Volume 118 Issue 1 Article 16
September 2015
The Personal Liability of Insurance Claims Adjusters for Insurance The Personal Liability of Insurance Claims Adjusters for Insurance
Bad Faith Bad Faith
Chad G. Marzen
Florida State University
Follow this and additional works at: https://researchrepository.wvu.edu/wvlr
Part of the Insurance Law Commons
Recommended Citation Recommended Citation
Chad G. Marzen,
The Personal Liability of Insurance Claims Adjusters for Insurance Bad Faith
, 118 W. Va.
L. Rev. (2015).
Available at: https://researchrepository.wvu.edu/wvlr/vol118/iss1/16
This Article is brought to you for free and open access by the WVU College of Law at The Research Repository @
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Repository @ WVU. For more information, please contact [email protected].
THE PERSONAL
LIABILITY
OF
INSURANCE
CLAIMS ADJUSTERS
FOR
INSURANCE
BAD
FAITH
Chad
G.
Marzen*
I.
INTRODUCTION.........................................411
II.
REPORTED
CASES
ADDRESSING
INSURANCE COMPANY
EMPLOYEE
ADJUSTER
BAD-FAITH
LIABILITY
......................... 414
A.
The
Early
Cases
of
the
1970s
....................
.....
415
B.
The
Questioning
of
the
Doctrinal
Rule
..............
.....
417
1.
Early
1990's
Cases
Upholding the
Doctrinal
Rule
..................
418
2.
The
O'Fallon,
Garrison
Contractors,
and
Taylor
Decisions...
419
C.
An
Emerging
Split
ofAuthority
on
Adjuster
Liability....................423
1.
Courts
Applying
the Fraudulent Joinder
Doctrine...................424
2.
Courts
Declining
to
Apply
the
Fraudulent Joinder
Doctrine...
427
3.
Traditional Agency
Rule
Relating
to
Contract and
Tort
Liability.....................................432
III.
PROPOSAL
FOR
BAD-FAITH
LIABILITY
FOR
INSURANCE
COMPANY
EMPLOYEE
ADJUSTERS
........................................
433
IV.
CONCLUSION
...................................................
438
I.
INTRODUCTION
Insurance
company
employee
claims
adjusters
are,
in
many
ways,
similar
to
detectives.
Claims adjusters
must
fairly
and
honestly
investigate
and
evaluate,
in
some
instances,
a
myriad
of
various
types
of
insurance
claims.'
In
many
cases,
adjusters
work
outside
of
the
office,
inspecting
potential
insured
losses,
2
and
the
hours
of
adjusters
do
not
always
correspond
to
the
typical
8
a.m.
to
5
p.m.
workday.
If
a
loss occurs
at
7
p.m.,
and
the
evidence
of
that
loss
may
be
compromised
by
a
delay,
the
adjuster
may
need
to
investigate
an
incident
immediately.
In
addition
to
the
typical
prescribed
duties
of
examining
*
Assistant Professor
of
Legal
Studies, Florida
State
University,
College
of
Business-
Department
of
Risk
Management/Insurance,
Real
Estate
and
Legal
Studies.
The
author
can
be
reached
at
[email protected].
I
BUREAU
OF
LABOR
STATISTICS,
OCCUPATIONAL
OUTLOOK
HANDBOOK:
CLAIMS
ADJUSTERS,
APPRAISERS,
EXAMINERS,
AND
INVESTIGATORS
(2014-15),
http://www.bls.gov/ooh/business-and-
financial/claims-adjusters-appraisers-examiners-and-investigators.htm.
2
Id.
411
WEST
VIRGINIA
LAW
REVIEW
and adjusting
claims,
the
adjuster
may
also
be required
to serve
as
an
adviser
of
sorts
to
notify
a
claimant
on
the
guidelines
for
filing
and
pursuing
a
claim.
3
In
essence,
an
adjuster
has
to
balance
the
duties
owed
to
his
or
her
employer, the
insurance
company,
and
the
duties
owed
to
claimants
as
part
of
their
insurance
contract with
the company.
Insurance
claims
adjusters
today
must
also
balance
the
requirements
of
the
job
with
developments
in
the
ways
claims
are
handled
and
processed
with
the
growth
of
new
technology.
In
his
book
Delay,
Deny,
Defend:
Why
Insurance
Companies
Don't
Pay
Claims
and
What
You
Can
Do
About
It,
Professor
Jay
M.
Feinman
notes
that
computer
technology
now
plays
a
key
role
in insurance
claims
processing.
4
For
instance,
Professor
Feinman
describes
the
"Colossus"
system,
which
can
set
an
estimated
value
on
a
claim
by
sorting
through
information
concerning
a
claimant's
alleged
injuries
and
losses
and
making
comparisons
with other
results
and
decisions
throughout
a
region
or
the
country
on
similar
claims.
5
In
a
more
technologically-driven
world,
even
the
world
of
insurance,
apparently
present
since
the
age
of
the
Babylonians,6
i
s
changing.
One
of
the
currents
of
change
sweeping
through
the
insurance
industry
is
the
rise
of
insurance
bad-faith
liability.
While
insurance
companies
typically
are
the
named
defendants
in
an
insurance
bad-faith
lawsuit,
an
increasing
number
of
writers
have
commented
on
the
potential
liability
of
individual
insurance
adjusters
for
insurance
bad-faith
liability.
7
There
is
a
developing
See
Office
of
Mgmt.
and
Enter.
Servs.,
Insurance
Claims
Adjuster,
#All,
OK.Gov,
http://www.ok.gov/opm/jfd/a-specs/al
l.htm
(last visited
Oct.
8,
2015).
4
See
JAY
M.
FEINMAN,
DELAY,
DENY,
DEFEND:
WHY
INSURANCE
COMPANIES
DON'T
PAY
CLAIMS
AND
WHAT
YOU CAN
Do
ABOUT
IT
71-72
(2010) ("The systems control
the
adjusters,
and
the systems
are
driven
by
information
technology.
An
industry
has
developed
to
provide
computerized
systems
to
process
the
mass
of
information
that
adjusters
deal
with;
estimate
the
cost
of
repairs
to
damaged
property;
check
medical
expenses;
evaluate
personal
injury
claims;
store
and
report
on
a
claimant's
history;
and
do
everything
else
a
claims
department
needs
to
do.
Insurance
companies
can
choose
among
Claims
Desktop,
ClaimsOffice
Suite,
ClaimSearch,
ClaimDirector,
Claims
Outcome
Advisor,
ClaimlQ
(including
Medical
InjurylQ
and
LiabilitylQ),
and
eClaim
Manager,
among
others.
Or
they
can
develop
their
own
systems.").
5
Id.
at
72
("The
immodestly
named
Colossus
takes
information
about
a
claimant's
injury,
symptoms,
trauma,
treatment,
and
impairment,
chums
the
information
through
more
than
ten
thousand
decision
rules,
measures
the
results
against
financial
parameters
input
by
the
insurance
company,
and
places
a
monetary
value
on an
injured
person's
claim.").
6
See
Insurance,
THE
COLUMBIA
ENCYCLOPEDIA
1393-94
(Paul
Lagass6
ed.,
6th
ed.
2000);
see
also
Aleatra
P.
Williams,
Insurers'
Rights
of
Subrogation
Against
Tenants:
The
Begotten
Union
Between
Equity
and
Her
Beloved,
55
DRAKE
L.
REv.
541,
568
(2007).
7
See
James
I.
Devitt
&
Robert
C.
Hastie,
Independent
Insurance
Adjusters
Liable
for
Bad
Faith:
Fair
or
Farce?,
14
W.
ST.
U.
L.
REv.
229
(1987);
Douglas
R.
Richmond,
The
Extent
of
Good
Faith:
Insureds
Versus
Claims
Professionals,
30
INS.
LITIG.
REP.
497
(Aug.
25,
2008);
Jeffrey
W.
Stempel,
The
"Other"
Intermediaries:
The
Increasingly
Anachronistic
Immunity
of
Managing
General
Agents
and
Independent
Claims
Adjusters,
15
CONN.
INS.
L.J.
599 (2009).
412
[Vol.
118
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
legal
question
today
as
to
whether
the
individual
employee
adjusters
of
insurance
companies
can
be
subject
to
insurance
bad-faith
liability,
and
a
variance
of
rulings
on
the
issue
has
resulted
over
the
years.
This
Article
examines
the
question
of
whether
employee
adjusters
of
insurance
companies,
not
independent
adjusters,
outside
adjusters,
or third-
party
administrators,'
can
and
should
be
held
liable
for
insurance
bad-faith
liability.
A
general
doctrinal
rule
developed
among
early
reported
cases
which
precluded
personal
bad-faith
liability
against
employee
adjusters
up
until
1993.
However,
in 1993,
the
landscape
started
to
change
with
a
Montana
Supreme
Court
decision
in
O'Fallon
v.
Farmers
Insurance
Exchange,
9
which
held
that
a
third-party
could
recover
on
a
statutory
bad-faith
theory
for
the
alleged
bad-
faith
adjustment
of
a
third-party
claim.'o
This
decision
soon
expanded
to
first-
party
cases
with
the
1998
decision
of
the
Texas
Supreme
Court
in
Liberty
Mutual
Insurance
Co.
v.
Garrison
Contractors,
Inc."
and
in
2003
with
the
landmark
decision
of
the
West
Virginia
Supreme
Court
in
Taylor
v.
Nationwide
Mutual
Insurance
Co.12
The
O'Fallon,
Garrison
Contractors,
and
Taylor
decisions
have
left
courts
throughout
the
country
with
some
degree
of
uncertainty
concerning
personal
liability
issues
in
the
past
two
decades.
A
growing
number
of
courts
have
questioned
the
general
doctrinal
rule
which
bars
personal
liability
for
bad
faith,
and
personal
liability
issues
for
employee
adjusters
are
far
from
settled.
Part
II
of
this
Article
discusses
significant
reported
cases
to
date
which
both
uphold
the
general
doctrinal
rule
as
well
as
challenge
it.
As
the
case
law
on
this
issue
has
progressed,
a
split
of
authority
has
emerged
on
whether
or not
insurance
company
employee
claims
adjusters
can
be
subject
to
personal
liability
for
bad
faith.
As
Professor
Feinman
contends,
adjusters
today
have
less
discretion
over
handling
claims
than
in
prior
decades.1
3
With
less
discretion,
consequently,
it
follows
that
there
should
also
be
fewer
instances
where
an
employee
adjuster
acts
in
such
a
manner
that
is
egregious
and
purposefully
prejudicial
toward
an
insured.
Despite
what
follows
intuitively
from
less
discretion,
there
are
still
many
cases
throughout
the
country
today
where
insurance
company
adjusters
are
named
as
defendants
in
insurance
bad-faith
lawsuits.
8
This
Article
focuses
on
employee
adjusters
of
insurance
companies.
The
issue
of
personal
bad-faith
liability
of
independent
claims
adjusters,
managing
general
agents,
and
third-party
administrators
is
not
intended
to
be
addressed
in
this Article.
For
these
issues,
see
generally
Devitt
&
Hastie,
supra
note
7;
Richmond,
supra
note
7;
Stempel,
supra
note
7.
9
859
P.2d
1008
(Mont.
1993).
10
Id. at
1015.
11
966
S.W.2d
482,
487
(Tex.
1998).
12
589
S.E.2d
55,
62
(W.
Va.
2003).
1
See
FEINMAN,
supra
note
4,
at
70-74.
413
414
WEST
VIRGINIA
LAW
REVIEW
[Vol.
118
This
Article
proposes
a
uniform
standard
in
Part
III
that
courts
can
employ
in
cases where
insureds
allege
insurance
company
employee
adjusters
act
in
bad
faith.
To
keep
insurance
company
employee adjusters
fair
and
honest
and
to
ensure
the
quasi-fiduciary
nature
of
the
insurance
contract
4
is
upheld,
this
Article contends
that
insurance
company
employee
adjusters
be
held
liable
for
insurance
bad
faith
in
cases
where
a trial
court
makes
an
evidentiary finding
that
an
employee
adjuster
acts
with the
purposeful
or
actual
malicious intention
(not
knowing, reckless,
or
negligent
intention)
to
prejudice
the rights
of
an
insured.
II.
REPORTED CASES
ADDRESSING
INSURANCE
COMPANY
EMPLOYEE
ADJUSTER
BAD-FAITH
LIABILITY
As
a
number
of
commentators have
noted, insurance
bad
faith
grew out
of
the
contractual
duty
of
good
faith
and
fair
dealing found
in
contracts.
5
The
early
third-party1
6
and first-party
insurance
7
bad-faith
cases
dealt
primarily
14
See
Hazel
Beh
&
Jeffrey
W.
Stempel,
Misclassifying
the
Insurance
Policy:
The
Unforced
Errors
of
Unilateral
Contract
Characterization,
32
CARDOzo
L.
REV.
85,
109
(2010)
("[A]s
contrasted
to
typical contract relations,
the
law
generally
views
the
insurer-policyholder
relationship
as
somewhat fiduciary
in
nature
(for
most first-party
insurance)
or
even
fully
fiduciary
(for
liability
insurance
where
the
insurer
is
charged
with
defending
and
settling
claims).").
15
See,
e.g.,
Constance
A.
Anastopoulo,
Bad
Faith:
Building
a
House
of
Straw,
Sticks,
or
Bricks,
42
U.
MEM.
L.
REV.
687,
695
(2012);
Chad
G.
Marzen,
Can
(and
Should)
an
Insurance
Defense
Attorney
Be
Held
Liable
for
Insurance
Bad
Faith?,
7
VA.
L.
& Bus.
REv.
97,
122
n.150
(2012);
Marc
S.
Mayerson,
"First
Party"
Insurance
Bad
Faith
Claims:
Mooring
Procedure
to
Substance,
38
TORT
TRIAL
&
INS.
PRAc.
L.J.
861,
864 (2003);
Douglas
R.
Richmond,
Bad
Insurance
Bad Faith
Law,
39
TORT
TRIAL
&
INS.
PRAc.
L.J.
1,
3-4
(2003).
16
See
RANDY
MANILOFF
&
JEFFREY
STEMPEL,
GENERAL
LIABILITY
INSURANCE
COVERAGE:
KEY
ISSUES
IN
EVERY
STATE
533 (2d ed.
2012)
(noting that
the
origins
of
the
third-party
insurance
bad-faith
claim dates
back
to the
Court
of
Appeals
of
New York
decision
in
Brassil
v.
Maryland
Cas.
Co.,
104
N.E.
622
(N.Y.
1914)).
Bad
faith
claims,
like
types
of
insurance,
fall into
two
general
categories:
third-party
and first-party.
Only
liability
insurance
is
truly
third-party
insurance.
Liability insurance
is
described
as
third-party
insurance
because
the
interests
protected
by
the
policy
are
ultimately
those
of
strangers
to
the
contract
who
are
injured
by
the
insured's
conduct. The
earliest
insurance bad
faith cases arose
in
the
third-party
context.
Douglas
R.
Richmond,
An
Overview
ofInsurance
Bad
Faith
Law
and
Litigation,
25
SETON
HALL
L.
REV.
74,
80
(1994).
"7
See
MANILOFF
&
STEMPEL,
supra
note
16
(remarking
that
the
origins
of
the cause
of
action
for
first-party
insurance
bad
faith
are
found
in
the
California
Supreme Court decision
of
Gruenberg
v.
Aetna
Ins.
Co.,
510
P.2d
1032,
1037
(Cal.
1973)).
"First-party
bad faith arises
when
the insurer wrongfully refuses
to
settle
a
valid
claim
with
the
policyholder under
his
contract." Cassandra
Feeney,
Note,
Are
You
"In Good
Hands"?
Balancing
Protection
for
Insurers
and Insured
in
First-Party
Bad-Faith
Claims
With
a
Uniform
Standard,
45
NEw
ENG.
L.
REV.
685,
691
(2011).
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
415
with
the
issue
of
imposing
bad-faith
liability
upon
insurers.
As
courts
began
to
examine
the issue
of
insurer
liability
for
insurance
bad
faith,
litigators
attempted
to
expand
liability
to
entities
outside
of
insurance
companies,
including
claim
adjusters
and
even
attorneys.'
8
Even
the
California
Supreme
Court
in
Gruenberg
v.
Aetna
Insurance
Co.,19
the decision
that
is
credited
with
recognizing
a
cause
of
action
for
first-party
insurance
bad
faith,
examined
the
potential
liability
of
an
insurance
adjusting
firm
and
an
insurance
law firm.
The
emergence
of
insurance
bad
faith
would
bring
forth
many
questions
concerning
the
liability
of
insurance
company
employee
claims
adjusters.
A.
The
Early
Cases
of
the
1970s
The
early
reported
cases
of
the
1970s
involving
insurance
bad
faith
generally
rejected
the
notion
of
imposing
insurance
bad-faith
liability
upon
employee
claims
adjusters.
While
the
case
did not
involve
an
employee
claim
adjuster,
but
rather
the alleged
actions
of
independent
adjusters,
in
1970
the
Pennsylvania
Supreme
Court
in
Hudock
v.
Donegal
Mutual
Insurance
Co.
20
held
that
insurance
adjusters
could
not
be
liable
for
insurance
bad
faith
because
the
plaintiffs
did
not
prove
the independent
adjusters
had
a
contractual
relationship
with
the
insureds.
2
1
Similarly,
the
California
Supreme
Court
in
Gruenberg,
the
decision
recognizing
first-party
bad
faith,
declined
to
extend
bad-faith
liability
to
independent
claims
adjusters.
22
18
See
generally
Marzen,
supra
note
15.
19
510 P.2d
1032,
1038-39
(Cal. 1973).
20
264
A.2d
668,
672
(Pa.
1970).
The
Pennsylvania
Supreme
Court
stated:
The
basic defect
in
these
allegations,
as
noted
by
the
court
below,
is the
failure
to
establish
a
contractual
relationship
between
the
adjusters
and
the
insured
appellants.
Without
such
a
relationship,
it
is
impossible
for the
adjusters
to
be liable
for
breach
of
contract
to
the
insureds.
If
the
adjusters
had
been
acting
within
the scope
of
their
authority,
their
alleged
failure
to
perform
their
principals'
contractual
duties
which
had
been
delegated
to
them
could
be
attributed
to
the
principals,
thereby
rendering
the
insurance
companies
liable
for
breach
of
contract.
But actions
by
the
adjusters
beyond
the
scope
of
their
authority
could
not
result
in
the
imposition
upon
them
of
contractual
duties
to
the
appellants
which
they
had
never
assumed.
The
adjusters
had
a
duty
to
their
principals,
the
insurance
companies,
to perform
whatever
tasks
were
assigned
to them,
but
this
duty
to did
not
serve
to
create
a
contractual
obligation
between
the
adjusters
and
appellants.
Id.
21
Id
22
Gruenberg,
510
P.2d
at
1038-39.
The
California
Supreme
Court
noted:
Plaintiff
contends
that these
non-insurer
defendants
breached
only
the
duty
of
good
faith
and
fair
dealing;
therefore,
we
need
not
consider
the
possibility
that
they
may
have
committed
another
tort
in
their
respective
capacities
as
total
strangers
to
the
contracts
of
insurance.
Obviously,
the
non-insurer
defendants
were
not
parties
to
the agreements
for
insurance;
therefore,
they
are
not,
as
such,
subject
to
an
implied
duty
of
good
faith
and
fair
dealing.
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
managerial
employees
of
the
company
failed
to
permit
the
plaintiff
to
be
seen
by
a
doctor
of
his
choice
and also failed
to
properly
investigate
his
disability
insurance
claim
by
consulting
with
his
treating physicians.
33
At
the
trial court
level,
the
court
not
only
assessed
an
award
of
$45,600
in
general
damages,
$78,000
in
emotional
distress, and
$5,000,000
in
punitive
damages
against
the
insurer,
but also
general
damages
of
$1,000
and
punitive
damages
of
$500
against
the
agency claims
manager
involved
in
the
case
and
$500
in general
damages
and
$400
in
punitive
damages
against
an
agency
claims
adjuster.
The
California
Supreme
Court reversed
the
punitive
damages
award
against
the
insurer.
35
Significantly,
the
California
Supreme
Court
also
examined
the issue
of
liability
of
the
two
managerial
employees. The
Supreme
Court
held
that
because the
two
managerial
employees
acted
as
agents
for
the
insurer,
they
were "not
parties
to
the insurance
contract
and
not
subject
to
the
implied
covenant."
3
In
arriving
at
this
conclusion,
the
California
Supreme
Court
cited
its
own
rationale
in
the
Gruenberg
decision, where
it
declined
to
extend
personal
bad-faith
liability
to
independent
claims
adjusters.
37
Thus,
in
all
of
these
cases,
the
California
appellate courts
not
only
took
a
lead
in
developing
a
doctrinal
rule
shielding
insurance
company
employees
from insurance
bad-faith
liability,
but
applied
it
both
in
the
contexts
of
first-
party
claims
involving
alleged
breaches
of
the
duty
of
good
faith
and fair
dealing,
as
well
as
allegations
of
failure
to accept
settlement
offers
within
policy
limits.
As
time
shifted
to
the
1990s,
while
a
number
of
courts
continued
to
uphold
this
doctrinal
rule,
the
first
signs
of
questioning
this
rule
became
evident
in
key
decisions
of
the state
supreme
courts
of
Montana,
Texas,
and
West
Virginia.
B.
The
Questioning
of
the
Doctrinal
Rule
During
the
early
cases
of
the
1970s
and
1980s,
involving
the emerging
tort
of
insurance
bad
faith,
courts largely
declined
to
extend
the
contours
of
bad-faith
liability
to
insurance
company
employee
adjusters.
But
as
is
the
case
with
many
legal
rules
and
doctrines,
over
time
some
legal
rules
are
challenged.
In
1993,
a
key
decision
in
Montana
changed
the
landscape
of
the
rules
concerning
insurance
company
employee
adjuster
liability
for bad
faith.
The
Supreme
Courts
of
Texas
and
West
Virginia
followed
thereafter,
leaving
a
divide
on
this
significant
question
of
insurance
bad-faith liability.
34
d.
3
Id.
at
149.
3
Id.
417
WEST
VIRGINIA
LAWREVIEW
1.
Early
1990's
Cases
Upholding
the
Doctrinal
Rule
In
the early
1990s,
courts generally
upheld
the
emerging
doctrinal
rule
which
did
not recognize
a
cause
of
action
against
employee
adjusters
for
insurance
bad
faith.
The
1992
Indiana Court
of
Appeals
case
of
Troxell
v.
American
States
Insurance
Co.
38
involved
allegations
of
first-party
bad
faith
surrounding
a
claim
under
a
fire
insurance
policy.
39
In
Troxell,
the
insureds
alleged
the
claims
adjuster
of
the
insurer
committed
acts
of
first-party
insurance
bad
faith
in
failing
to
negotiate
a
settlement
of
the
claim.
40
While
the
Indiana
Court
of
Appeals
upheld
the
trial
court's
entry
of
summary
judgment
for
the
claims
adjuster,
insurer,
and two
other
defendants
due
to
a
contractual
limitation
clause,
41
the
court
also
affirmed
the
trial
court's
reasoning
for
granting
summary
judgment
in
favor
of
the
claims
adjuster
on
the
basis
that
the
adjuster
had
no
duty
to
represent
the
interests
of
the
insured.
42
Similarly,
the United
States
District Court
for
the Southern
District
of
Mississippi,
interpreting
Mississippi
law,
found
an
insurance
bad-faith
action
could
not
lie
against
adjusters
in
the
Ironworks
Unlimited
v.
Purvis
4 3
first-party
insurance
case
in
1992."
The
Ironworks Unlimited
case
presented
an
issue
that
has
appeared
in
a
number
of
subsequent
reported
bad-faith
cases
involving
insurance
company
employee
adjusters:
whether
or
not
the
joinder
of
an
insurance
company
employee adjuster
is
fraudulent
for
the
purposes
of
defeating
removal
to
the
federal
courts.
For
diversity
jurisdiction
to
exist
in
federal
courts,
more
than
$75,000
must
be
in
controversy
in
the case
and
complete
diversity
of
plaintiffs
and
defendants
must
occur.
45
If diversity
jurisdiction
is
broken,
removal
to
federal
court
can
be
defeated.
46
The
plaintiff
in
Ironworks
Unlimited
proffered
allegations
of
bad
faith
against
an
insurer,
as
well
as
an
insurance company claims
representative, and
filed
its
complaint
in
state
court.
47
The
defendants
filed
a
notice
of
removal
and
contended
that
the insurance company
claims
representative
was
joined
fraudulently
to
defeat
diversity
jurisdiction.
48
In
analyzing
the
facts
of
the
case,
3
596
N.E.2d
921
(Ind.
Ct.
App. 1992).
39
Id.
at
922.
40
Id.
41
Id.
at
924.
42
Id.
at
925.
43
798
F.
Supp.
1261
(S.D.
Miss.
1992).
4
Id.
at
1267.
45
28
U.S.C.
§
1332
(2013);
see
also
E.
Farish
Percy,
Making
a
Federal
Case
ofIt:
Removing
Civil
Cases
to
Federal
Court
Based
on
Fraudulent
Joinder,
91
IowA
L.
REv. 189,
203-04
(2005).
46
Percy,
supra
note
45,
at
204.
47
Ironworks
Unlimited,
789
F.
Supp.
at
1262.
48
Id.
418
[Vol.
118
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
the
court
found
that
none
of
the
plaintiffs
allegations
related
to
adjustment
of
the
claim,
only
to
the
denial
of
the
claim.
49
Because
no
evidence
indicated
the
claims
representative
was
a
party
to
the
contract,
the
court
upheld
a
magistrate
judge's
ruling
that
the
claims
representative
was
fraudulently
joined
to
the
case.
50
By
1993,
it
appeared
that
insurance
company
employee
claims
adjusters
and
representatives
would
never
be
held
personally
liable
for
insurance
bad
faith.
But
the
rule
would
not
remain
impenetrable.
2.
The
O'Fallon,
Garrison
Contractors,
and
Taylor
Decisions
Although
courts
essentially
rejected
a
direct
cause
of
action
for
insurance
bad
faith
against
insurance
company
employee
adjusters
and
representatives
up
until
1993,
a
groundbreaking
decision
of
the
Montana
Supreme
Court
in
0'Fallon
v.
Farmers
Insurance
Exchange
5
1
opened
the
doors
to
the
possibility
of
insurance
employee
adjusters
being
held
liable
for
common-law
claims
based
on
statutory
violations
in
the
third-party
insurance
context.
In
O'Fallon,
the
plaintiffs
were
a
driver
and
passenger
reportedly
stopped
at
a
red
light
at
an
intersection
in
Missoula,
Montana.
52
As
they
were
stopped,
another
vehicle
operated
by
an
allegedly
intoxicated
individual
struck
the
car,
causing
physical
injuries
to
the
plaintiffs.
3
After
the
plaintiffs
filed
a
liability
claim
against
the
alleged
tortfeasor,
the
alleged
tortfeasor
filed
a
counterclaim
against
the
driver
reportedly
stopped
at
the
intersection.
54
In
response,
the
plaintiffs
alleged
that
the
activities
of
the
insurer
and
claims
agent
in
filing
the
counterclaim
and
in
the
underlying
case
constituted
a
violation
of
the
Montana
Unfair
Trade
Practices
Act
in
allegedly
failing
to
settle
the
claims
after
the
issue
of
liability
had
become
reasonably
clear.ss
In
particular,
the
Montana
Supreme
Court
comprehensively
discussed
the
personal
liability
issues
relating
to
the
claims
agent
in
the case. On
appeal,
the
claims
agent
argued
that
because
he was
not
an
"insurer,"
he
could
not
be
subject
to liability
under
the
statute.
In
analyzing
the
text
of
the
statute,
the
court
noted
that
"no
person"
can
violate
the
Unfair
Trade
Practices
Act's
provisions
relating
to
unfair
claims
settlement.
5
7
Parallel
to
the
O'Fallon
49
Id.
at
1266.
50
Id.
at
1267.
s1
859
P.2d
1008
(Mont.
1993).
52
Id.
at
1009.
53
Id.
54
Id.
at
1010.
5
Id.
56
Id.
at
1014.
57
Id.;
see
MONT.
CODE
ANN.
§
33-18-201
(West
2015).
419
WEST
VIRGINIA
LAW
REVIEW
decision
58
based
on
the
Unfair
Trade
Practices
Act,
Montana's
insurance
law
defines
a
"person"
not
only
as
an
"insurer"
or
"company"
but also
as
an
"individual."
59
Analyzing
the
legislative history
behind
the
statute,
the
court
found
that
the
unfair
claims
settlement
statute did
not
conflict
with
a
statutory
cause
of
action for insureds
and
third-party
claimants
provided
for
in
another
provision
of
Montana
law
6 0
that
applied
only
to insurance
companies.
6
1
Significantly,
the
Montana
Supreme
Court
not
only found
that
an
individual
could
bring
a
third-party
claim against
an
insurance
company
employee
adjuster
for bad
faith,
but
that
it
is
a
common-law
action
based
upon statutory
62
duties,
not
simply
a
statutory
cause
of
action.
The
Texas
Supreme Court
followed
the
lead
of
O'Fallon
in
holding
that
employee
adjusters could
be
personally
liable
for
alleged
bad-faith
misconduct
in
the
Liberty
Mutual
Insurance
Co.
v.
Garrison
Contractors
6 3
decision
in
1998.
In
the
Garrison
Contractors
case,
the
plaintiff
had
purchased
a
multi-line
insurance
policy
from
an insurer
through
the
assistance
of
an
employee-agent
of
the
insurer.
64
The
particular
policy
in
question
had
a
retrospective
premium
feature
to it,
which apparently
created
confusion
concerning
the
amount
of
premium
the
insured owed
under
the
policy.
65
The
insured
filed
a
third-party
claim
against
the
employee-agent
for
both
common
law
insurance
bad
faith
and
statutory violations
under
the
Texas
Deceptive
Trade
Practices Act
when
a
dispute
arose
concerning
premiums
due
under
the
policy.
6
6
A
key
provision
of
the
Texas
Deceptive
Trade
Practices
Act,
in effect
at
the
time
of
the
decision,
prohibited
a
"person"
from
engaging
in
deceptive
trade
practices
in
the
business
of
insurance.
67
Similar
to
the
Montana
statute
at
issue
in
the
0'Fallon
decision,
the
statute
in
the
Garrett
Contractors
case
defined
"person"
to
include
"any
individual."
68
Following
the
lead
of
the
Montana
Supreme
Court
in
O'Fallon,
endorsing
personal liability
of
insurance
5
O'Fallon,
859
P.2d
at
1014.
59
MONT.
CODE
ANN.
§
33-1-202(3)
(West
2015).
60
MONT.
CODE
ANN.
§
33-18-242
(West
2015).
61
O'Fallon,
859
P.2d
at
1015.
62
Id.
63
966
S.W.2d
482
(Tex.
1998).
6
Id.
at
483.
65
Id.
The
Court
described
the
retrospective
premium
feature
as
follows:
"The
policy
featured
a
retrospective premium
plan,
in
which
a
base
premium
is
paid,
then adjusted
based
on actual
losses.
If
losses
are
less
than
expected,
the
insurer refunds
part
of
the
base
premium.
If
losses
are
greater
than
expected,
the
insured
owes
additional
premiums."
Id.
66
Id.
at
483-84.
67
Id.
at
484.
68
Id.
420
[Vol.
118
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
company
employee adjusters,
the
Texas
Supreme
Court
in
Garrison
Contractors
held
that
a
statutory
cause
of
action
exists
against
an
employee-
agent
of
an
insurer
for
bad-faith
practices.
69
However,
in
comparison
with
the
O'Fallon
decision, the
Texas
Supreme
Court in
Garrison
Contractors
qualified
that
only
those
employees
of
an
insurance
company
who
were involved
in
the
"business
of
insurance"
could
be
held
liable.
0
In
this particular
case,
the
Texas
Supreme
Court
noted
that
the
employee-agent
of
the
insurer solicited
the
sale
of
the
insurance
policy
at
issue and
was
responsible
for
explaining
insurance
policy
terms.
7
1
But
unlike
a
common-law-based
cause
of
action
in
O'Fallon,
the
Texas Supreme
Court
in
Garrison
Contractors
endorsed
a
statutory-based
remedy.
Jointly,
the
decisions
in
0'Fallon
and
Garrison
Contractors
marked
the
beginning
of
a
potential
shift
relating
to insurance
company employee
adjuster
liability. These two
cases
have
started
a
movement
in
which
at
least
one
other court,
the
West Virginia
Supreme
Court,
has expressed
an
openness
to
holding
employee
adjusters
personally
liable
in
some
situations.
In
2003,
the
West
Virginia
Supreme
Court followed
the
lead
of
the
Supreme
Courts
of
the
states
of
Montana
and
Texas
in
challenging
the
doctrinal
rule that
employee insurance
adjusters are
immune
from
personal
liability
for
alleged
insurance
bad-faith
conduct.
Similar
to
the Texas
Supreme
Court's
holding
in
the
Garrison
Contractors
case,
the
West Virginia
Supreme
Court
held
in
Taylor
v.
Nationwide
Mutual
Insurance
Co.
7
2
that
an
insurance
employee
claim adjuster
could
be
liable
for
statutory insurance
bad-faith
practices
under
the
scope
of
the
West
Virginia
Unfair
Trade
Practices
Act.
The
underlying
facts
of
Taylor
involved
a
plaintiff
who was
injured
in
an
automobile accident
where
the
other
driver
was at
fault.
74
After
settling
for
the
policy
limits with the
tortfeasor's
insurer,
the
plaintiff
filed
an
underinsured
motorists
coverage
claim
7 5
on
his
own
insurer's
policy.
76
The
plaintiff
contended
that
his
insurer
failed
to
provide
an
opportunity
to
purchase
additional limits
of
underinsured motorist
liability coverage
beyond
those
the
insurer
claimed,
an
alleged
violation
of
which would
be
contrary
to
West
69
Id.
at
486.
70
Id.
7'
Id.
72
589
S.E.2d
55
(W.
Va.
2003).
73
Id.
at
62.
74
Id.
at
57.
7
See,
e.g.,
Theodore
J.
Smetak,
Underinsured
Motorist
Coverage
in
Minnesota:
Old
Precedents
in
a
New
Era,
24
WM.
MITCHELL
L.
REv.
857,
881
(1998)
("Underinsured
motorist
coverage
is
necessary
only
when insufficient liability
insurance
exists
to
compensate
for
the
motoring
injury.
The
definition
of
underinsured
motorist
requires
one
to
compare
the
recoverable
damages
to
the
underinsured
motorist's
liability
limits.").
76
Taylor,
589
S.E.2d
at
57.
421
WEST
VIRGINIA
LAW
REVIEW
Virginia
law.n
A
dispute
arose
as
to
whether
a
nationwide
mailing
sent
by
the
insurer
constituted
a
waiver
of
the
notice
of
an
opportunity
to
purchase
additional
limits
of
coverage.
78
The
claims
adjuster
sent
a
letter
to
the
insured
stating,
in
essence,
it
was
the
insurer's
position
that
the
waiver
was
effective.
In
response,
the
insured
proffered
claims
of
breach
of
fiduciary
duty,
breach
of
contract,
bad
faith,
and
unfair
claims
settlement
practices
against
the
insurer,
as
well
as
claims
of
unfair
claims
settlement
practices
against
the
claims
80
representative.
Comparable
to
the
statutes
in
Montana
and
Texas
in
the
O'Fallon
and
Garrison
Contractor
cases,
the
language
of
the
West
Virginia
Unfair
Trade
Practices
Act
prohibited
any
"person"
from
engaging
in
an
unfair
method
of
competition
or
an
unfair
and
deceptive
act
of
practice.
81
The
statute
defined
"person"
to
include
"any
individual,"
just
like
the
Texas
statute
at
issue
in
the
Garrison
Contractors
case.82
In
analyzing
the
statutory
language,
the
West
Virginia
Supreme
Court
held
that
the
statute's
definition
of
"person"
clearly
and
unambiguously
expressed
the
intent
of
the
West
Virginia
legislature
to
include
"any
individual"
as
encompassed
within
the
purview
of
the
West
Virginia
Unfair
Trade
Practices
Act.
The
court
noted
that
an
"individual"
could
include
a
claims
adjuster,
and
thus
claims
adjusters
employed
by
an
insurer
can
incur
personal
liability
for
statutory
bad-faith
violations
of
the
West
Virginia
Unfair
Trade
Practices
Act
if
they
were
in
the
"business
of
insurance."
84
In
holding
that
claims
adjusters
can
incur
statutory
bad-faith
liability,
the
court
rejected
two
arguments
of
the
insurer
and
claims
adjuster
which
were
arguments
which
had
been
accepted
by
courts
which
follow
the
traditional
rule
of
rejecting
adjuster
personal
liability.
First,
the
court
did
not
adopt
the
reasoning
of
other
courts
which
rejected
personal
liability
on
the
basis
that
the
claims
adjuster
is
not
a
party
to
the
actual
contract
of
insurance
between
the
insured
and
insurer.
85
The
court
also
did
not
accept
the
arguments
that
"fundamental
principles
of
agency
law"
would
reject
personal
liability.
86
In
supporting
its
decision,
the
court
cited
the
observation
that
both
arguments
are
7
Id.
78
Id.
7
Id.
at
58.
80
Id
81
Id.
at
60.
82
Id.
83
Id.
at
61
(citing
W.
VA.
CODE
§
33-11-2(a)
(1974)).
84
Id.
at
60-61.
8s
Id.
at
61.
86
Id.
at
61-62.
422
[Vol.
118
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
inapplicable
as
the
personal
liability
of
a
claims
adjuster
is
created
by
statute
as
an
independent
duty.
Viewing
all
three
decisions
(O'Fallon,
Garrison
Contractors,
and
Taylor)
together,
there
is
an
emerging
split
of
authority
on the
liability
of
insurance
claims
adjusters
and
representatives
for
insurance
bad
faith.
In
approximately
the
past
decade,
a
number
of
state
and
federal
courts
have
examined
personal liability
issues and
have
come
to varied
results,
and
the
personal
liability
of
an
insurance
company
claims
adjuster
employee
for
bad
faith
is
emerging
as
an
unsettled
issue
of
insurance
law
nationwide.
C.
An
Emerging
Split
ofAuthority
on
Adjuster
Liability
Many
of
the
reported
cases
involving
personal
liability
issues
of
insurance company
employee
adjusters and
claims
representatives today
involve situations
where
an
insurance
adjuster
or
claims
representative
is
added
as
a
party
defendant
by
a
plaintiff
to
a
case
in
attempts
to
defeat
federal
diversity
jurisdiction.
The
resolution
of
cases
as
to
whether
an
insurance
company
employee
adjuster
is
fraudulently
joined
to
defeat
diversity
jurisdiction
provides
a
glimpse
as
to
how
a court may
rule upon
finding
whether
an
insurance
company employee
adjuster
can
be
held
liable
for
insurance
bad
faith.
Just
as
the
courts
are
now
divided
on the
overarching
issue
of
whether
to
apply personal liability
for
bad
faith
to
an
insurance
company
employee adjuster,
courts
are
also
divided
on
the
issue
of
the
application
of
the
fraudulent
joinder
doctrine.
As
a
general
rule,
federal
courts
in
the
United
States
have
diversity
of
citizenship
jurisdiction
when
there
are
diverse
parties
and
the
amount in
controversy
exceeds
$75,000.89
If
a
lawsuit
is
filed in
state
court,
a
defendant
has the
right to remove
the
case to
federal
court
if
the
elements
of
diversity
of
citizenship
jurisdiction
are
met.
90
If
diversity
of
citizenship
is
lacking
and
the
case
is
in
federal court
under
diversity
of
citizenship
jurisdiction,
then
the
plaintiff
has
the
right
to remand the case
back
to
state
court.
9
'
Federal
law
provides
that
courts
can
either deny
or
permit
joinder
in
the
situations
where
a
plaintiff
seeks
to
join
additional
defendants
where
joinder
would
destroy
87
Id.
88
See
Matthew
J.
Richardson,
Clarifying
and
Limiting
Fraudulent
Joinder,
58
FLA.
L.
REV.
119, 133
(2006)
("The
removing
defendant
may
show
fraudulent
joinder
in
one
of
two ways,
either
by
(1)
showing
that
the
plaintiff
has
falsely or
fraudulently
pled
the
jurisdictional
facts
of
the
citizenship
of
the
parties
in
the
complaint,
often
a
nearly
impossible
task,
or
(2)
showing
that
the
plaintiff
has
no
possibility
of
recovery against
the diverse
or nondiverse defendants
in
state
court.").
89
28
U.S.C.
§
1332(a)(1)
(2013).
90
Id.
§
1441(a).
91
Id.
§
1447(c).
423
WEST
VIRGINIA
LAW
REVIEW
diversity
of
citizenship.
92
However,
a
defendant
may
defeat
a
plaintiffs
attempts
to
remand
a
case
back
to
state
court through
joinder
if
the
joinder
is
fraudulent.
93
Courts have
had
diverse
rulings
on
the
fraudulent
joinder
issue
in
cases
where
a
plaintiff
seeks
to
add
an
insurance
claims
adjuster
or
representative who
is
an
employee
of
the
insurer
as
a
defendant.
1.
Courts
Applying the
Fraudulent
Joinder Doctrine
Some
courts
hold
that
the
fraudulent
joinder
doctrine
applies
for
the
reason
that
individual
insurance
adjusters
and
claims
representatives
are
not
parties
to
the
contract
of
insurance
between
an
insurance
company
and
its
insured.
For
instance,
the
case
of
Tipton
v.
Nationwide
Mutual
Fire
Insurance
Co.
9 4
involved
an
insurer's
denial
of
a
content
coverage
claim
of
an
insured
following
a
fire.
9
5
The
plaintiff
attempted
to
add
the
insurer's
property adjuster
as
a
defendant
to
the
lawsuit,
which
alleged
a
bad-faith
denial
of
the
claim.
96
In
essence,
the
plaintiff
alleged
the
property
adjuster
was
not
immune
from
personal
liability
because
he
allegedly
was
a
participant
in
a
conspiracy
with
the
insurer
to
deny
the
claim.
97
In
holding
the
fraudulent
joinder
doctrine
applied
to
prevent
the
addition
of
the
adjuster
as
a party,
the
United
States
District
Court
for
the
Southern
District
of
Mississippi
not
only
cited
the
principle
that
a
corporation
cannot
conspire
with
an
agent
(property
adjuster)
of
a
corporation
(insurer),
but
that
an
adjuster
is
not
a
party to
the
contract
of
insurance
and
the
adjuster
has
no
duty
to
provide
coverage.
98
Similarly,
in
2006,
the
United
States
District
Court
for
the
Northern
District
of
Florida
also
cited the
principle
that
a
claims
adjuster
is
not
a
party
to
a
contract
between
an
insurer
and
its
insured.
The case
of
Stallworth
v.
Hartford
Insurance
Co.
99
involved
allegations
that
an
insurer
acted
in
bad
faith
92
28
U.S.C.
§
1447(e)
(2013)
("If
after
removal
the
plaintiff
seeks
to
join
additional
defendants
whose
joinder
would
destroy subject matter
jurisdiction,
the
court
may
deny
joinder,
or
permit
joinder
and
remand
the
action
to the
State
court.").
93
See
generally
Richardson,
supra
note
88.
94
381
F.
Supp.
2d
567
(S.D.
Miss.
2003).
9s
Id.
at
569-70.
96
Id.
at
570.
9
Id.
at
570-71.
9
Id.
("In addition,
any individual, including
an
agent
may
not
be held directly
liable
under
an
insurance
contract
if
that
person
was
not
a
party
to
the
insurance
contract
itself,
because
that
person
has no
duty
arising
from
the
policy
to
provide
coverage.
The
claim
involved
herein
is
based
on
a
contract
of
insurance
between
[the
plaintiff]
and
[the
insurer];
[the
property
adjuster]
was
not
a
party
to
that
contract
nor
the
party
to
look
to
for
payment
of
insurance
benefits."
(citations
omitted)).
99
No.
3:06cv89/MCR/EMT,
2006
WL
2711597
(N.D.
Fla.
Sept.
19,
2006).
[Vol.
118
424
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
in
denying
benefits
under
an
automobile
liability
insurance
policy
following
an
accident.'
00
The
lawsuit
proffered
claims
of
breach
of
warranty,
breach
of
the
warranty
of
good
faith
and
fair dealing,
and
finally
unfair
claims
settlement
practices
following
the claims
denial.
01
It
appears
that
the
plaintiffs
in
the
case
mischaracterized
the
allegations
of
breach
of
the
warranty
of
good
faith
and
fair dealing,
as
well
as a
common
law
claim
for
unfair
claims
settlement
practices
to
apply
to
the
alleged
bad-faith
claims.
1
02
In
Florida,
bad-faith
claims
are
covered
under
a
statutory
cause
of
action.
1
03
Irrespective
of
the nature
of
the
allegations,
the
court
dismissed
them
because
it noted
that
contractual
liability
must
be
resolved
as
a
prerequisite
to
a
bad-faith
claim.1
04
In
addition,
the
claims
for
breach
of
contract
and
breach
of
the
implied
covenant
of
good
faith
and
fair
dealing
were
also
dismissed
due
to
the
lack
of
privity
of
contract
between
the
claims
adjuster
and
the
insured.
05
The court
noted
that
dismissal
of
the
claims
adjuster
would
be
appropriate
even
if
the
alleged conduct
were
"egregious"
in
nature.
0 6
In
addition,
the
Ohio
Ninth
District
Court
of
Appeals
also
endorsed
the
traditional
view
of
insurance
adjuster
personal
liability
on
the
privity
of
contract
rationale
in
the
Baker
v.
Nationwide
Mutual
07
case.
The
court
stated
"[a]n
individual
insurance
adjuster
does
not have
a
contractual
relationship
with
a
policyholder
and,
consequently,
does
not
have
a
corresponding
personal
duty
to
act
in
good
faith."
0
s
The
court
cited
approvingly
0
9
of
the
language
of
an
Ohio
Eighth
District
Court
of
Appeals
case,
Johnson
v.
State
Farm Insurance
Co.,110
in
which the
court
stated
in
a
case
involving
personal
liability
for
negligence
of
an
insurance
adjuster
that,
under
Ohio
law,
"there
is
no
duty
owed
by
an
insurance
adjuster,
in
his
individual
capacity,
to
a
person
making
a
claim
on their
policy
of
insurance.""'
100
Id.
at
*7.
101
Id.
102
Id.
at
*5.
103
FLA.
STAT.
ANN.
§
624.155(l)(b)(1)
(West
2015).
This
statute
provides
an
insurer
can
incur
liability
in
"[n]ot
attempting
in
good
faith
to
settle
claims
when,
under
all
the
circumstances,
it
could
and
should
have
done
so,
had
it
acted fairly
and
honestly
toward
its
insured
and with
due
regard
for
her
or his
interests
. . .
."
Id.
104
Stallworth,
2006
WL
2711597,
at
*6-7.
1os
Id.
at
*7.
106
Id.
107
C.A.
No.
12CA010236,
2013
WL
1905334,
at
*4
(Ohio
Ct.
App.
May
6,
2013).
108
Id.
(citation
omitted).
109
Id.
110
Johnson
v.
State
Farm
Ins.
Co.,
No.
75497,
1999
WL
1206603
(Ohio
Ct.
App.
Dec.
16,
1999).
III
Id.
at
*3.
425
WEST
VIRGINIA
LAW
REVIEW
Also,
in
Fulkerson
v.
State
Farm
Mutual
Automobile
Insurance
Co.,
112
the
United
States
District
Court
for
the
Western
District
of
Kentucky
not
only
reaffirmed
the rule
of
adjuster
personal
liability
immunity
adopted
in
some
decisions,
but
the
rationale
of
the
court
stands
in
direct
contrast
to
the
decisions
in
the
O'Fallon,
Garrison
Contractors,
and
Taylor
decisions.'
1
3
The
Fulkerson
case
arose
out
of
an
accident
where
the
plaintiffs
underinsured
motorist
claim
was
eventually
settled
with
the
underinsured
motorist's
insurance
carrier.l14
However,
approximately
a
year
after
the
settlement,
a
common
law
bad-faith
claim,
as
well
as
claims
alleging
violations
of
the
Kentucky
Consumer
Protection
Act and
the
Kentucky
Unfair
Claims
Settlement
Practices
Act,
were
filed
against
the
insurer
in
the
case."'
The
plaintiff
not
only proffered
claims
against
the
insurer
in
the
case,
but
also
sought
to
request
leave
for
the
filing
of
an
amended
complaint
to
add
an
insurer's
team
manager
(individual
employee)
as
a
party
defendant
to
the
case."
6
In
Kentucky,
a
remedy
for
bad-faith
misconduct
of
an
insurer
can
be
found
in
the
Kentucky
Unfair
Claims
Settlement
Practices
Act.
117
The
statute,
similar
to
the
ones
at
issue
in
the
O'Fallon,
Garrison
Contractors,
and
Taylor
cases,
provides
that
any
"person"
may
be
liable
for
certain
delineated
unfair
claims
settlement
practices.'
1
8
The
Fulkerson
court,
in
contrast
to
the
O'Fallon,
Garrison
Contractors,
and
Taylor
cases,
found
that
it
would
be likely
the
Kentucky
Supreme
Court
would
reject
any
claim
to
hold
an
adjuster
personally
liable
for
bad
faith."
9
In
finding
that
a
claims
adjuster
is
not
"in
the
business
of
insurance,"
the
Fulkerson
court
cited
20
the
Kentucky
Supreme
Court's
2000
decision
in
Davidson
v.
American
Freightways,
Inc.,1
2
1
in
which
it
ruled
a
self-
insured
motor
carrier
was
not
a
"person"
subject
to
the
provisions
of
the
Kentucky
Unfair
Claims
Settlement
Practices
Act.1
22
In
Davidson,
the
Kentucky
Supreme
Court
stated
"[a]bsent
a
contractual
obligation,
there
simply
is
no
bad-faith
cause
of
action,
either
at common
law
or
by
statute."
23
Given
there
was
apparently
no
contractual
obligation
between
the
claims
adjuster
and
the
insured
in
the
Fulkerson
case,
the
Fulkerson
court held
that
the
proposed
112
Civil
Action
No.
3:09CV-392-S,
2010
WL
2011566
(W.D.
Ky.
May20,
2010).
113
Id.
at
*1.
114
Id.
11s
Id.
116
Id.
117
KY.
REv.
STAT.
ANN.
§
304.12-230
(West 2015).
1"
Id.
119
Fulkerson,
2010
WL
2011566,
at
*1.
120
Id
121
25
S.W.3d
94
(Ky.
2000).
122
Id.
at
98.
123
Id
at
100.
426
[Vol.
118
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
amended complaint
did
not
state
a
cognizable
cause
of
action
against
the
adjuster.1
24
2.
Courts
Declining
to
Apply
the
Fraudulent
Joinder Doctrine
Although
a
number
of
courts
have
ruled
that
the
fraudulent
joinder
doctrine
applies
in
instances where
a
plaintiff
attempts
to
add
a
claims
adjuster
defendant
to
remove
diversity
jurisdiction,
a
growing
number
of
courts
in
recent
years have
ruled
just
the
opposite
and
have
not
been
persuaded
that
courts automatically
would
dismiss
claims
for
personal
liability
of
insurance
claims
adjusters
for
bad
faith.
In
some cases,
judges
from the
same
states
have
ruled
differently.
For
instance,
the
Ohio
state
court
case
of Baker
discussed
earlier conflicts with
the
ruling
of
Wiseman
v.
Universal
Underwriters
Insurance
Co.,
2 5
a
federal
case
before
the United
States
District
Court
for
the
Southern
District
of
Ohio.
126
The
underlying
facts
of
the
Wiseman
case
involved
allegations that
a
motorcycle dealer
negligently sold
a
defective motorcycle
which
purportedly
caused
an
injury
to
a
passenger.1
27
Both
the
motorcycle
dealer and
an
employee
of
the
motorcycle
dealer
were
named
in
the
lawsuit.128
The
case
ended
up
going
to
trial
with
a
verdict
being
entered
in
excess
of
the
policy
limits.
29
Following
the
verdict
in
excess
of
the
policy
limits,
the employee
of
the
motorcycle
dealer
filed
claims
against
the
dealer's
insurer
and
a
claims
adjuster
of
the insurer
alleging
that
the
insurer
and
adjuster,
among
other
things,
failed
to
advise
him
of
three
settlement
offers
made
within
the
policy
limits
and
advise
him
as
to
any
issues
of
exposure
to
personal
liability.o
30
The
insurer
and
insurer's
employee
contended that
there
were
no
cognizable claims
against
the
insurer's
employee because
an
independent
duty
of
an
adjuster
to
act
in
good
faith
with
regard
to
settling
claims
against
the
insured
did
not
exist.131
In
analyzing the
question
of
whether
an
insurance
company employee
claims
adjuster
could
be
held
liable for
bad
faith, the
Wiseman
court
noted
that
imposing personal
liability
upon
an
adjuster
is
not
a
"novel
concept."
32
The
court noted that
it
has
been
doctrinally
recognized
in
insurance
law
that
"an
insurance agent
is
liable
for
his
or
her own tortious
conduct
to
the
same
extent
124
Fulkerson,
2010
WL
2011566,
at
*1.
125
412
F.
Supp.
2d
801
(S.D.
Ohio
2005).
126
Id.
127
Id.
at
803.
128
Id
129
Id.
at
804.
130
Id.
at
803-04.
131
Id
at
804.
132
Id.
at
805.
427
WEST
VIRGINIA
LAW
REVIEW
as
though
the
agent
had
been
acting
on
his
or
her
own
behalf
and
not
as
an
agent."
3
In
holding
that
the fraudulent
joinder
doctrine
did not apply concerning
the
insurance
company
employee
adjuster's
presence
as
a
defendant
in
the
case,1
34
the
Wiseman
court
stated
that
a
"reasonable
basis"
could
exist
under
Ohio
law
to
recognize
claims
for
personal
liability
of
an
insurance
company
employee
adjuster
for bad
faith.'1
3
The
Wiseman
court
specifically noted
that
insurance adjusters
in
Ohio
could
be
held
liable
for
"tortious
conduct
including
misrepresentation,
negligence
in
failing
to
obtain
coverage,
and
negligence
in
failing
to
exercise
reasonable
case
[sic]
in
advising
customers about
the
terms
of
coverage."
36
It
should
be
noted
that
all
of
these
causes
of
action
mentioned
involve negligent
conduct,
not
conduct
which
rises
to
the
standard
of
recklessness
or
bad
faith. However,
it
is
significant
that
the Wiseman court
did
not
preclude
the
possibility that
Ohio
could
recognize
personal
liability for bad
faith.
Other
states
have
not
foreclosed on the
possibility
of
such
a
cause
of
action
for
personal liability
being
recognized.
On
at
least
four
separate occasions, the
United
States
District Court
for
the
District
of
Arizona
has
ruled
that
the
joinder
of
an
insurance
company
employee
adjuster
to
a
lawsuit for
the
purposes
of
defeating
diversity
jurisdiction
is
not
fraudulent.
In
2006,
the
Ballesteros
v.
American
Standard
Insurance
Co.
of
Wisconsin'
37
case
involved
allegations that
a
Spanish-
speaking
insured
was
not
given
a
written
offer
of
uninsured
motorist's
and
underinsured
motorist's
insurance
coverage
in
Spanish
and
that
the
insurer,
an
insurance
agent,
and
an
insurance
adjuster "intentionally
and
wantonly"
failed
to do
So.138
The
plaintiffs
also
contended
that
the
insurer
engaged
in
this
practice
due
to
a
profit
motive,
noting
that
uninsured
motorists
and
underinsured
motorists
insurance
coverage
is
not
very
profitable
and
that
the
employees
of
the
insurer
were
compensated
based
on
the
insurer's
profitability.
1
Among
a
number
of
claims,
the
plaintiffs
proffered
bad-faith
claims
against
the
insurance
company's
employee
adjuster.1
40
In
analyzing
whether
the
bad-faith
claims
against
the
adjuster
were
colorable,
the
Ballesteros
court
cited
a
1984
Arizona
insurance
bad-faith
case,
133
Id.
134
Id
at
806.
135
Id
136
Id.
at
805.
137
436
F.
Supp.
2d
1070
(D.
Ariz.
2006).
138
Id.
at
1073.
139
Id.
140
Id
428
[Vol.
118
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
Farr
v.
Transamerica
Occidental
Life
Insurance
Co.
of
California.
14
1
The
Farr
court
had
earlier
cited
a
dissent
by
Judge
Kerrigan
in
a 1974
California
Court
of
Appeals
case,
Hale
v.
Farmers
Insurance
Exchange,
1
42
which
criticized
the
part
of
the
Gruenberg
decision
which
embraced
insurance
adjuster
immunity
from
personal
liability
for
insurance
bad
faith.
1
4 3
The
dissenting
judge
in
the
Hale
decision
stated
the following:
[T]he
Gruenberg
rule
protecting
independent
contractors
from
punitive
damage
liability
makes
little
sense
in
the
present
context
for
it
would
mean
that
any
employee
of
an
insurance
company
who
willfully
and
in
bad
faith
denies
a
claimant
payment
on
his
policy
of
insurance
would
be
insulated
from
the
punishment
of
exemplary
damages
for
his
conduct.
One's
sense
of
justice
cannot
help
but
be
affronted
when
the
application
of
abstract
legal
doctrine
yields
such
a
result
in
practice.
The
Gruenberg
court
could
not
possibly
have
intended
to
insulate
intentional
tortfeasors
from
exemplary
liability
merely
because
they
happen
to
work
for
an
insurance
144
carrier.
In
including
this
language,
the
Ballesteros
court
concluded
that
it
is
unclear
under
Arizona
law
if
a
claims
adjuster
could
be
personally
liable
for
insurance
bad
faith.
1
4 5
Thus,
the
fraudulent
joinder
doctrine
did
not
apply
concerning
the
adding
of
the
claims
adjuster
as
a
party
defendant.
14 6
Following
Ballesteros,
on
at
least
three
other
occasions,
in
2008
in
Allo
v.
American
Family
Mutual
Insurance
Co.,147
in
2010
in
Wapniarski
v.
Allstate
Insurance
Co.,
1
48
and
in
2012
in
IDS
Property
Casualty
Insurance
Co.
v.
Gambrell
149
the
United
States
District
Court
for
the
District
of
Arizona
held
claim
adjusters
were
not
fraudulently
joined
to
defeat
diversity
jurisdiction
and
expressed
the
belief
that
the
personal
liability
question
for
insurance
company
employee
claims
adjusters
is
still
unsettled.
141
Id.
at
1078
(citing
Farr
v.
Transamerica
Occidental
Life
Ins.
Co.
of
Cal.,
699
P.2d
376,
386
(Ariz.
Ct.
App.
1984)).
142
117
Cal.
Rptr.
146
(Cal.
Ct.
App.
1974)
(Kerrigan,
J.,
concurring
in
part
and
dissenting
in
part).
143
Farr,
699
P.2d
at
386
(citing
Hale,
117
Cal.
Rptr.
at
162
(Kerrigan,
J.,
concurring
in
part
and
dissenting
in
part)).
144
Hale,
117
Cal.
Rptr.
at
162-63
(Kerrigan,
J.,
concurring
in
part
and
dissenting
in
part).
145
Ballesteros,
436
F.
Supp.
2d
at
1079.
146
Id.
147
No.
CV-08-0961-PHX-FJM,
2008
WL
4217675,
at
*3
(D.
Ariz.
Sept.
12,
2008).
148
No.
CV-10-0823-PHX-LOA,
2010
WL
2534167,
at
*5
(D.
Ariz.
June
18,
2010).
149
913
F.
Supp.
2d
748,
754
(D.
Ariz.
2012).
429
WEST
VIRGINIA
LAW
REVIEW
South
Carolina
is
also
among
the
jurisdictions
where
a
federal
district
court
has
noted
that
it
is
unsettled
as
to
whether
a
claims
adjuster
could
incur
personal
liability
for
insurance
bad
faith.
In
Pohto
v.
Allstate
Insurance
Co.,
150
the
plaintiff,
insured
under
a
motorclcle
vehicle
insurance
policy,
was
seriously
injured
by
a
hit
and
run
driver.
51
The
injured
plaintiffs
uninsured
and
underinsured
motorists
carrier
declined
to
pay
the
full
policy
limits,
and
the
insured
filed
a
bad-faith
claim
against
the
insurer
as
well
as
the
insurer's
employee
adjuster.'
52
The
United
States
District
Court
for
the
District
of
South
Carolina
found
that
the
insured
could
possibly
establish
a
colorable
cause
of
action
based
upon
bad
faith
against
the
insurer's
employee
adjuster.'
3
The
Pohto
court
particularly
noted
that,
under
South
Carolina
agency
law,
a
company
employee
could
be
held
personally
liable
for
his
or
her
own
torts,
even
if
the
torts
are
committed
when
the
employee
is
acting
within
his
or
her
scope
of
employment.1
54
It
thus
rejected
application
of
the
contractual
privity
rule
expressed
in
other
cases
and
expressly
cited
the
Garrison
Contractors
and
O'Fallon
decisions
in
holding
it
is
possible
that
a
cause
of
action
could
lie
against
an
insurance
company
employee
claims
adjuster
for
bad
faith.'
5
The
Garrison
Contractors
decision
has
also
been
cited
with
approval
by
the
United
States
Court
of
Appeals
for
the
Fifth
Circuit.1
56
In
Gasch
v.
Hartford
Accident
&
Indemnity
Co.,
15 7
claims
based
upon
the
common
law
duty
of
good
faith
and
fair
dealing,
as
well
as
the Texas
Deceptive
Trade
Practices
Act
involving
the improper
denial
of
worker's
compensation
survivor
death
benefits,
were
filed
against
an
insurer
and
a
claims
adjuster.'
58
The
United
States
Court
of
Appeals
for
the Fifth
Circuit
upheld
the
reasoning
of
the
Texas
Supreme
Court
in
the
Garrison
Contractors
case,
noting
that
the
claims
adjuster
at
issue in
Gasch
serviced
insurance
policies
for
the
insurer
and
was
"engage[d]
in
the
business
of
insurance"
for
purposes
of
the
Texas
Unfair
and
Deceptive
Trade
Practices
Act
and
thus
could
potentially
incur
liability
as
a
"person."
59
The
United
States
Court
of
Appeals
for
the
Fifth
Circuit
in
Gasch
distinguished
the
Garrison
Contractors
case
from
another
Texas
Supreme
150
No.
6:10-cv-02654-JMC,
2011
WL
2670000
(D.S.C.
July
7,2011).
151
Id.
at
*1.
152
Id.
153
Id.
at
*2.
154
Id
155
Id
156
Gasch
v.
Hartford
Accident
&
Indem.
Co.,
491
F.3d
278,
282
(5th
Cir.
2007).
157
491
F.3d
278.
158
Id.
at
280.
159
Id.
at
282.
430
[Vol.
118
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
Court
case,
Natividad
v.
Alexsis,
Inc.,160
which
held
in
1994
that
a claims
adjuster
did
not
owe
a
worker's
compensation
a
duty
of
good
faith
and
fair
dealing
absent
a
"special
relationship"
created
by
contract
between
the
adjuster
and
the
claimant.1
61
The
Gasch
court
remarked
that
while
the
Natividad
court
examined
the
issue
of
personal
liability
through
the
common
law
claim
of
a
breach
of
duty
of
good
faith
and
fair
dealing,
it
did not
address
a
statutory
claim
as
the
Garrison
Contractors
court
did.1
62
Thus,
the
Fifth
Circuit
noted
that
a
claim
against
an
adjuster
for
bad-faith
conduct
through
the
Texas
Deceptive
Trade
Practices
Act
would
explicitly
be authorized.
6
3
Finally,
a
majority
of
the
decisions
discussed
relating
to
the
personal
liability
of
an
insurance
company
employee
adjuster
for
insurance
bad
faith
are
cases
involving
allegations
of
bad
faith
in
the
first-party
context.
However,
there are
third-party-bad-faith
cases
where
the
personal
liability
issue appears,
such
as
the
O'Fallon
case.
Leonhardt
v.
Geico
Casualty
Co.
1 64
is
one such
case.
165
The
Leonhardt
case
involved
a
car
accident
in
which
the
plaintiff
recovered
an
$800,000
judgment
in
state
court.1
66
The
insurer's
policy
limits
toward
the
plaintiff
were
$20,000,
far
below
the
judgment
recovered.1
67
Following
the
trial
in
state
court,
in
which
an excess
judgment
was
recovered,
the
insured
driver/car
owner
assigned
all
claims
against
the
insurer
to
the
plaintiff.
1
68
The
plaintiff
contended
the
insurer
failed
to
reasonably
settle
the
claim
within
the
policy
limits
and
also
alleged
a
fraud
and deceit
claim.'
9
Both
the
insurer
and
a claims
adjuster
employee
of
the
insurer
were
named
to
the
lawsuit.1
70
In
declining
to
apply
the
fraudulent
joinder
doctrine
to
prevent
remand
of
the case
from
federal
to
state
court,
the
United
States
District
Court
for
the
Middle
District
of
Florida
stated
as
follows:
[The
insurer]
fails
to
demonstrate
clearly
and
convincingly
that
an
adjuster,
who
undertakes
to
deal
directly
with
an
injured
third-party
claimant,
commits
no
possibly
actionable
wrong
against
the
third-party
if
the
adjuster
(1)
intentionally
160
875
S.W.2d
695
(Tex.
1994).
161
Gasch,
491
F.3d
at
282
(citing
Natividad,
875
S.W.2d
at
698).
162
Id.
at
282.
163
Id.
at
283.
164
No.
8:1
1-cv-1988-T-23TBM,
2011
WL
5359840
(M.D.
Fla.
Oct.
28,
2011).
165
Id.
at
*1.
166
Id.
167
Id.
168
Id.
169
Id.
170
Id.
431
WEST
VIRGINIA
LA
WREVIEW
misrepresents
to
the
third-party
the
amount
of
the
damages
and
the
amount
of
the available
insurance
coverage
for
a
covered
claim
against
the
insured
or
(2)
conspires
with
the
insurer
to
misrepresent
intentionally
the
amount
of
the
available
insurance
coverage,
in
either
instance
with
the
objective
of
inducing
the third-party
(1)
to
rely
to
the
third-party's
detriment
on the
misstatement
and
(2)
to
resolve
a
claim
for
less
than
the
amount
for
which
the
third-party
otherwise
would
have
resolved
the
claim
if
the
adjuster
acted
in
good
faith.'
7
'
All
of
the
foregoing
cases
demonstrate
there
is
a
growing
divide
in
the
insurance
law
area
on
the
issue
of
whether
an
employee
claims
adjuster
can
be
held
liable
for
insurance
bad
faith.
The
longstanding
doctrinal
rule
based
upon
the
privity
of
contract
rationale,
which
immunized
claims
adjusters
from
personal
liability,
has
slowly
been
eroded
over
time.
3.
Traditional
Agency
Rule
Relating
to
Contract
and
Tort
Liability
As
the courts
grapple
with
the
doctrinal
question
today
of
whether
to
follow
the
early
doctrinal rule
where claims
adjusters
were
generally
held
to
be
immune
from
bad-faith
claims,
one
area
of
law
which
can
be
consulted
for
analysis
of
personal liability
issues
is
the
law
of
agency.
It
is
a
fundamental
rule
concerning
agency
law
and
contract
liability
that
"when
an
agent
acting
with
actual
or apparent
authority
makes
a
contract
with
a
third
party
on
behalf
of
a
disclosed
principal,
the
agent
is
not
a
party
to
the
contract unless
she
and
the
third
party
agree
otherwise.',1
72
This
principle
was
cited
by
the
insurer
and
the
insurer's
claims
adjuster
in
the
Pohto
case,
where
the
insurer
and
insurer's
claims
adjuster
also
contended
that
no
independent
duties
existed
for
the
claims
adjuster
outside
of
the
contract
of
insurance.'
While
this
part
of
agency
law
would support
a
finding that
an
insurance
company's
employee
adjuster
would
not
incur
personal
liability
for
bad
faith,
other
parts
of
agency
law
would
support
a
finding
of
liability.
While
contract
liability
would
suggest
one
rule,
the
tort
liability
rules
would
support
another,
as
the
Restatement
(Third)
of
Agency
states
that
"[a]n
agent
is
subject
to
liability
to
a
third
party
harmed
by
the
agent's
tortious
conduct."
74
This
argument,
based
upon
this
principle
of
the
Restatement,
was
cited
by
the
insured
in
the
Pohto
case,
and
it
was
also
mentioned
in
support
of
the
judge's
171
Id.
at
*3.
172
See
RICHARD
A.
MANN
&
BARRY
S.
ROBERTS,
SMITH
&
ROBERSON'S
BUSINESS
LAW
370-
71
(15th
ed.
2011);
RESTATEMENT
(THIRD)
OF
AGENCY
§
6.01
(AM.
LAW
INST.
2006).
173
Pohto
v.
Allstate
Ins.
Co.,
C.A.
No.
6:10-cv-02654-JMC,
2011
WL
2670000,
at
*1
(D.S.C.
July
7,
2011).
174
RESTATEMENT
(THIRD)
OF
AGENCY
§
7.01
(AM.
LAW
INST.
2006).
432
[Vol.
118
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
finding that the
insured
could
possibly
have
a
valid
cause
of
action
against
the
claims
adjuster
for
bad
faith."'
Analysis
of
the
personal
liability
question utilizing
agency
law
principles
alone
leaves
the
clear divide
between
the
argument
relating
to
contract
liability,
which
is
one
insurers
and
claims
adjusters
would
utilize,
and
that
of
tort
liability, which
tends
to
support
plaintiffs
arguing
for
personal
liability
of
adjusters
to
be imposed
in
cases
of
bad
faith.
Jurisdictions
throughout
the
country
differ
on
what type
of
cause
of
action bad
faith
really
is-some
states categorize
it
as a
contract
action, others
a
common
law
tort
action,
and
others
codify
bad
faith
via
state statutory mechanisms.'
76
Based
upon
the
holding
of
at
least
one
appellate court
in
Florida,
the
tort liability
rules
concerning personal
liability
and
bad
faith
would
never
apply
because
Florida
has
a
first-party
bad-faith
statute.1
7
This
may
very
well
be
the case
in
other
states which
characterize first-party
bad-faith
claims
as
a
statutory
cause
of
action.
While
agency law principles
are
helpful
in
analysis
of
whether personal
liability for
insurance
bad
faith
can
be
imposed upon
claims
adjusters,
the
conflicting
nature
of
agency
principles
applied in
this
situation
leaves
agency
law
incomplete
to
resolve issues
of
liability.
A
balance
can
be
achieved
by
adoption
of
a
doctrinal rule
which imposes
bad-faith
liability
in
more
egregious
instances
of
misconduct
by
an
insurance
company's
employee adjuster,
but
yet
retains immunity
from
personal
liability
in
cases
lacking
a
"purposeful"
or
"actual
malicious"
intention
on the
part
of
the
adjuster.
III.
PROPOSAL
FOR
BAD
FAITH
LIABILITY
FOR
INSURANCE
COMPANY
EMPLOYEE
ADJUSTERS
Imagine
this
hypothetical
scenario:
an
insured
has
a
valid first-party
property
damage
claim
under their
homeowner's
insurance
policy
as
a
result
of
weather-related
damage. The
insured
lives
in
a
state
characterized
by
humid
weather,
and
there
is
a
visible
leak
in
the
roof.
The
claims
adjuster
assigned
to
the claim
happens
to
be
a
personal
rival
of
the
insured
(unbeknownst
to
the
insured),
and
even
though
there
is
a
personal
jealousy,
the
adjuster
declines
to
notify
his
or
her
employer about
the
conflict.
The
adjuster
inspects the
damage
and
vastly
underreports
the
loss
intentionally.
Then,
the
claims
adjuster
takes
an
affirmative
step
of
action
by
wrongfully notifying
the
insured that part
of
the
175
Pohto,
2011
WL
2670000,
at
*2.
176
See
DENNIS
WALL,
LITIGATION
AND
PREVENTION
OF
INSURER
BAD
FAITH
§
9:12-15
(3d
ed.
2011).
177
Citizens
Prop.
Ins.
Corp.
v.
Garfinkel,
25 So. 3d
62,
68-69
(Fla.
Dist.
Ct.
App.
2009)
("[F]irst-party
bad
faith
causes
of
action
now exist
in
Florida
not
because
they
are torts,
but
because
they
are
a
statutory
cause
of
action.
Accordingly,
a
first-party bad
faith
claim
cannot
be
wedged
into
the
statutory exception
for
willful
torts because it
is
not
a
tort
of
any
variety.").
433
434
WEST
VIRGINIA
LA
WREVIEW
[Vol.
118
damage
is
not
covered.
And
the
adjuster
waits
and
waits
and waits
for
days
and
days
and
then
several
weeks,
essentially
neglecting
the
claim
due
to the
personal
vendetta.
After
several weeks,
mold
damage
becomes
present.
The
insured
has
a
possible first-party
insurance
bad-faith
claim.
Arguably,
the adjuster
in
this
hypothetical
scenario has
acted
in
a
purposeful
and
potentially
malicious
way.
Such
hypothetical
purposeful
and
malicious behavior
arguably
would
not only
be
an
infringement
of
the
terms
and
conditions
of
the
policy
of
insurance
issued
to
the
insured,
but
also
in
contravention
of
the
spirit
of
the
contract."'
As
courts"'
and
commentatorsi1o
have
noted,
the
operation
of
the
insurance
contract
is
not
merely
a
simple
contract,
but
an
instrument
which
gives
an insured
peace
of
mind
that not
all
is
178
See
James
M.
Fischer,
Why
Are
Insurance
Contracts
Subject
to
Special
Rules
of
Interpretation?:
Text
Versus
Context,
24
ARIz.
ST.
L.J.
995,
1034
(1992)
("The
non-commercial
aspect
of
a
contractual
relationship
is
the
expectation
that
each
party
will
honor
and
perform
those
obligations
expressly
embodied
within
the
contractual
agreement.
If
performance
is
not
forthcoming,
the
disappointed
party
may
suffer
mental
distress
separate
and
apart
from
any
economic loss
occasioned
by
the
breach.
The
general
rule
is
that emotional
distress damages
are
not
available for
breach
of
contract.
In
limited
circumstances,
however,
where
emotional
distress
is
particularly
likely,
courts
have
awarded
such
damages.
In
cases
involving
an
insurer's
breach
of
the insurance contract,
emotional
distress
damages
are
the
norm.").
179
See,
e.g.,
Ingalls
v.
Paul
Revere
Life
Ins.
Grp.,
561
N.W.2d
273,
283
(N.D.
1997)
("Because
a
primary consideration
in
purchasing
insurance
is
the
peace
of
mind
and
security
it
will
provide,
an
insured may
recover
for
any
emotional
distress
resulting
from
an
insurer's
bad
faith.");
McCorkle
v.
Great
Atlantic
Ins.
Co., 637 P.2d
583,
588
(Okla.
1981)
("We believe
that
the
purchaser
of
insurance
does
not
contract
to
obtain
a
commercial
advantage
but
to
protect
himself/herself
against
the
risks
of
accidental
losses and the
mental
stress
which
could
result
from
such losses.
Therefore,
we
think
one
of
the
primary
reasons
a
consumer purchasers
any
type
of
insurance
(and the
insurance
industry
knows
this)
is
the
peace
of
mind
and
security
that
it
provides
in
the
event
of
loss.").
180
See
Jay
M.
Feinman,
The
Law
ofInsurance
Claims
Practices:
Beyond
Bad
Faith,
47
TORT
TRIAL
&
INS.
PRAC.
L.J.
693,
711
(2012).
Professor
Feinman
states
the
following:
The
individual insurance
relation
bears
a
promise
of
security,
and
each
individual relation
is
an
instance
of
the
process
of
providing
collective
security
through
insurance.
The
purpose
of
insurance
is
to
ameliorate
the
financial
consequences
of
risk
by
transferring
the
risk
from
an
individual
to
a
group
and
sharing
the
cost
of
the
risks that
come to
pass
among
the
members
of
the group. More
broadly,
insurance provides
a
social
safety
net
for
individuals
and
businesses. Most Americans
are
only
a car
accident,
a fire
in
the home,
a
lawsuit,
or
an
injury
away
from
having
the
wealth,
the
comfort,
and
the
lifestyle
accumulated
over
a
lifetime
of
work
wiped
out.
Insurance
does not remove
all
of
the
consequences
of
a
catastrophic
loss,
but
it
can
make
it
something other
than
a
catastrophe.
The
promise
of
security
has two
dimensions.
Insurance
provides
the
insured
peace
of
mind
by
promising
security
in
the
event
of
future
losses
....
Id.;
see
also
Jeffrey
E.
Thomas,
Crisci
v.
Security
Insurance Co.:
The
Dawn
of
the
Modern
Era
of
Insurance:
Bad
Faith
and
Emotional
Distress
Damages,
2
NEv.
L.J.
415,
441
(2002)
("Insurance policies
are
purchased
in
significant
part
to
obtain
'peace
of
mind.'
When
an
insurer
acts
in
bad
faith
to
deprive
a
policyholder
of
benefits
due
under
a
policy,
emotional
distress
is
foreseeable
and,
in
many
cases,
likely.").
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
financially lost
when
covered
perils
occur.
Upon
first
glance
in
this
hypothetical
case,
without
any
application
of
law
or
doctrinal
legal
rules,
one
might
be
inclined
to
impose
liability
upon
the
claims
adjuster
for
bad-faith
conduct.
However,
take
another
hypothetical
example-what
if
the
claims
adjuster
is
assigned
to
a
property damage
claim?
A
hypothetical
state
statute
mandates
that
the
claims
adjuster inspect the
property
damage
within
ten
days
of
the
claim
being
submitted.
For
reasons
outside
of
any
purposeful
or
malicious
conduct,
the
adjuster
happens
to
inspect
the
property
damage
on
the
11th
day.
The
claim
is
paid
in
full on
the
13th
day,
with
no
other
potential
bad-
faith
issues
present.
Technically,
the
adjuster has
violated
the
hypothetical
statute
due
to
the
lateness in
inspection
of
the
property
damage.
Such lateness
may
be
defined
as
an
unfair
claims
handling
practice,
which
can
potentially
expose
a
claims
adjuster
to
liability.
However,
the
doctrinal
rules
which
have
emerged
concerning
bad
faith
generally
would
consider
such
negligent
noncompliance
to
be
outside
of
the
scope
of
a
bad-faith
scenario,
as
it
arguably
does not
rise
to
the
level
of
"reckless"
conduct.'"'
In
this
other
example, one
might
have
the
inclination
to
not impose personal
liability
upon
the
claims
adjuster
for
the
negligent
noncompliance
with
the
statute.
Both
of
these
hypothetical scenarios
can
result
in
a
situation
where
one's
initial
inclination
on
liability
may
not
be
the
actual
outcome
depending
upon
whether
the
state
follows the
early
doctrinal
rule
immunizing
claims
adjusters
from
liability
or
is
one
that
has
questioned
it.
To
balance
the
competing
arguments concerning
insurance
company
employee
adjuster
liability
for
insurance
bad
faith,
I
propose
the
following:
if
a
trial
court
makes
an
evidentiary
finding
that
an
insurance
company
employee
claims
adjuster
acts
with
the
purposeful
or
actual
malicious
intention
(not
knowing,
reckless,
or
negligent
intention)
to
prejudice
the
rights
of
an
insured,
then
that
claims
adjuster
would
be
subject
to
bad-faith
liability.
Such
a
rule
would reserve
the
application
of
bad-faith
liability
upon
an
adjuster
to
cases
of
apparent
misconduct.
In
the
area
of
criminal
law,
the
Model
Penal
Code's
definition
of
"purposely"
provides
guidance
in
determining
which
particular
situations
could
result
in
bad
faith-liability.
"Purposely,"
in
the
Model
Penal
Code,
would
encompass
situations
where
a
person
acts intending
a
certain
result
to
follow.'
82
In
the
world
of
insurance
bad
faith,
this
would
181
See
Chad
G.
Marzen,
Crop
Insurance
Bad
Faith:
Protection
for
America's
Farmers,
46
CREIGHTON
L.
REv.
619,
630-31
(2013)
("[I]f
an
insurer
acts
recklessly
and/or
intentionally
in
disregard
of
the
rights
of
an
insured
policyholder,
or
completely
lacks
a
reasonable
basis
for
denying
a
claim,
then
states that
recognize
first-party
insurance
bad
faith
claims
may
find
an
insurer
liable
in
tort.").
182
See
MODEL
PENAL
CODE
§
2.02(2)(a)
(AM.
LAW
INST.
1962).
(a)
Purposely.
A
person
acts
purposely
with
respect
to
a
material
element
of
the offense
when:
(i)
if
the
element
involves
the
nature
of
his
conduct
or
a
result
thereof,
it
is
his
conscious
object
to
engage in
conduct
of
that
nature
or
435
WEST
VIRGINIA
LAW
REVIEW
encompass
a
situation
where
an
employee
adjuster
acts
in
such
a
fashion
where
his
or
her
purposeful
intention
would
be
to
prejudice
the
rights
of
an
insured.
In
addition,
liability
would
also
be
imposed
under
this
rule
in
cases
where
a
trial
court
finds
that
an
employee
adjuster
acted
with
an
actual
malicious
intention.
183
Outside
of
personal
liability
issues
for
bad
faith,
a
finding
of
an
actual
malice
will
support
punitive
damages
awards
in
numerous
states.1
8
4
A
critique
of
this
rule
will
likely
be
that
a
claims
adjuster
still
does
not
owe
any
duty
to the
insured
that
is
independent
of
the
insurance
contract
between
the
insurance
company
and
the
insured.
A
recent
California
insurance
case,
Bock
v.
Hansen,'
85
questions
the
argument
that
there
is
a
lack
of
any
duty
between
a
claims
adjuster
and
insured.1
8
6
The
underlying
facts
of
the
Bock
case
involved
questions
concerning
an
insurance
adjuster's
conduct
in
adjusting
a
property
loss
when
a
tree
limb
crashed
into
the
insureds'
home.'
8 7
The
adjuster
at
issue
allegedly
represented
that
cleanup
costs
were
not
covered
under
the
applicable
insurance
policy,'
88
altered
the
scene
of
the
damage
before
taking
photographs,1
89
and
also
allegedly
submitted
false
claim
reports.1
9
0
Among
a
number
of
claims,
the
insureds
filed
a
negligent
misrepresentation
claim
against
the
adjuster.'
9
'
The
adjuster
moved
to
dismiss
the
negligent
misrepresentation
claim
and
the
other
claims.1
92
to
cause
such
a
result;
and
(ii)
if
the
element
involves
the
attendant
circumstances,
he
is
aware
of
the
existence
of
such
circumstances
or
he
believes
or
hopes
that
they
exist.
Id.
183
For
instance,
the
South
Dakota
Supreme
Court
has
defined
"actual
malice"
as
"a
positive
state
of
mind,
evidenced
by
the
positive
desire
and
intention
to
injure
another,
actuated
by
hatred
or
ill-will
towards
that
person."
Isaac
v.
State
Farm
Mut.
Auto.
Ins.
Co.,
522
N.W.2d
752,
761
(S.D.
1994).
184
See
Michael
L.
Rustad,
The
Closing
of
Punitive
Damages'
Iron
Cage,
38
Loy.
L.A.
L.
REv.
1297,
1325-26
(2005)
("A
large
number
of
states
have
enacted
statutes
that
specify
the
state
of
mind
required
for
punitive
damages.
In
general,
the
culpability
leading
to
punitive
damages
varies
from
gross
negligence
in
some
states
to
actual
malice
in
others.
The
trend
in
the
law
is
toward
increasing
the
standard
of
conduct
required
for
punitive
damages.
The
range
of
the
defendant's
culpability
varies
from
gross
negligence
to
the
predicate
of
actual
malice;
no
jurisdiction
permits
the
recovery
of
punitive
damages
for
mere
negligence.").
185
170
Cal.
Rptr.
3d
293
(Cal.
Ct.
App.
2014).
16
Id.
at
296.
187
id
"88
Id.
at
296-97.
189
Id.
190
Id.
at
300.
191
d.
192
id.
[Vol.
118
436
2015]
PERSONAL
LIABILITY
FOR
INSURANCE
CLAIMS
ADJUSTERS
In
holding
that
the
insureds
could
pursue
a
negligent
misrepresentation
claim
to hold
the
claims
adjuster
personally
liable,
the
Bock
court
noted
that
the
relationship
between
an
insurer
and
insured
is
a
"special
relationship."l
93
The
Bock
court
citedl
94
a
California
Supreme Court
decision,
Vu
v.
Prudential
Property
&
Casualty
Insurance
Co.,
195
which noted
that
the
relationship
between
an
insurer
and
insured,
while not
a
true
fiduciary relationship, creates
special,
elevated duties on
the
part
of
an
insurer
due
to
the
unique
nature
of
an
insurance
contract.
196
The
Bock
court
held
that
"[s]uch
special
relationship
leads
to the
conclusion
that
[the
claims adjuster], the
employee
of
the
party
in
the
special
relationship,
had
a
duty to
the
[insureds].
Likewise,
the
general
law
of
negligent
misrepresentation
applies."
97
While
it
is
unclear
whether
the
Bock
court
would
extend
its
holding
to
cover
a
claim
based
upon
insurance
bad
faith,
Bock
is
significant
in
stating
that
an
insurance
company
employee
adjuster
is
in
a
situation
where
they
hold
a
"special
relationship"
with
the
insured.
The
imposition
of
a
personal
duty
upon
insurance
company employee
claims
adjusters
is
also
supported
by
an
analogous
situation with
cases
involving
the
breach
of
warranty
of
fitness for
a
particular
purpose.
In
commercial transactions
for
the
sale
of
goods,
an
implied
warranty
of
fitness
for
a
particular
purpose
arises when
a
seller
knows
a
buyer
is
purchasing
goods
for
use
in
a
specified
purpose,
and
the
buyer
then
also
relies
upon
the
seller's
expertise
in
guiding
the
selection
of
suitable
goods
for
the
buyer's
particular
purpose.
198
In
the
case
of
an
implied
warranty
of
fitness for
a
particular
purpose,
the
buyer
is
relying
upon
the
particular
knowledge
and
expertise
of
the
'93
Id.
at
303
(citations
omitted).
194
id.
195
33
P.3d
487
(Cal.
2001).
The
Supreme
Court
of
California
stated:
The
insurer-insured relationship,
however,
is
not
a
true
'fiduciary
relationship'
in
the
same sense
as
the
relationship
between
trustee
and
beneficiary, or
attorney
and client.
It
is,
rather,
a
relationship
often
characterized
by
unequal
bargaining power
in
which the
insured
must
depend
upon
the
good
faith
and
performance
of
the
insurer.
This
characteristic
has
led
the
courts
to
impose
'special
and
heightened'
duties.
Id.
at
492
(citations omitted).
196
Id.
at
491-92.
197
Bock,
170
Cal.
Rptr.
3d
at
303.
198
See
MANN
&
ROBERTS,
supra
note
172,
at
449
("The
implied
warranty
of
fitness
for
a
particular
purpose arises
if
at
the time
of
sale
the
seller
had reason
to
know
the
buyer's
particular
purpose
and
that the
buyer
was relying
upon
the
seller's
skill
and
judgment
to select
suitable
goods.");
see
also
J.W.
Looney,
Warranties
in
Livestock,
Feed,
Seed,
and
Pesticide
Transactions,
25
U.
MEM.
L.
REv.
1123, 1128
(1995)
("The
second
implied warranty arising
in
a
sales
transaction
is
that
the
goods
are
fit
for
a
particular
purpose.
This
warranty
is
made
when
the seller
has
reason
to
know
of
a
particular purpose for
which
the
buyer
is
purchasing
the
goods
and
when
the
buyer
is
relying
on
the skill or
judgment
of
the
seller
to
select
or
furnish
suitable
goods.").
437
WEST
VIRGINIA
LAW
REVIEW
seller
in guiding
their
decision-making
as
to
a
purchase.
In
essence,
the
buyer
is
placing
his
or
her
trust
and
confidence
in
the seller
to
guide
them
to
the
right
decision.
They
have
placed
their
questions
in
the
seller's
hands.
The
relationship
between
insurance
adjuster-insured
is
similar
in
an
important
respect.
To
note,
one
key
difference
is
that,
in
one case,
the
sale
of
goods
is
involved,
and
the
other
does
not
involve
the
sale
of
goods,
but rather
questions
under
an
insurance
contract.
But
in
both
the
case
of
an
implied
warranty
of
fitness for
a
particular
purpose
and
the
relationship
between
an
insurance
adjuster-insured,
the
insured
has
placed
their
trust
and
confidence
in
the
insurance
adjuster
to
guide
them
to
the
right
decision
pursuant
to
the terms
and
conditions
of
an
insurance
contract.
While
the
buyer
is
looking
at
the
purchase
of
goods, the
insured
in
many
cases
has
suffered
a
loss
of
goods
or
property
and
is
placing
their
questions
in
the
insurance
adjuster's
hands.
Because
of
this
disparity,
it
is
arguable
that
an
insurance
adjuster
should
certainly
have at
least
some
sort
of
heightened
duty
to
the
insured.
A
rule
imposing personal
liability
upon
insurance
company
employee
claims
adjusters
for
purposeful
or
malicious bad
faith
may
very
well
deter such behavior
and
promote
the
integrity
and
spirit
of
the
insurance
claims
process.
At the
same
time,
the rule
is
not
so
sweeping
to
include situations
where
an
adjuster was
simply
negligent
or
forgetful-the
traditional
rule
concerning
immunity
for
bad-faith
liability would
still
apply.
IV.
CONCLUSION
Courts
throughout
the United
States
consistently
face
many
difficult
questions
of
insurance
law.
Whether
it
be
insurance
policy
coverage
questions
or
questions
concerning
bad
faith,
there
is
no
shortage
of
insurance
cases
for
courts
to
compare,
comprehend,
and
consider.
In
the
area
of
bad-faith
jurisprudence,
a
growing
question
is
whether
or
not
an
insurance
company
employee
claims
adjuster
can
be
held
liable
for
insurance
bad
faith.
While
the
traditional
rule
is
that
insurance
company employee
claims
adjusters
are
immune
from
personal
liability
for
bad
faith,
a
growing
number
of
courts
are
adopting
an
emerging
minority
position
imposing
personal
liability.
As
the
question
of
personal
liability
for
bad
faith
by
insurance
company
employee
adjusters
remains
unsettled,
courts
can
adopt
a
sensible
rule:
if
a
trial court
makes
an
evidentiary
finding
that
an
insurance
company
employee
claims
adjuster
acts
with
the
purposeful
or
actual
malicious
intention
(not
knowing,
reckless,
or negligent
intention)
to
prejudice
the
rights
of
an
insured,
then
that
claims
adjuster
would
be subject
to
bad-faith
liability.
As
more
courts
examine
this
question
in
the
future,
courts should
not
impose
personal
liability
in
all
cases
involving
adjusters,
but
rather
just
the
more
egregious
cases
of
bad
faith
where
purposeful
or
actual
malicious
intention
is
present.
438
[Vol.
118