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Keodalah v. Allstate Insurance Co.

Court of Appeals of Washington, Division 1

March 26, 2018

MOUN KEODALAH and AUNG KEODALAH, husband and wife, Petitioners,
v.
ALLSTATE INSURANCE COMPANY, a corporation, and TRACEY SMITH and JOHN DOE SMITH, wife and husband, Respondents.

          Leach, J.

         This court accepted Moun Keodalah's request for discretionary review of the trial court's dismissal of his bad faith and Consumer Protection Act (CPA)[1] claims against Tracey Smith, the Allstate insurance adjustor who handled his claim. RCW 48.01.030 imposes a duty of good faith on all persons engaged in the business of insurance, including individual adjusters. And the CPA does not require that a contractual relationship exist between the parties. Thus, we hold that an individual insurance adjuster may be liable for bad faith and CPA violations. We reverse and remand for further proceedings consistent with this opinion.

         FACTS

         Keodalah and a motorcyclist collided in April 2007. After Keodalah stopped at a stop sign and began to cross the street in his truck, a motorcyclist struck him. The collision killed the motorcyclist and injured Keodalah. Keodalah had purchased auto insurance from Allstate Insurance Company. Keodalah's insurance policy provided underinsured motorist (UIM) coverage. The motorcyclist was uninsured.

         The Seattle Police Department (SPD) investigated the collision. The SPD determined the motorcyclist was traveling between 70 and 74 m.p.h. in a 30 i m.p.h. zone. SPD reviewed keodalah's cell phone records. They showed that Keodalah was not using his cell phone at the time of the collision.

         Allstate also investigated the collision. Allstate interviewed several witnesses who said the motorcyclist was traveling faster than the speed limit, had proceeded between cars in both lanes, and had "cheated" at the intersection. Allstate hired an accident reconstruction firm, Traffic Collision Analysis Inc. (TCA), to analyze the collision. TCA found that Keodalah stopped at the stop sign, the motorcyclist was traveling at a minimum of 60 m.p.h., and the motorcyclist's "'excessive speed'" caused the collision.

         Keodalah asked Allstate to pay him the limit of his UIM policy, $25, 000. But Allstate refused. It offered $1, 600 to settle the claim based on an assessment that Keodalah was 70 percent at fault. After Keodalah asked Allstate to explain its evaluation, [2] Allstate increased its offer to $5, 000.

         Keodalah sued Allstate, asserting a UIM claim. Allstate designated Smith as its CR 30(b)(6) representative. Although Allstate possessed both the SPD report and TCA analysis, Smith claimed that Keodalah had run the stop sign and had been on his cell phone. Smith later admitted, however, that Keodalah had not run the stop sign and had not been on his cell phone. Before trial, Allstate offered Keodalah $15, 000 to settle the claim. Keodalah refused and again requested the $25, 000 policy limit. The case proceeded to a jury trial.

         At trial, Allstate contended that Keodalah was 70 percent at fault. The jury determined the motorcyclist to be 100 percent at fault and awarded Keodalah $108, 868.20 for his injuries, lost wages, and medical expenses.

         Keodalah filed a second lawsuit against Allstate and included claims against Smith. These included IFCA violations, insurance bad faith, and CPA violations. Allstate and Smith moved to dismiss the complaint under CR 12(b)(6). The trial court granted the motion in part. It dismissed Keodalah's claims against Smith and certified the case for discretionary review under RAP 2.3(b)(4).[3]

         This court granted discretionary review of the three issues: (1) whether IFCA creates a private cause of action for violation of a regulation, (2) whether an individual insurance adjuster may be liable for bad faith, and (3) whether an individual insurance adjuster may be liable for violation of the CPA. Later, our Supreme Court decided Perez-Crisantos v. State Farm Fire & Casualty Insurance Co..[4] which forecloses Keodalah's IFCA claim. We now decide the other two issues involving bad faith and the CPA.

         ANALYSIS

         The two issues before this court present unresolved legal questions on which courts have divided.[5] We review legal questions de novo.[6]

         Bad Faith

         First, we must decide whether insureds may bring bad faith claims against individual insurance adjusters. RCW 48.01.030 imposes a duty of good faith on "all persons" involved in insurance, including the insurer and its representatives.

The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Upon the insurer, the insured, their providers, and their representatives rests the duty of preserving inviolate the integrity of insurance.[7]

         A person who violates this duty may be liable for the tort of bad faith.[8]RCW 48.01.070 defines "person" as "any individual, company, insurer, association, organization, reciprocal or interinsurance exchange, partnership, business trust, or corporation." Smith was engaged in the business of insurance and was acting as an Allstate representative. Thus, under the plain language of the statute, she had the duty to act in good faith. And she can be sued for breaching this duty.

         Division Three used this analysis in Merriman v. American Guarantee & Liability Insurance Co.[9] Merriman interpreted the insurance bad faith statute to permit claims against corporate insurance adjusters.[10] The court reasoned,

RCW 48.01.030 unambiguously applies to "[t]he business of insurance, " imposing requirements on "all persons, " and rests the duty of preserving inviolate the integrity of insurance on, among others, "[the] representatives" of the insurer. "Person" is defined by RCW 48.01.070 to mean "any individual, company, insurer, association, organization, reciprocal or interinsurance exchange, partnership, business trust, or corporation." As an adjuster contracted by American Guarantee to act as its claims administrator, York was, at all relevant times, a "person" engaged in "the business of insurance" and a representative of American Guaranteed[11]

         In Lease Crutcher Lewis WA, LLC v. National Union Fire Insurance Co., [12] a federal district court judge applied a similar analysis. The Lease court reasoned,

The insurance code of Washington applies to "all insurance transactions... and all persons having to do therewith [RCW 48.01:020].- "Persons" is defined to include corporations such as AIG Domestic Claims. RCW 48.01.070. More importantly, the legislature has expressly imposed an obligation of good faith on those who represent insurers and insureds.[13]

Lease went on to observe that the plaintiff alleged that the corporate adjuster "acted on behalf of and with authority from" the insurer.[14]

         Smith attempts to distinguish our case. She correctly notes that it involves an individual insurance adjuster while Merriman and Lease involved third-party companies adjusting claims. We do not find this distinction significant. Both Merriman and Lease relied on the broad statutory definition of "person" to decide that corporate adjusters owe a duty of good faith. The code's broad definition of "person" includes both individuals and corporations and does not make any distinction between the duties they owe. Nothing in the statute limits the duty of good faith to corporate insurance adjusters or relieves individual insurance adjusters from this duty. The duty of good faith applies equally to individuals and corporations acting as insurance adjusters.

         Smith relies on Garoutte v. American Family Mutual Insurance Co.[15]There, a different federal district court judge reached a different conclusion. Garoutte does not persuade us. Garoutte specifically relied on the following sentence: "Upon the insurer, the insured, their providers, and their representatives rests the duty of preserving inviolate the integrity of insurance."[16]The court stated that "the text of this sentence makes clear that it does not create a cause of action against representatives of insurance companies; otherwise, it would also create a cause of action for bad faith against "'the insured.'"[17] But Washington courts have expressly stated that the statute does impose a duty of good faith on both the insureds and the insurer.[18] Garoutte also found the distinction between a corporate adjuster and individual employee adjuster significant. But the court did not explain this significance and merely stated that Lease "explicitly confined its reasoning to the duties of third-party corporate entities, not to individuals directly employed by insurers."[19] Lease stated that it need not decide "whether [RCW 48.01.030] gives rise to a bad faith claim against individuals directly employed by the insurer."[20] But the reasoning in Lease applies equally to claims against individuals. Lease determined that insurance adjusters are representatives, who owe a duty of good faith under RCW 48.01.030.[21] Just as corporate insurance adjusters are representatives, so too are individual employee insurance adjusters.

         Smith urges us to use the Washington Administrative Code (WAC) to interpret the relevant statutory language. She contends that the regulations apply only to "insurers" and if the legislature had meant the duty of good faith to apply to employees it could have said so.[22] We agree that the regulations focus on insurers. But the insurance code is broader and expressly applies to "all persons" having to do with insurance transactions.[23] In addition, the regulations specifically state, "This regulation is not exclusive, and acts performed, whether or not specified herein, may also be deemed to be violations of specific provisions of the ...


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