Keodalah v. Allstate Ins. Co.
[citation not yet available] (2019)
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Rule of Law:
Washington's RCW 48.01.030, a general statement of public policy requiring good faith in insurance matters, does not create an implied private cause of action for insurance bad faith or Consumer Protection Act (CPA) violations against individual employee claims adjusters. Such claims against adjusters are generally limited to the insurer-insured relationship, not extending to individual employees.
Facts:
- In April 2007, Moun Keodalah, while driving his truck, collided with an uninsured motorcyclist after stopping at a stop sign and beginning to cross the street, resulting in the motorcyclist's death and injuries to Keodalah.
- Investigations by the Seattle Police Department (SPD) and an independent firm, Traffic Collision Analysis Inc. (TCA), concluded that the motorcyclist was traveling at an excessive speed (70-74 m.p.h. in a 30 m.p.h. zone) and was 100% at fault, while Keodalah had stopped at a stop sign and was not on his cell phone.
- Keodalah, who had underinsured motorist (UIM) coverage with Allstate Insurance Company, sought his $25,000 policy limit from Allstate.
- Allstate initially offered Keodalah only $1,600, then $5,000, based on an internal assessment that Keodalah was 70 percent at fault, despite evidence to the contrary.
- Allstate's claims adjuster, Tracey Smith, initially claimed Keodalah had run the stop sign and was on his cell phone, before later admitting these claims were untrue and unsubstantiated.
- A jury eventually found the motorcyclist 100 percent at fault and awarded Keodalah $108,868.20 for his injuries and expenses.
Procedural Posture:
- Moun Keodalah sued Allstate Insurance Company in a trial court (court of first instance) asserting a UIM claim.
- The UIM claim proceeded to a jury trial.
- The jury determined the motorcyclist was 100 percent at fault and awarded Keodalah $108,868.20 for his injuries, lost wages, and medical expenses.
- The trial court entered judgment against Allstate for $25,302.95.
- Keodalah filed a second lawsuit against Allstate and included claims against Tracey Smith (claims adjuster) in the trial court, alleging violations of the Washington Insurance Fair Conduct Act (IFCA), insurance bad faith, and Consumer Protection Act (CPA) violations.
- Allstate and Smith moved to dismiss the complaint under CR 12(b)(6) for failure to state a claim upon which relief could be granted.
- The trial court granted the motion in part, dismissing Keodalah's claims against Smith, and certified the partial dismissal for discretionary review under RAP 2.3(b)(4).
- The Washington Court of Appeals (intermediate appellate court) granted discretionary review of three issues, including whether an individual insurance adjuster may be liable for bad faith and CPA violations.
- The Court of Appeals held that IFCA does not create an independent private cause of action for regulation violation (affirming the trial court on that issue).
- The Court of Appeals reversed the trial court's CR 12(b)(6) dismissal, holding that RCW 48.01.030 applied to individual insurance adjusters and breach of that statutory duty could serve as a basis for Keodalah's bad faith and CPA claims against Smith.
- Tracey Smith filed a petition for review, which the Washington Supreme Court (highest court) granted.
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Issue:
Does Washington's RCW 48.01.030, which broadly states a duty of good faith in insurance matters, create an implied private cause of action for bad faith or Consumer Protection Act (CPA) violations against an individual employee claims adjuster?
Opinions:
Majority - Madsen, J.
No, Washington's RCW 48.01.030 does not create an implied private cause of action for bad faith or Consumer Protection Act (CPA) violations against an individual employee claims adjuster. The court applied the three-pronged Bennett v. Hardy test to determine whether a statute implies a private cause of action. First, the court found the statute did not primarily benefit an identifiable class of persons, but rather the general public interest and the integrity of insurance, thus failing the 'benefited class' factor. Second, legislative intent to create a remedy was absent; the insurance code contains numerous specific enforcement mechanisms, implying that the omission of a private cause of action in RCW 48.01.030 was intentional. Furthermore, an actionable common law duty of good faith predated the statute's enactment, and the statute was seen as a broad policy statement, not an alteration of existing law. Third, implying such a broad cause of action against 'all persons' listed in the statute (including insureds and providers) would be inconsistent with the legislature's purpose, adding a layer of liability beyond what was intended. For CPA claims, the court held that WAC regulations cited by Keodalah (WAC 284-30-330) define unfair practices of the 'insurer,' not individual adjusters, making them inapplicable to Smith. Additionally, prior case law (Tank and Panag) limits per se CPA actions based on a breach of the statutory duty of good faith to the insurer-insured relationship, not extending liability to individual adjusters who are outside this quasi-fiduciary relationship.
Dissenting - Yu, J.
No, I agree with the majority that RCW 48.01.030 does not imply a statutory cause of action for insurance bad faith, but I would affirm the Court of Appeals' reinstatement of Keodalah's per se CPA claim against Smith and hold that Keodalah's complaint states a viable cause of action for common law insurance bad faith against Smith. For the CPA claims, the dissent argues that a statute does not need to create a standalone cause of action to form the basis for a CPA claim, and the CPA explicitly allows private causes of action without requiring a contractual or fiduciary relationship. Corporate officers and agents can incur personal liability under the CPA. The majority's reliance on cases like Panag and Tank is misapplied as those cases address a third party's standing against an insurer, whereas Keodalah, as the insured, clearly has standing to sue an adjuster for their own statutory violations. For common law bad faith, the dissent posits that the court should independently address this claim. Washington's common law duty of good faith is not solely contract-based but also arises from the 'high stakes' and 'elevated level of trust' in the insurer-insured relationship. Public policy, as expressed in RCW 48.01.030's broad language, supports good faith from 'all persons' in insurance. Claims adjusters are in a pivotal position to prevent harm or cause it through their investigations, making them appropriate targets for accountability. The dissent would recognize a common law duty of good faith owed by claims adjusters to the insured for knowing bad faith conduct within their control, distinct from insurer policies.
Analysis:
This case significantly clarifies the limited scope for pursuing private causes of action against individual insurance adjusters in Washington State. By rigorously applying the Bennett test, the Supreme Court reinforces that general statutory pronouncements of public policy, like RCW 48.01.030, do not automatically create new avenues for litigation unless legislative intent for such private enforcement is clear. The decision channels bad faith and CPA claims primarily through the insurer-insured relationship, making it more challenging for insureds to seek direct recourse against individual employees. This approach emphasizes the distinction between regulatory enforcement, common law duties, and statutory private rights of action, thereby shaping the legal landscape for accountability within the insurance industry.
