At last fall's White and Williams Coverage College in Philadelphia I did a program on the ten most significant coverage decisions of the past decade.  I included the Washington Supreme Court's 2019 decision in Keodalah v. Allstate.  The high court held that an insurer-employee claims adjuster could not be sued for bad faith under Washington's Consumer Protection Act.

This bad-faith-against-an-adjuster issue had arisen in a few states. But the earlier decision, from the Washington Court of Appeals, which had permitted an adjuster to be sued for bad faith, raised the issue's profile and brought it to the forefront.  As I saw it, if the Washington Supreme Court had let the appeals court decision stand, it would have armed policyholder counsel with a tool to seek to expand it to other states.

A key rationale in naming adjusters in bad faith cases is to destroy diversity of citizenship.  The adjuster – often being local to the claim -- may be in the same state as the plaintiff-policyholder.  So if the policyholder sues the insurer in state court – where it wants to be -- the insurer cannot remove the action to federal court as there is no diversity of citizenship. 

I chose Keodalah, as one of the decade's ten most significant coverage decisions, for the reason that it closed the door on a potentially significant issue. 

Prior to my presentation, I was speaking to Geoff Bedell and Cristin Cavanaugh, of Seattle's Soha & Lang, about the case.  They came cross-country to attend the Coverage College – and brought the rain.  For my money, Soha & Lang is the go-to firm in Washington State for insurers faced with the many well-known challenges that the jurisdiction presents for them.

Geoff and Cristin pointed out that, yes, the Washington Supreme Court's Keodalah decision put the kibosh on bad faith claims against adjusters under Washington's Consumer Protection Act.

BUT, they cautioned, some Washington federal courts (erroneously to their mind) had focused on the dissent, rather than the controlling majority opinion, to conclude that the possibility of common law bad faith claims against an insurer-employee claims adjuster remained opened.

Lo and behold, subsequent to that conversation, at least four Washington decisions have ruled exactly as Geoff and Cristin had noted – common law bad faith claims against an adjuster were allowed to proceed.  It comes as no surprise that these lawyers, who speak Washington coverage law so fluently, were so prescient on this issue.     

In the most recent case, Lee v. Amica Mut. Ins. Co., No. 24-cv-00591 (W.D. Wash. July 3, 2024), the Washington federal court addressed the bad faith issue in a diversity of citizenship context – as is so often the case.  The court rejected the insurer's argument that the bad faith claim against the non-diverse adjuster [a non-employee here] should be dismissed – because there is no basis for the claim – which would then restore diversity and allow the claim to remain in federal court.  The case had been filed in state court and removed to federal court by the insurer. 

The court stated: "Defendants [insurer] also fail to consider relevant federal authorities interpreting Keodalah. In recent years, this District has had ample opportunity to specifically determine whether the Washington Supreme Court in Keodalah closed the door on common law bad faith insurance claims against individual insurance adjusters. The overwhelming consensus is that it has not. Courts in this District—including this one—have repeatedly found that Keodalah left open opportunities for consumers to pursue personal liability against insurance adjusters who have acted in bad faith under a common law theory."

Just as the Soha & Lang attorneys specifically told me could happen, despite the Keodalah decision being touted as the death knell for bad faith claims against adjusters in Washington.