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Vol. 9 - Issue 2
February 26, 2020


It’s Back: Despite Keodalah, Washington Court Can’t Rule Out Bad Faith Claim Against Adjuster  

White And Williams’s Tim Carroll Saw This Decision Coming


My 2019 Top 10 Cases article included Keodalah v. Allstate Insurance Company, where the Washington Supreme Court held that an insurer-employee claims adjuster could not be sued for bad faith under Washington’s Consumer Protection Act.

The Keodalah article was written by my colleague, Tim Carroll.  While Keodalah has been discussed, generally, as putting the kibosh on bad faith claims against an adjuster, Tim addressed the decision in more precise terms and concluded that the curtain may not have fallen.  He stated:

“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 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?” (emphasis mine).

Well, this is exactly what happened in Leonard v. First American Property & Casualty Company, No. 19-06089 (W.D. Wash. Feb. 11, 2020). 

Brandon and Alicia Leonard sued First American Property & Casualty, in Washington state court, for allegedly unreasonably denying and delaying coverage of a homeowner’s fire claim.  In addition to suing First American, the Leonards also sued First American’s claims adjuster, Crawford & Company, and its employee.  The Leonards asserted claims of insurance bad faith, negligent claims handling, negligent misrepresentation, and violation of the Washington Consumer Protection Act against Crawford and its employee.

First American removed the case to federal court.  As First American saw it, Crawford and its employee were fraudulently joined “because the Leonards could not assert claims against First American’s insurance adjusters under Keodalah v. Allstate Ins. Co.”   Therefore, so the insurer’s argument went, “[t]his would mean complete diversity is satisfied and this Court has subject matter jurisdiction over the case.”

The Leonards had a different take.  They moved to remand, arguing that Keodalah only bars per se Consumer Protection Act claims and statutory bad faith claims against insurance adjusters.  In other words, in the Leonards’ view, Keodalah did not address whether a common law bad faith claim could be brought against an adjuster.  Therefore, there was nothing to say that it couldn’t be maintained.

The court agreed, turning to Justice Yu’s dissenting opinion in Keodalah, where he stated that the court wrongly overlooked the common law bad faith claims.  “In light of this,” the Leonard court stated, “the Court cannot say that the Leonards’ claims against Crawford and [its employee] have no possibility of success.”

The court also went a step further: “Even if this were not the case, the Court sees no reason why the Leonards should not be allowed to assert traditional CPA claims against Crawford and Johnson. Such a claim is not premised on the existence of a tort duty and therefore cannot be barred by Keodalah.”

To be clear, the Leonard court did not rule that an insured can recover for a common law bad faith claim against an adjuster.  Rather, the court was addressing whether the adjuster had been fraudulently joined to defeat diversity.  The test, for that question, was whether there was a “possibility” that the complaint stated a cause of action.  And the court stated that it did.  Therefore, as the adjuster was a property party, there was no diversity and the case was remanded to state court.    

This is precisely the door that Tim Carroll said was left open by the Keodalah.


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