Adjuster Negligence in
Bad Faith Cases
A recent decision by a United States District Court in Pennsylvania may have paved a way for bad faith Plaintiffs to keep their claims in state court. The court held that, absent a specific state statute barring the practice, Plaintiffs may bring claims against individual adjusters working for a defendant insurance company for their negligent handling of a claim. The presence of a local adjuster may allow Plaintiffs to defeat diversity jurisdiction under 28 U.S.C. § 1441(a).
Kennedy v. Allstate Property and Casualty Insurance Co., et al.
The case arose following an automobile accident in June, 2007. Plaintiffs settled with the tortfeasor but pursued compensation pursuant to their underinsured motorist (UIM) policy with Allstate.
Plaintiffs alleged that Allstate improperly evaluated their UIM coverage, engaged in intentional delays, and committed fraudulent misrepresentations in the course of processing, investigating, and arbitrating their claims. Plaintiffs also claimed that Allstate’s individual adjusters affirmatively misrepresented and concealed material facts from them in order to delay the resolution of their claims. The alleged purpose was to cause Plaintiffs financial hardship in order to induce a lower settlement.
Plaintiffs originally filed an action against Allstate in federal court but later voluntarily withdrew that complaint. Plaintiffs subsequently filed a state court claim against Allstate and its adjustors.
Significantly, Plaintiffs were residents of Pennsylvania, as were Allstate’s adjusters. Allstate is a corporate citizen of Illinois.
In April, 2015, Allstate filed a notice of removal claiming that the adjuster defendants were fraudulently joined in order to defeat federal diversity jurisdiction.
Like many states, Pennsylvania has not specifically addressed whether there is a cause of action for negligence against an insurance adjuster arising from the adjuster’s handling of an insurance claim on behalf of the insurer.
Allstate tried to capitalize on that void, arguing that the adjusters were added to the case fraudulently, purely for the purpose of defeating diversity jurisdiction. However, even if Plaintiffs’ motive for joining a defendant is to defeat diversity, the joinder is not fraudulent if a colorable claim exists against the defendant.
District Court Judgment
In its July 8, 2015, decision regarding Plaintiffs motion to remand, the Pennsylvania District Court determined that Plaintiffs had brought a colorable claim against the defendant adjustors. This despite the fact that a previous Pennsylvania District Court decision had reached the opposite conclusion.
The court began by noting that at least two states, New Hampshire and Alaska, have already found that insurance adjusters owe a duty of ordinary care to conduct adequate investigations of an insured’s claims.
The Court further noted that the burden of establishing federal jurisdiction weighed heavily on defendants, and that asking the Court to determine the merits of Plaintiffs case against the adjusters exceeded the scope of merely determining if there were colorable grounds supporting the claims against the individual defendants.
The Court adopted a test whereby it would not allow removal of a case posing a novel question of law where there was “even the possibility that a state court would find that the complaint states a cause of action.”
Thus, in jurisdictions which have not specifically addressed the issue of whether insurance adjusters can be joined as individual defendants, a practitioner may be well advised to follow the lead of Kennedy v. Allstate, et al. as a means of defeating diversity jurisdiction.
Considerations for Missouri attorneys
When considering a claim against an individual adjuster, Missouri practitioners need to consider another Allstate case decided by our state courts: Shobe v. Kelly.
In that proceeding, claims were made against the individual adjuster for bad faith based on a wrongful denial of coverage and a failure to settle. The Missouri Western District Court of Appeals held that an insurance claims adjuster could not be held personally liable for the tort of bad faith failure to settle (BFFS) a third-party claim within policy limits.
The basis for the holding was threefold: 1) the adjuster was functioning solely as agent of her employer, the insurer, and not as principal; 2) the adjuster did not personally control settlement, have individual capacity to settle claims, or represent that she had such capacity; and 3) the settlement monies were not her funds.
By comparing the conduct alleged in Kennedy to that in Shobe, the difference would appear to be the affirmative misrepresentations and concealment of material facts. While Shobe presents a significant hurdle, it may not be a complete bar to individual adjuster liability.
Have Questions About a Bad Faith Situation?
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