Washington Supreme Court Hears Oral Argument in Case That Allowed Insureds to Name Adjusters as Defendants in Bad Faith Actions

On February 26, 2019, the Washington Supreme Court heard oral arguments in Keodalah v. Allstate Ins. Co. and Tracey Smith.  In this case, the Court of Appeals overturned the trial court’s dismissal of bad faith and Consumer Protection Act claims asserted directly against Tracey Smith, an adjuster for Allstate.

A link for the video recording of the oral argument is provided below:

https://www.tvw.org/watch/?eventID=2019021551

A link for the briefing filed with the Supreme Court is provided below:

https://www.courts.wa.gov/appellate_trial_courts/coaBriefs/index.cfm?fa=coabriefs.briefsByCase&courtId=A08

The issue to be addressed by the Supreme Court is whether the Keodalahs may plead a claim for bad faith and Consumer Protection Act violations directly against the Allstate adjuster, Tracey Smith. Since the Court of Appeals’ decision in Keodalah was published in March 2018, it has become common for insureds to name both the insurance company and the adjuster in lawsuits alleging bad faith claims handling.  Over the last 11 months, the ability to name the insured in a bad faith lawsuit has given rise to a multitude of new issues that must be addressed in these suits. These issues include questions about insurance counsel representing the adjuster as well as the ability to avoid federal court diversity jurisdiction by naming a local adjuster as a defendant in a lawsuit.

At the oral argument hearing, Allstate and Ms. Smith asserted that the only potentially available claim against an adjuster would be based on the general good faith statute, RCW 48.01.030, and would require the Court to hold that this statute provided for an implied right of action under Washington’s test for implying such an action.  They explained that an adjuster cannot be subject to a common law bad faith claim because there was no quasi-fiduciary relationship between an adjuster and insured. They then established that the good faith statute does not imply a right of action against an adjuster under the test.

In response, the insureds asserted that their claim was actually based on common law bad faith and the good faith statute provided the duty which applies to the adjuster for this claim.  They then stated that recognizing a bad faith claim against an adjuster was necessary to prevent the insurance company from avoiding bad faith liability by asserting that its adjuster’s offending conduct was outside the scope of the adjuster’s authority and employment duties with the insurance company.

We expect the Supreme Court to publish its decision in this case within the next few months.  The Supreme Court’s decision and its reasoning for reaching that decision will very likely have a substantial impact on how bad faith lawsuits are litigated for years to come.

If you have any questions about how the Keodalah case impacts the bad faith litigation landscape, please give us a call.

Snowpocalypse

As most of you know, during the last two weeks in Seattle we all experienced an interesting and unusual winter storm. Despite the snowy and icy conditions, Lether & Associates made it through and remained open for business providing our clients with uninterrupted service during Snowpocalypse. In addition, we all had a little fun playing with kids, family, and pets and delighting in the snowy conditions.

We hope everyone had equally as great of fun in the snow. In the meantime, we all look forward to an early spring.

n interesting and unusual winter storm. Despite the snowy and icy conditions, Lether & Associates made it through and remained open for business providing our clients with uninterrupted service during Snowpocalypse. In addition, we all had a little fun playing with kids, family, and pets and delighting in the snowy conditions.

We hope everyone had equally as great of fun in the snow. In the meantime, we all look forward to an early spring.

 

A Tale of Two Cases. The Best of Times and the Worst of Times

Within roughly a two-week period over this past holiday season, the Federal District Courts for the Western District of Washington issued two dramatically different orders in very similar coverage disputes. In Northwest Pipe Company v. Travelers Property Casualty Company of America and The Phoenix Insurance Company (3:17-cv-05098-BHS), the Honorable Benjamin Settle of the Tacoma District granted Travelers’ summary judgment motion dismissing Northwest Pipe’s bad faith and Consumer Protection Act claims. This decision came 14 days after the Honorable John Coughenour of the Seattle District issued a summary judgment in favor of Osborne Construction Company against Zurich American Insurance Company. In the Osborne Construction Company v. Zurich American Insurance Company matter the court found Zurich had acted in bad faith (2:18-cv-00349-JCC).

The two cases presented very similar issues. A review of the facts of the cases, however, clearly establishes the right way to handle construction liability claims in Washington and the wrong way to handle those claims. In Northwest Pipe Company v. Travelers Property Casualty Company of America and The Phoenix Insurance Company, Travelers correctly identified a tender from the named insured, agreed to assign counsel, and issued a timely and thorough reservation of rights letter. Northwest Pipe argued that Travelers was obligated to pay for the insured’s personal counsel who had allegedly assisted in the defense of Northwest Pipe. Northwest Pipe also argued that the reservation of rights letter issued by Travelers was untimely. Taking the position that Travelers had denied the claim and had failed to investigate coverage in a reasonable manner, Northwest Pipe argued that Travelers was precluded from raising coverage defenses based upon the doctrine of coverage by estoppel. Judge Settle rejected this argument and denied Northwest Pipe’s motion and granted Travelers’ motion for summary judgment dismissing all extra-contractual claims.

The Court found that Travelers was not obligated to respond to the alleged claim for the insured’s personal counsel’s fees and that Travelers’ position in regard to that claim was reasonable. The Court also noted that the remedy of coverage by estoppel is a drastic remedy that would not have been applicable even if the court had found a question of fact in regard to the bad faith claim. In regard to the coverage by estoppel issue, the Court’s decision was consistent with the decision in Ledcor Indus. (USA), Inc. v. Mut. of Enumclaw Ins. Co., 150 Wn. App. 1, 10, 206 P.3d 1255, 1261 (2009), wherein the Court found that coverage by estoppel does not apply in all cases and that an insured still must establish actual damage for a bad faith claim.

In Osborne Construction Company v. Zurich American Insurance Company, Zurich denied the defense of an AI tender. Zurich took the position that the tender was unclear and that Osborne had failed to establish that it had entered into a contract with the named insured requiring the named insured to procure insurance. Judge Coughenour found that the tender was sufficient to place Zurich on notice and that Zurich failed to investigate the AI tender appropriately. As a result, Judge Coughenour found that Zurich had not only acted in bad faith but also found that coverage by estoppel applied as a matter of law.

The disparity between these two cases presents an excellent case study of how to properly investigate liability construction cases in Washington, particularly when it comes to a tender and the prompt issuance of a correct reservation of rights letter. In a similar manner, the Zurich decision shows the extreme dangers of an inappropriate coverage position or improper investigation.

The Federal Courts remain an excellent place for insurers to litigate coverage issues. However, as these cases show, the Courts will not tolerate improper claims handling. However, the Courts will reward those insurers who follow the rules.

Lether & Associates proudly represented Travelers in theNorthwest Pipe Company v. Travelers Property Casualty Company of America and The Phoenix Insurance Company matter. If you would like to discuss these cases or any issue involving Washington law, feel free to contact our offices.

Our Annual Holiday Animal Food Drive


 

Our Annual
Holiday Animal
Food Drive

Donate to help the animals of PAWS

Make a difference this holiday season in the precious lives of sick, injured, orphaned and homeless animals. Whether it be big or small, food or toys anything helps these animals. For more information on what is needed visit paws.org.
Donation Drop-off Hours:
Monday-Friday
8am-5:30pm

Drop-off Location:
Lether & Associates, PLLC
1848 Westlake Ave N. Suite 100
Seattle, WA 98109
(206) 467-5444