8 | MARCH 2019 | Claims Magazine | PropertyCasualty360.com
There is a new threat for insurers in Washington State if a state court ruling allowing policyholders to
file bad faith lawsuits against insurance
carrier employees is upheld by the state’s
In an amicus brief filed with the state
Supreme Court, the Coalition Against
Insurance Fraud (the Coalition) says the
ruling “will discourage insurers and their
employees from thoroughly investigating
suspect claims and sending referrals to
Currently, other states have not pursued bad faith to this degree, however,
investigators, adjusters and other insurance personnel involved in a claim could
be sued in Washington under a 2018
The Coalition warns that this ruling
“will result in significant individual harm
to investigators, experts, doctors, lawyers,
and many others who may be only tangentially involved in the handling of an
Adjusters can be held liable
In Keodalah vs. Allstate, a lower court
ruled that a claims adjuster investigating an auto/motorcycle crash case with
injuries could be held personally liable
for bad faith and responsible for paying
treble damages and attorney fees. An appeals court ruled that the state’s bad faith
statute applied to all persons, finding
that individuals owed the same duties to
claims as their employers did.
According to the appeals court, “The
code’s broad definition of ‘person’ in-
cludes both individuals and corpora-
tions and does not make any distinction
between the duties they owe. Nothing in
the statute…relieves individual insur-
ance adjusters from this duty. The duty
of good faith applies equally to individ-
uals and corporations acting as insur-
Oral arguments in the case were
scheduled to take place before the state
Supreme Court in February.
“Insurers should be held to high standards of good faith, and encouraged to
pay legitimate claims fairly and promptly.
When they don’t, courts should pun-
ish them,” said the Coalition in its brief.
“But investigators and claims handlers
should not be forced to decide between
protecting their personal finances and
fraud fighting. Organized rings likely will
threaten suit to gain leverage and get sus-
pect claims paid,” the Coalition warned.
Matthew Smith, director of govern-
ment affairs for The Coalition, said the
case has implications for any claim that is
subject to Washington’s bad faith statute.
The damage from these types of suits
does not stop with the suit being filed.
Even if they are dismissed by a higher
court, just being named in a suit can affect
an adjuster’s personal credit rating, mak-
ing it difficult to obtain loans or a mort-
gage. Other consequences may include
the loss of professional licenses, jobs or
promotions contends the Coalition.
“Such practice would impair the entire
system of fraud detection and prevention,” the Coalition notes.
State law in Washington actually provides insurers with civil immunity to
protect them when fraudulent claims are
reported. However, the Keodalah ruling
conflicts with that policy.
Patricia L. Harman is the editor-in-chief
of Claims magazine, a contributing
editor to PropertyCasualty360.com,
and chairs the annual America’s Claims
Event (ACE), which focuses on providing
claims professionals with cutting-edge
education and networking opportunities.
She covers auto, property & casualty,
workers’ compensation, fraud, risk and
cybersecurity, and is a frequent speaker
at insurance industry events. Contact her
Bad faith poses new liability
By Patricia L. Harman, PropertyCasualty360.com