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Vol. 9 - Issue 1
January 8, 2020


Keodalah v. Allstate Insurance Company (Supreme Court Of Washington)

Claims Adjuster Can Not Be Sued For Bad Faith Under Washington’s Consumer Protection Act

In Keodalah v. Allstate Insurance Company, No. 95867-0 (Wash. Oct. 3, 2019) the Washington Supreme 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 has arisen in a few states. But the Washington appeals court’s decision, which had permitted an adjuster to be sued for bad faith, raised its profile and brought it to the forefront.  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.

Even if the Washington high court had allowed a bad faith claim to go forward, I do not believe that there would have been a tidal wave of states that followed Keodalah.  However, the issue would have likely become part of some claims conversations.  And even if a bad faith claim against the adjuster is entirely baseless, might an adjuster, facing the threat of it, and all that would flow from such a suit being filed against him or her, have a change of heart in the handing of the claim?  Policyholder counsel would be able to use this as leverage in pursuing coverage.  But, with the Washington high court not allowing a bad faith claim to be brought, I believe that the air has come out of this balloon.  So I chose Keodalah, as one of the year’s ten most significant coverage decisions, not for opening the door on an issue, but, rather, closing it.  

For a discussion of the Washington Supreme Court’s decision in Keodalah v. Allstate Insurance Company, and its interesting dissent, which seems to suggest, not so fast, the door may not be shut, I turn it over to guest author, Tim Carroll, Associate, White and Williams.

Keodalah v. Allstate Insurance Company

By: Tim Carroll
White and Williams, LLP

On October 3, 2019, the Washington Supreme Court handed down its highly anticipated decision about whether an insurance company-employed claims adjuster can be sued for bad faith under RCW 48.01.030 — a statute imposing a duty of good faith on “all persons” in the “business of insurance” — and for claims brought under Washington’s Consumer Protection Act (CPA).  In a wafer thin 5-4 decision, the court held that adjusters “are not subject to personal liability for insurance bad faith or per se claims under the CPA.”  A dissenting opinion raises questions about whether the majority’s decision forecloses a common law bad faith claim against adjusters — “an issue the majority fail[ed] to address,” according to the dissent — and certain other per se claims under the CPA. 


In Keodalah, an insured sued his insurer and the insurer’s employee — an adjuster assigned to handle the insured’s claim — for bad faith and violations of the CPA and Insurance Fair Conduct Act (IFCA), RCW 48.01.030, arising out of a claim the insured made for underinsured motorist coverage.  The insured, who was operating his truck, and a motorcyclist collided after the insured stopped at a stop sign to cross the street.  The collision killed the motorcyclist, who was uninsured, and injured the insured who, as a result, submitted a claim for the $25,000 limit of his UIM coverage.

The Seattle Police Department determined that the motorcyclist was traveling at least 70 mph in a 30 mph zone.  Also, the insurer’s investigation revealed that “the motorcyclist had been traveling faster than the speed limit, had proceeded between cars in both lanes, and had ‘cheated’ at the intersection.”  Further, the insurer’s accident reconstructionist concluded that the insured stopped at the stop sign, the motorcyclist was traveling at least 60 mph, and “the motorcyclist’s ‘excessive speed’ caused the collision.”  After this investigation, Allstate offered $1,600 to settle the insured’s policy-limits claim.  The insured rejected the offer and sued the insurer, asserting a UIM claim. 

At trial on the UIM claim, the jury determined that the motorcyclist was 100% at fault and awarded the insured over $100,000 in damages.  Following the award, the insured filed a second lawsuit against the insurer and, this time, the adjuster assigned to the claim, seeking damages for bad faith and CPA/IFCA violations.  The trial court dismissed the insured’s claims against the adjuster, leading to the appeal whether an adjuster may be liable for bad faith and CPA/IFCA violations under Washington law. 

The Washington Court of Appeals reversed the trial court’s dismissal, holding that the statutory duty of good faith imposed under the IFCA (RCW 48.01.030) applied to individual insurance claims adjusters.  The Court of Appeals also held that violation of that statutory duty may serve as a basis for bad faith and CPA claims against adjusters.  The adjuster in Keodalah appealed, and the Washington Supreme Court reversed the Court of Appeals, holding that RCW 48.01.030 does not serve as a basis for bad faith and CPA claims against individual adjusters.  The Court also held that the insured’s other CPA claims, based on alleged violations of “unfair claims settlement practices, as defined in the Washington Administrative Code” (WAC), can only be brought against insurers — not individual claim adjusters. 

Washington Supreme Court Decision

The Washington Supreme Court addressed the insured’s claims one by one, knocking each one out as it toured statutory language, legislative history, and Washington’s case law. 

First, the Supreme Court determined that the duty of good faith imposed under RCW 48.01.030 does not create a private cause of action against an insurance company-employed claim adjuster.  The “plain language” of RCW 48.01.030, the Supreme Court observed, indicates that “the statute is intended to benefit the general public” and not insureds seeking to recover from adjusters.  “If we were to read the statute to imply a cause of action,” the Supreme Court added, “such implied cause of action would apply against insureds as well,” which would allow insurers to sue their insureds for bad faith.  Such a result would “not be consistent with the legislature’s purpose in enacting [RCW 48.01.030],” the Court concluded. 

Next, the Supreme Court examined the insured’s CPA claims against the adjuster — but rejected them all.  The insured based his CPA claims against the adjuster on “unfair settlement practices,” as defined in the WAC, and on “bad faith conduct” in violation of IFCA (RCW 48.01.030). 

As for the CPA claims based on alleged violations of the WAC, the Supreme Court concluded that only “the insurer” — not an adjuster — can be held liable for “unfair settlement practices” under the WAC.  The court explained:  “Smith did not owe Keodalah a duty under that regulation because that regulation defines only unfair acts or practices of the insurer,” and “[b]ecause Smith is not the insurer, Keodalah cannot seek to enforce the regulation against Smith.” 

The Supreme Court then turned to, and ultimately rejected, the insured’s CPA claim based on a violation of the duty of good faith under RCW 48.01.030.  Reiterating its prior conclusion that RCW 48.01.030 “does not itself provide an actionable duty,” the court held that a “breach of duty of good faith under the CPA” may be brought only against the insurer — not an adjuster employed by an insurer.  Thus, the Court concluded, “[b]ecause Keodalah claims a breach of the duty of good faith by someone outside the quasi-fiduciary relationship,” i.e., an adjuster, “his CPA claim based on RCW 48.01.030 was properly dismissed” by the trial court. 

The Washington Supreme Court’s majority opinion was joined by four justices.  The dissenting opinion was joined by three justices. 

The Dissent

Five-to-four splits in high courts tend to leave fissures — some long-lasting — and the Keodalah has its share.  The dissenting opinion raises questions about whether an adjuster (or other insurance company agent) can be held liable for common law bad faith and certain other per se claims under the CPA. 

The dissent stated that they “would hold that Keodalah’s complaint states a viable cause of action for common law insurance bad faith against Smith [the adjuster], an issue the majority fails to address.”  The dissent discussed the procedural history of the case, including in its view that the insured’s common law bad faith claim was never addressed by the Court of Appeals, and should have been addressed by the Supreme Court, or in the trial court on remand.  The dissent also advocated for formal recognition of a common law bad faith claim against adjusters, relying for support on several jurisdictions (Alaska, Colorado, Mississippi, Montana, New Hampshire, Oklahoma, Rhode Island) which, in the dissent’s view, recognize some form of claim against adjusters or other company agents.  But the dissent also turned to Washington’s own case law, which does not tie the duty of good faith to a contractual relationship, as well as to “policy, common sense, logic, and justice,” as additional bases for creating a bad faith claim against adjusters. 

The lingering questions raised by the dissenting opinion in Keodalah beget another, more practical question.  A trend emerged after the Washington Court of Appeals’ decision temporarily enabled a bad faith claim against adjusters.  State court bad-faith suits began naming as defendants both the out-of-state insurance company and the Washington-domiciled adjuster, for the seeming purpose of destroying diversity of citizenship and blocking removal to federal court.  Once removed, Washington federal courts ruled that the adjusters were properly joined as defendants because the claims against the adjusters were viable.  Without diversity of citizenship, therefore, Washington federal courts relinquished jurisdiction and remanded the suits back to state court.  The Keodalah decision suggests that trend should reverse itself.  However, in light of the dissenting opinion, will Washington federal courts go back to remanding cases to state court, for lack of diversity, based on common law bad faith claims against a Washington-domiciled adjuster being viable? 

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