Court Rules That Insured Claims Against an Insurer’s Adjuster May Be Possible
Summary
A federal district judge has ruled that Pennsylvania law may permit an insured to sue an insurer’s employee-adjusters for negligence and violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (UTPCPL). Kennedy v. Allstate Prop. & Cas. Ins. Co., No. 2:15-cv-2221-TON, slip op. at *1 (E.D. Pa. July 8, 2015).
While the opinion is careful to state only that such claims may be permitted rather than predicting that they will be permitted, it opens the door to expanded reach for bad faith and extra-contractual claims by insureds.
In Kennedy, the insured plaintiffs filed bad faith and related claims in Pennsylvania state court against their insurer and three of the insurer’s employee-adjusters, alleging that the adjusters improperly evaluated their UIM claims and engaged in intentional delay, misrepresentation and fraud in the course of processing, investigating and arbitrating their claims.
The defendants removed to federal court on the theory that the individual defendants were fraudulently joined because there could be no claims against them individually. In considering the plaintiffs’ motion to remand, the court evaluated the complaint to determine if plaintiffs stated colorable claims against the employee-adjusters.
The court noted that Pennsylvania law is silent on whether there is a cause of action for negligence against individual adjusters, but identified at least two state courts (New Hampshire and Alaska) that have "found that insurance adjusters owe a duty of ordinary care to conduct adequate investigations of an insured’s claims." Kennedy, slip op. at *5. The federal court ruled that this created the possibility that such claims could be viable.
The court stopped well short of endorsing negligence and UTPCPL claims by insureds against an insurer’s employees. To defeat the fraudulent joinder argument, the plaintiffs at this procedural juncture only had to clear the very low hurdle of demonstrating the possibility that a Pennsylvania state court might determine that they stated a claim against the individual defendants.
As is apparent from this decision, they cleared it. The insurance industry can expect plaintiffs’ attorneys to next seek a favorable ruling, likely from a plaintiff-friendly state court forum, that such claims are permitted. Insurers should be on guard for such claims, and seek seasoned counsel to address these cutting edge claims as they arise.