claimed that, as a result, it was wrongfully denied full coverage for the damages sustained to the property.

Linron filed suit against Wausau, as well as against Springman for violations of chapter 541 of the Texas Insurance Code, including for “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim.” The court explained that, “[u]nder the Insurance Code, an individual who has been damaged by ‘unfair methods of competition or unfair or deceptive acts or practices in the business of insurance’ may bring a cause of action against the ‘person or persons engaging in such acts or practices.’ The Insurance Code defines a “person” as any “legal entity engaged in the business of insurance, including an ... adjuster.”

The Linron court noted that both the Texas Supreme Court and the Fifth Circuit have recognized that an insurance adjuster may be held individually liable for violating chapter 541 of the Insurance Code. The court also pointed out that, despite the abundance of case law supporting adjuster liability under § 541.060, some courts have recently begun to question the appropriateness of holding an adjuster individually liable for unfair settlement practices. These courts have gone in this direction because an adjuster “does not have settlement authority on behalf of [the insurance company]” and his or her “sole role is to assess the damage.”

Nonetheless, despite some courts getting away from holding an adjuster individually liable for unfair settlement practices, the Linron court was not prepared to join them. The court explained: “[W]hile the courts’ reasoning in these cases has some logical appeal, a closer examination of the precise language of § 541.060(a)(2)(a) and the role played by insurance adjusters in the claims handling process belies their conclusions.”

The Linron court analyzed the statutory language as follows:

“Section 541.060(a) (2)(A) prohibits those engaged in the business of insurance from ‘failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement.’ Webster’s defines the word ‘effectuate’ by reference to the definition for ‘effect,’ meaning ‘to cause to come into being’ or ‘to bring about.’ The fact that the statute uses the word ‘effectuate’ rather than a word that conveys finality (e.g., finalize), suggests that its prohibition extends to all persons who play a role in bringing about a prompt, fair, and equitable settlement of a claim.

As the persons primarily responsible for investigating and evaluating insurance claims, insurance adjusters unquestionably have the ability to affect or bring about the ‘prompt, fair, and equitable settlement’ of claims, because it is upon their investigation that the insurance company’s settlement of a claim is generally based. . . . As such, a delay in an adjuster’s investigation will undoubtedly cause a delay in the payment of the claim, and an insufficient investigation may well lead to a less than fair settlement of a claim.”

Following this interpretation of the statute, the Linron court turned to the specific matter at hand and held that Springman’s actions – retaining an engineer and contractor who were known for arriving at findings that favored insurance companies, refusing to identify damage to the structure that was covered under the Policy, and failing to respond to Linron’s inquiries regarding the status of the claim and payment -- were sufficient to support a claim against her, in her individual capacity, for violating § 541.060(a)(2)(A) of the Insurance Code.

[Update: Just as this edition of Coverage Opinions was going to press the Eastern District of Pennsylvania handed down Kennedy v. Allstate, No. 15-2221 (E.D. Pa. July 8, 2015) where the court held that insureds stated colorable claims for negligence and violation of the Pennsylvania Uniform Trade Practices and Consumer Protection Law. The insureds argued that adjusters affirmatively misrepresented and concealed material facts from them to delay the resolution of their claims.]

 
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