Keodalah v. Allstate Ins. Co. ( 2019 )

/mrEv IN CLERKS OFFICE X
This opinion was
filed for record
CUPRElyE COURT,StKIE OF WmoiSTOM at S'^F^n f)cSh3 o>-=>i ?
DATE 3* (TV/
Susan L. Carlson
uuee'jusrtce
Supreme Court Clerk
IN THE SUPREME COURT OF THE STATE OF WASHINGTON
MOUN KEODALAH and AUNG
KEGDALAH,husband and wife, No. 95867-0
Plaintiffs-Respondents,
V.
En Banc
ALLSTATE INSURANCE COMPANY,
a corporation, and TRACEY SMITH and
JOHN DOE SMITH, husband and wife,
Defendants-Petitioners. Filed OCT 0 3 fi
MADSEN, J.—^At issue in this underinsured motorist case is whether ROW
48.01.030 provides a basis for an insured's bad faith and Consumer Protection Act
(CPA), chapter 19.86 RCW,claims against an employee claims adjuster. For the reasons
discussed below, we hold that such claims are not available and reverse the Court of
Appeals.
FACTS
While driving his truck, Moun Keodalah and an uninsured motorcyclist collided in
April 2007. After Keodalah stopped at a stop sign and began to cross the street, the
No. 95867-0
motorcyclist struck Keodalah's truck. The collision killed the motorcyclist and injured
Keodalah. Keodalah carried auto insurance with Allstate Insurance Company that
included underinsured motorist(UIM)coverage.
The Seattle Police Department(SPD)investigated the collision and determined
that the motorcyclist was traveling between 70 and 74 m.p.h. in a 30 m.p.h. zone. SPD
also reviewed Keodalah's cell phone records, which showed that Keodalah was not using
his cell phone at the time of the collision.
Allstate also investigated the collision, interviewing several witnesses who said
the motorcyclist was traveling faster than the speed limit, had proceeded between cars in
both lanes, and had sped into the intersection. Allstate hired an accident reconstruction
firm. Traffic Collision Analysis Inc.(TCA),to analyze the collision. TCA found that
Keodalah stopped at the stop sign, the motorcyclist was traveling at a minimum of60
m.p.h., and the motorcyclist's excessive speed caused the collision.
Keodalah asked Allstate to pay him his UIM policy limit of $25,000. Allstate
refused, offering $1,600 to settle the claim based on its assessment that Keodalah was 70
percent at fault. After Keodalah asked Allstate to explain its evaluation, Allstate
increased its offer to $5,000.
Keodalah sued Allstate, asserting a UIM claim. Allstate designated claims
adjuster Tracey Smith as its CR 30(b)(6) representative.' Although Allstate possessed
'CR 30(b)(6) provides, in relevant part, that when a party designates a private organization as a
deponent,"the organization so named shall designate one or more officers, directors, or
managing agents, or other persons who consent to testify on its behalf.... The persons so
designated shall testify as to the matters known or reasonably available to the organization."
No. 95867-0
both the SPD report and TCA analysis, Smith claimed that Keodalah had run the stop
sign and had been on his cell phone. Smith later admitted, however, that Keodalah had
not run the stop sign and had not been on his cell phone. Before trial, Allstate offered
Keodalah $15,000 to settle the claim. Keodalah again requested the $25,000 policy limit,
and the case proceeded to a jury trial.
At trial, Allstate contended that Keodalah was 70 percent at fault. The jury
determined the motorcyclist to be 100 percent at fault and awarded Keodalah
$108,868.20 for his injuries, lost wages, and medical expenses. The trial court entered
judgment against Allstate for $25,302.95.
Keodalah filed a second lawsuit against Allstate and included claims against
Smith. These included alleged violations of the Washington Insurance Fair Conduct Act
(IFCA), chapter 48.30 RCW;insurance bad faith; and CPA violations. Allstate and
Smith moved to dismiss the complaint under CR 12(b)(6)("failure ... to state a claim
upon which relief can be granted"). The trial court granted the motion in part, dismissing
Keodalah's claims against Smith and certifying the partial dismissal for discretionary
review under RAP 2.3(b)(4).^
The Court of Appeals granted discretionary review ofthree issues: (1) whether
IFCA creates a private cause of action for violation of a regulation,(2) whether an
individual insurance adjuster may be liable for bad faith, and (3) whether an individual
^ RAP 2.3(b)(4) provides that an appellate court may accept discretionary review where "[t]he
superior court has certified ... that the [superior court's] order involves a controlling question of
law as to which there is substantial ground for a difference of opinion and that immediate review
ofthe order may materially advance the ultimate termination of the litigation."
No. 95867-0
insurance adjuster may be liable for violation of the CPA. The Court of Appeals held
that this court's decision in Perez-Crisantos v. State Farm Fire & Casualty Co., 187
Wn.2d 669, 672, 389 P.3d 476(2017), which held that the IFCA does not create an
independent private cause of action for violation of a regulation, foreelosed Keodalah's
IFCA claim.^
The Court of Appeals reversed the trial court's CR 12(b)(6) dismissal, holding that
the statutory duty of good faith imposed by RCW 48.01.030 applied to individual
insurance adjusters and breaeh of that statutory duty eould serve as a basis for Keodalah's
bad faith and CPA elaims against Smith. Smith filed a petition for review, which this
court granted. 191 Wn.2d 1004 (2018).
ANALYSIS
Standard of Review
This court applies de novo review to questions eoncerning statutory interpretation
and dismissal under CR 12(b)(6). State v. Evergreen Freedom Found, 192 Wn.2d 782,
789-90, 432 P.3d 805 (2019), cert, denied, 139 S. Ct. 2647(2019); Tenore v. AT&T
Wireless Servs., 136 Wn.2d 322, 329-30, 962 P.2d 104 (1998). In construing a statute,
the fundamental objeetive is to ascertain and carry out the legislature's intent. Evergreen
Freedom Found., 192 Wn.2d at 789. We look to "the entire 'eontext of the statute in
which the provision is found,[as well as] related provisions, amendments to the
provision, and the statutory scheme as a whole.'" Id.(alteration in original)(internal
^ Review ofthe Court of Appeals' IFCA determination has not been sought.
4
No. 95867-0
quotation marks omitted)(quoting v. Conover, 183 Wn.2d 706, 711, 355 P.3d 1093(2015); see also G-P Gypsum Corp. v. Dep 't ofRevenue, 169 Wn.2d 304, 310, 237 P.3d
256(2010)("enacted statement of legislative purpose is included in a plain reading of a
statute"). As this court opined in Evergreen Freedom Foundation,
"The meaning of words in a statute is not gleaned from [the] words
alone but from all the terms and provisions of the act in relation to the
subject of the legislation, the nature of the act, the general object to be
accomplished and consequences that would result from construing the
particular statute in one way or another."
192 Wn.2d at 790 (alteration in original)(internal quotation marks omitted)(quoting
Burns v. City ofSeattle, 161 Wn.2d 129, 146, 164 P.3d 475 (2007)); see also id. (citing
Dep't ofEcology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 11, 43 P.3d 4(2002), for the
proposition that "plain meaning" is "discerned from all that the Legislature has said in the
statute and related statutes which disclose legislative intent about the provision in
question").
Under CR 12(b)(6), dismissal of a complaint for "failure ... to state a claim upon
which relief can be granted" involves a question of law, and such dismissal is appropriate
"only if it appears beyond doubt that the plaintiff cannot prove any set of facts which
would justify recovery." Tenore, 136 Wn.2d at 330. In such a case, a "plaintiffs
allegations are presumed to be true and a court may consider hypothetical facts not
included in the record." Id. "CR 12(b)(6) motions should be granted 'sparingly and with
care' and 'only in the unusual case in which plaintiff includes allegations that show on
the face of the complaint that there is some insuperable bar to relief.'" Id. (quoting
Orwickv. City ofSeattle, 103 Wn.2d 249, 254, 692 P.2d 793 (1984); Hoffer v. State, 110
No. 95867-0
Wn.2d 415, 420, 755 P.2d 781 (19'88)). As discussed below, in our view, this is such a
case.
The Court of Appeals' decision turned on the statutory duty it found in RCW
48.01.030, which provides:
The business of insurance is one affected by the public interest, requiring
that all persons be actuated by good faith, abstain from deception, and
practice honesty and equity in all insurance matters. Upon the insurer, the
insured, their providers, and their representatives rests the duty of
preserving inviolate the integrity of insurance.
Keodalah echoes the Court of Appeals, arguing that by imposing a duty on "all persons"
to act in good faith, the plain language ofthe statute subjects employee adjusters to bad
faith and CPA claims premised on breach of the noted statutory duty.
Smith argues that not every duty imposed by a statute is an actionable tort, that
RCW 48.01.030 does not expressly create a private right of action, and that the Court of
Appeals did not employ the three-pronged test articulated in Bennett v. Hardy, 113
Wn.2d 912, 784 P.2d 1258 (1990), for determining whether a statute includes an implied
cause of action, to wit: (1) whether the plaintiff is within the class for whose benefit the
statute was enacted,(2) whether legislative intent, explicitly or implicitly, supports
creating or denying a remedy, and (3) whether implying a remedy is consistent with the
underlying purpose of the legislation. See Swank v. Valley Christian Sch., 188 Wn.2d
663, 675-76, 398 P.3d 1108(2017)(discussing the Bennett test). We agree with Smith.''
In her briefing to this court. Smith adopts amici's argument applying the Bennett test in the
present case. While we do not generally consider arguments raised for the first time on review
by amici, we have discretion to do so where necessary to appropriately resolve a case. See Falk
V. Keene Corp., 113 Wn.2d 645, 659, 782 P.2d 974(1989)("[a]n appellate court has inherent
No. 95867-0
Bennett factors
The first Bennett factor (benefited class) is not met if the statute in question
benefits the general public rather than an identifiable class of persons. As this court
stated mFiskv. City ofKirkland, 164 Wn.2d 891, 895, 194 P.3d 984 (2008), "Plaintiffs,
basing their claims on a statute, must establish that they fall within the class of persons
intended to be protected by that statute." And "if the statute serves the general public
welfare instead of an identifiable class of persons, then there is no duty to any individual
unless a specific exception applies." Id.\ see also Protect the Peninsula's Future v. City
ofPort Angeles, 175 Wn. App. 201, 210, 304 P.3d 914(2013)(because the legislature
enacted the statute at issue "to protect the general public from risks posed by legend
drugs," complainant cannot qualify as a member of a "class for whose especial benefit"
the legislation was enacted); see also Cannon v. Univ. of Chi., 441 U.S. 677, 690 n.l3, 99
S. Ct. 1946,60 L. Ed. 2d 560(1979)(noting that "the Court has been especially reluctant
to imply causes of actions under statutes that create duties on the part of persons for the
benefit of the public at large").
Here, the interest addressed in ROW 48.01.030 is expressly stated to be the
"public interest," and the statute indicates that its purpose is to protect the "integrity of
insurance." Accordingly, it cannot be said that the statute was enacted for the particular
benefit of insureds; thus, the first Bennett factor does not support finding an implied
cause of action for a violation of RCW 48.01.030.
authority to consider issues whieh the parties have not raised if doing so is necessary to a proper
decision"). We agree that the Bennett test should be applied here for an appropriate resolution.
No. 95867-0
The second Bennett factor, regarding legislative intent to create a remedy, also
concerns statutory interpretation. If the statute, read in the context of all the legislature
has said on the subject, is plain on its face, we will give it that plain meaning. See
Campbell & Gwinn, 146 Wn.2d at 11-12. But if after reading the statute in context, it
remains susceptible to more than one reasonable meaning, the statute is ambiguous and it
is appropriate to resort to aids to construction, including legislative history. Id. at 12.
Here, RCW 48.01.030 expressly recognizes a "duty," but it fails to provide an express
cause of action based on violations of that duty. Given this seeming ambiguity, we
further consider the relevant statutory and historical context.
As to the statutory context, we find it significant that the insurance code contains
several specific enforcement mechanisms. The insurance commissioner has broad
authority to make rules and conduct investigations to give effect to the insurance code.
RCW 48.02.060(3). The commissioner also has authority to suspend or revoke the
licenses of insurers and adjusters, and may subject them to fines. RCW 48.05.130,.140,
.185 (insurers); RCW 48.17.530,.560 (adjusters). Criminal liability may attach where
service providers make payments to get claimant referrals. RCW 48.30A.015. The
insurance code provides generally that "[ejxcept as otherwise provided in this code, any
person violating any provision of this code is guilty of a gross misdemeanor." RCW
48.01.080. In our view, the presence of such specific provisions for enforcement of the
insurance code suggests that the legislature's omission of a provision creating a private
cause of action for violations of RCW 48.01.030's duty of good faith was intentional.
See Davenport V. Wash. Educ. Ass'n, 147 Wn. App. 704, 718-19, 197 P.3d 686(2008)
No. 95867-0
(noting the ease with which the drafters could have expressed a private statutory cause of
action,"we think that the omission implies the absence ... of intent to create a private
statutory cause of action"); see also Perez-Crisantos, 187 Wn.2d at 680(where a statute
specifically designates the things on which it operates, there is an inference that the
legislature intended all omissions). Accordingly, the overall statutory context suggests
that the legislature did not intend to imply a cause of action based on violations ofRCW
48.01.030.
The historical context of this statute also bolsters this conclusion. An actionable
common law duty of good faith had already been established when RCW 48.01.030 was
enacted in 1947. See Burnham v. Commercial Gas. Ins. Co. ofNewark, 10 Wn.2d 624,
628-35, 117 P.2d 644(1941). Nothing in the insurance code indicates that RCW
48.01.030 was intended to alter the previously established common law duty.^
Accordingly, RCW 48.01.030 may properly be read as a broad statement of public
policy supporting specific provisions of the insurance code, not as an additional
and separate statutory cause of action.
The third Bennett factor concerns whether recognizing a cause of action would be
consistent with the legislature's purpose in enacting RCW 48.01.030. The legislative
intent, as discussed above, indicates that the legislature's purpose was to support the
insurance code's specific enforcement mechanisms and the existing common law cause
^ Since its 1947 enactment, RCW 48.01.030 has been amended only once. In 1995, the
legislature added "their providers" to the list of responsible entities in the statute's second
sentence. See Laws of 1995, ch. 285, § 16.
No. 95867-0
of action for insurance bad faith as a matter of policy. We aeknowledge that in the
abstract, recognition of an implied cause of action under RCW 48.01.030 could arguably
further the general policy goal of"preserving inviolate the integrity of insurance," RCW
48.01.030, but such a broad application would add a layer of liability that runs counter to
the legislative purposes noted above. If we were to read the statute to imply a cause of
action, by the statute's plain language, such implied cause of aetion would apply against
insureds as well. That is, insurers would be empowered to sue their insured, and the
providers and representatives of both insurer and insured would face potential liability for
alleged bad faith "in all insurance matters." In our view, the provision ofsuch a broad
inferred cause of action subjecting every person and entity listed in RCW 48.01.030 to
liability would not be consistent with the legislature's purpose in enacting the statue as
discussed above.
In sum, application ofthe Bennett factors does not support the imposition of an
implied cause of aetion here. In light of RCW 48.01.030's plain language, indicating that
the statute is intended to benefit the general public, and the broader statutory and
historical context in which the statute appears, we hold that RCW 48.01.030 does not
create an implied cause of action for insurance bad faith.
Keodalah's CPA claims
Keodalah alleged that adjuster Smith committed ''per se CPA violations" by
committing specific unfair claims settlement practices, as defined in the Washington
Administrative Code(WAC), and by engaging in "bad-faith conduet." Clerk's Papers
(CP)at 14. To establish a CPA claim, a plaintiff must prove five elements; (1) an unfair
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No. 95867-0
or deceptive act or practice that(2) affects trade or commerce and (3) impacts the public
interest, and (4)the plaintiff sustained damage to business or property that was(5)caused
by the unfair or deceptive act or practice. Hangman Ridge Training Stables, Inc. v.
Safeco Title Ins. Co., 105 Wn.2d 778, 785-793, 719 P.2d 531 (1986); Trujillo v. Nw. Tr.
Servs., Inc., 183 Wn.2d 820, 834-35, 355 P.3d 1100 (2015). All five elements must be
established for a CPA claim to be successful. Panag v. Farmers Ins. Co. of Wash., 166
Wn.2d 27, 38, 204 P.3d 885 (2009). Certain elements of a CPA claim are deemed
satisfied "per se" based on violation of another statute. The first two elements of a CPA
claim are established where a statute declares that a violation is a per se unfair trade
practice. Hangman Ridge, 105 Wn.2d at 786. The third element also may be established
per se based on a showing that a statute has been violated that contains a specific
legislative declaration of public interest impact. Id. at 791.
As for the WAC violations, Keodalah's complaint described alleged violations
found in WAC 284-30-330(2),(4),(6),(7),(8), and (13). See CP at 12-13. All of those
subsections are preceded by this language: "The following are hereby defined as unfair
methods of competition and unfair or deceptive acts or practices ofthe insurer in the
business of insurance, specifically applicable to the settlement of claims . . . ." WAC
284-30-330(emphasis added). While a violation of WAC 284-30-330 is a per se unfair
trade practice, see Indus. Indem. Co. ofNw., Inc. v. Kallevig, 114 Wn.2d 907, 922-23,
792 P.2d 520(1990), Smith did not owe Keodalah a duty under that regulation because
that regulation defines only unfair acts or practices of the insurer. Because Smith is not
the insurer, Keodalah cannot seek to enforce the regulation against Smith. Merriman v.
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No. 95867-0
Am. Guar. & Liab. Ins. Co., 198 Wn. App. 594, 627-28, 396 P.3d 351, review denied,
189 Wn.2d 1038 (2017). We hold that Keodalah's CPA claims against Smith premised
on regulatory violations were properly dismissed.
Keodalah also repeats his reliance on RCW 48.01.030 as to his asserted CPA
claims. He contends that a breach ofthe good faith duty that RCW 48.01.030 imposes on
employee adjusters subjects them to CPA liability. But as discussed above, RCW
48.01.030 does not itself provide an actionable duty.
While RCW 48.01.030 does establish per se public interest, see Hangman Ridge,
105 Wn.2d at 791-92, nevertheless, Keodalah's CPA claim based on RCW 48.01.030
fails, for a similar reason as his tort claim: just as this court has limited bad-faith tort
claims to the context ofthe insurer-insured relationship,® so has it limited CPA claims
based on breach of the statutory duty of good faith. See Tank v. State Farm Fire & Gas.
Co., 105 Wn.2d 381, 394-95, 715 P.2d 1133 (1986)(holding that only an insured may
bring a per se CPA action based on breach of the duty of good faith).
® As this court explained in Tank,
The duty to act in good faith or liability for acting in bad faith generally
refers to the same obligation. . .. [The] source [of that duty] is the fiduciary
relationship existing between the insurer and insured. Such a relationship exists
not only as a result of the contract between insurer and insured, but because of the
high stakes involved for both parties to an insurance contract and the elevated
level of trust underlying insureds' dependence on their insurers.
Tankv. State Farm Fire & Cas. Co., 105 Wn.2d 381, 385, 715 P.2d 1133 (1986); see also Van
Noy V. State Farm Mut. Auto. Ins. Co., 142 Wn.2d 784, 793 n.2, 16 P.3d 574(2001)(same);
Murray v. Mossman, 56 Wn.2d 909, 912, 355 P.2d 985 (1960)(the duty of the insurance
company to use good faith in the handling of a claim against the insured springs from a fiduciary
relationship that is entirely lacking between the person injured and the insurance company); St.
Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 130 n.3, 196 P.3d 664(2008)
(clarifying that the insurer has a quasi-fiduciary relationship with the insured).
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No. 95867-0
In Tank, this court acknowledged the common law duty of good faith imposed on
the insurance industry. Id. at 386("The duty of good faith has been imposed on the
insurance industry in this state by a long line ofjudicial decisions."). The Tank court also
acknowledged the duty imposed by RCW 48.01.030, stating,"Not only have the courts
imposed on insurers a duty of good faith, the Legislature has imposed it as well." Id.
(citing RCW 48.01.030). In this context, addressing alleged per se CPA violations
against the insurer by third party claimants, this court opined:
It is established that insureds may bring a private action against their
insurers for breach of duty of good faith under the CPA. It is also
established that breach of an insurer's duty of good faith constitutes a per
se CPA violation. However, only an insured may bring a per se [CPA]
action.
Id. at 394(some emphasis added)(citations omitted).
Further, while this court has held that the CPA may apply although the plaintiff
and defendant had no contract and were in an "adversarial relationship," Panag, 166
Wn.2d at 41-42, nevertheless, this court in Panag did not overrule Tank and its treatment
of the statutory duty of good faith. Rather, it reiterated that "[ojnly an insured may bring
a CPA claim for an insurer's breach of its statutory duty of good faith." Id. at 43 n.6
(citing Tank). Although Keodalah, as the insured here, can sue Allstate, he cannot also
sue Smith.' Because Keodalah claims a breach ofthe duty of good faith by someone
'"RCW 48.01.030 holds persons in the insurance industry to a good faith standard and has been
frequently applied when an insurer denies claim coverage or acts unreasonably when processing
a claim." Barstad v. Stewart Title Guar. Co., 145 Wn.2d 528, 543, 39 P.3d 984(2002)
(emphasis added). "'[A]n insurance company is bound by all acts, contracts, or representations
of its agent, whether general or special, which are within the scope of his real or apparent
authority.'" Chi. Title Ins. Co. v. Office ofIns. Comm'r, 178 Wn.2d 120, 135-36, 309 P.3d 37213
No. 95867-0
outside the quasi-fiduciary relationship, his CPA claim based on RCW 48.01.030 was
properly dismissed.
CONCLUSION
For the reasons discussed above, we hold that employee adjusters are not subject
to personal liability for insurance bad faith or per se claims under the CPA. We reverse
the Court of Appeals and reinstate the trial court's CR 12(b)(6) dismissal of claims
against the employee adjuster and remand for further proceedings.
(2013)(internal quotation marks omitted)(quoting Pagni v. N.Y Life Ins. Co., 173 Wash. 322,
349-50, 23 P.2d 6(1933)); see also Annechino v. Worthy, 175 Wn.2d 630, 638, 290 P.3d 126(2012)(agents are not personally liable for quasi-fiduciary duties that may arise when dealing on
behalf of a disclosed principal where the agent does not independently owe a duty to the third
party and does not knowingly make misrepresentations); Pain Diagnostics & Rehab. Assocs. v.
Brockman,97 Wn. App. 691, 697, 988 P.2d 972(1999)("In creating the insurance regulatory
scheme, the Legislature and the insurance commissioner did not intend to provide protection or
remedies for individual interests; they intended only to create a mechanism for regulating the
insurance industry."); Cogan v. Kidder, Mathews & Segner, Inc., 97 Wn.2d 658, 663,648 P.2d
875 (1982)(acknowledging the "unmitigated loyalty in the principal-agent relationship" and "an
agent's absolute duty to his principal"); Carabba v. Anacortes Sch. Dist. No. 103, 72 Wn.2d 939,
956-58, 435 P.2d 936(1967)(a principal who is under a duty to provide protection for others or
their property and who confides the performance of such duty to a servant is subject to liability
for harm caused to such others by the failure of the agent to perform the duty); Greene v. St.
Paul-Mercury Indem. Co., 51 Wn.2d 569, 573, 320 P.2d 311 (1958)(test for determining if
employee is acting in the course of his employment is whether the employee at the time was
engaged in the performance of duties required of him by his contract of employment or by
specific direction of his employer, or if he was engaged at the time in the furtherance of the
employer's interest).
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No. 95867-0
WE CONCUR:
ki.
/
)IL'
15
Keodalah v. Allstate /ra., No. 95867-0
(Yu, J., dissenting)
No. 95867-0
YU,J. (dissenting) — I agree with the majority that RCW 48.01.030 does
not imply a statutory cause of action for insurance bad faith. However,I would
affirm the Court of Appeals' reinstatement of respondent Moun Keodalah's claim
against petitioner Tracey Smith for per se violations of the Consumer Protection
Act(CPA), ch. 19.86 RCW. I would also hold that Keodalah's complaint states a
viable cause of action for common law insurance bad faith against Smith, an issue
the majority fails to address. I therefore respectfully dissent.
ANALYSIS
A. A claims adjuster may be liable for per se CPA violations
The majority holds that Keodalah may not assert a per se CPA claim against
Smith because"RCW 48.01.030 does not itself provide an actionable duty."
Majority at 12. I disagree. Violations of a statute that does not create a stand
alone cause of action may still form the basis for a valid CPA claim. E.g., Frias v.
Asset Foreclosure Servs., Inc., 181 Wn.2d412, 417, 334P.3d529(2014)
Keodalah v. Allstate /w., No. 95867-0
(Yu, J., dissenting)
(applying the deeds of trust act, ch. 61.24 RCW). I would hold that Keodalah's per
se CPA claim against Smith states a viable cause of action, regardless of whether
Smith can be subject to a statutory or common law tort claim for insurance bad
faith.^
Unlike Keodalah's bad faith claim against Smith, which I address below, his
CPA claim does not require us to search for legislative intent to infer a statutory
cause of action, nor must we weigh the implications of recognizing an actionable
common law duty. The legislature's intent is clear because the CPA itself
explicitly creates a cause of action, RCW 19.86.090, and the elements of a CPA
claim are already well established: "(1) unfair or deceptive act or practice;
(2) occurring in trade or commerce;(3) public interest impact;(4)injury to
plaintiff in his or her business or property;(5) causation." Hangman Ridge
Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 780, 719 P.2d 531(1986). The only question is whether Smith is a proper defendant. I would hold
that she is because none of the elements of a CPA claim ask whether there is a
contractual, fiduciary, or quasi-fiduciary relationship between the plaintiff and the
defendant.
'The majority is correct that Smith carmot be liable for per se CPA claims based on
violations of regulations that explicitly apply only to an "insurer." Majority at 11-12. However,
there is no reason she cannot be liable for per se CPA claims based on violations of statutes in
Title 48 RCW that apply generally to "persons." E.g., RCW 48.01.030; RCW 48.30.040. Smith
is a "person." RCW 48.01.070.
Keodalah v. Allstate Ins., No. 95867-0
(Yu, J., dissenting)
Indeed, we have explicitly rejected the argument that "the CPA applies only
to disputes arising from a consumer or business transaction and that only a
consumer or someone in a business relationship can bring a private cause of action
under the CPA." Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 38, 204 P.3d
885 (2009). Unlike tort claims for insurance bad faith, the CPA "is not intended to
satisfy 'reasonable expectations' of'quasi-fiduciary treatment.'" Id. at 40.
Instead, the purpose of the CPA "is to complement the body of federal law
governing restraints of trade, unfair competition and unfair, deceptive, and
fraudulent acts or practices in order to protect the public and foster fair and honest
competition," and the CPA must be "liberally construed" to promote this purpose.
RCW 19.86.920. Thus,"[t]he law is clear that corporate officers and agents can
incur personal liability under the [CPA]." Gould v. Mut. Life Ins. Co. ofN.Y, 37
Wn. App. 756, 759, 683 P.2d 207(1984)(citing RCW 19.86.140; State v. Ralph
Williams'N. W. Chrysler Plymouth, Inc., 87 Wn.2d 298, 553 P.2d 423 (1976)).
The majority holds otherwise by improperly analogizing Keodalah's CPA
claim against Smith to a CPA claim brought by a third party against an insurer.
Majority at 12-14. We have previously held that third parties "lack[]standing to
allege a per se CPA violation based upon violation ofthe insurance code. Only an
insured may bring a CPA claim for an insurer's breach of its statutory duty of good
faith." Panag, 166 Wn.2d at 43 n.6 (citing Tank v. State Farm Fire & Cas. Co.,
Keodalah v. Allstate Ins., No. 95867-0
(Yu, J., dissenting)
105 Wn.2d381, 385, 715 P.2d 1133 (1986)). However, that is irrelevant because
Keodalah is the insured; he unquestionably has standing.
The majority's reliance on Panag and Tank thus conflates a plaintiffs
standing to sue with a defendant's capacity to be sued. Nothing in this court's
precedent or the CPA itself indicates that claims adjusters are categorically not
subject to claims for per se CPA violations predicated on their own violations of
applicable statutes.^ I would therefore affirm the Court of Appeals on this issue
and hold that Keodalah has stated a valid cause of action against Smith for per se
violations ofthe CPA.
B. The court should address Keodalah's common law claim
Turning now to Keodalah's insurance bad faith claims against Smith, I agree
with the majority that the legislature did not intend for RCW 48.01.030 to imply a
statutory cause of action. Majority at 6-10 (applying Bennett v. Hardy, 113 Wn.2d
912, 784 P.2d 1258 (1990)). However, the tort of insurance bad faith "derives
from statutory and regulatory provisions, and the common lawT St. Paul Fire &
Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 128, 196 P.3d 664(2008)
^ One published Court of Appeals case holds otherwise, but it does so on the basis that
"[t]o be liable under the CPA,there must be a contractual relationship between the parties." Int'l
Ultimate, Inc. v. St. Paul Fire & Marine Ins. Co., 122 Wn. App. 736, 758, 87 P.3d 774 (2004).
That basis is no longer valid. As the Court of Appeals in this case correctly recognized,"[w]e
cannot reconcile International Ultimate with Panag. And we must follow the Supreme Court's
more recent controlling decision." Keodalah v. Allstate Ins. Co., 3 Wn. App. 2d 31, 42, 413 P.3d
1059 (2018).
Keodalah v. Allstate Ins.,'Ho. 95867-0
(Yu, J., dissenting)
(emphasis added). In addition to his statutoiy claim, Keodalah raises a common
law bad faith claim against Smith, which the trial court dismissed and which the
Court of Appeals did not reach. This court should either decide whether
Keodalah's complaint states a viable common law claim against Smith or remand
for the Court of Appeals to do so. I would decide the issue here.
Keodalah's complaint raises both statutoiy and common law claims for
insurance bad faith against Smith, claiming that her "actions and omissions alleged
herein are in violation of RCW 48.01.030 and [her] duty to act in good faith."
Clerk's Papers(CP)at 13 (emphasis added). Keodalah never abandoned his
common law claim, and Smith herself aclaiowledged in her briefing to the Court of
Appeals that Keodalah was asserting a claim "for common law insurance bad
faith." Resp. in Opp'n to Mot. for Discr. Review at 3(Wash. Ct. App. No. 75731-
8-1 (2016)). The Court of Appeals granted discretionary review on the question of
"whether an individual insurance adjuster may be liable for bad faith" without
limiting its review to the statutory claim. Keodalah v. Allstate Ins. Co., 3
Wn. App. 2d 31, 34, 413 P.3d 1059 (2018). In this court, Keodalah and amicus
Washington State Association for Justice Foundation both briefed Keodalah's
common law claim, and at oral argument, Keodalah repeatedly stated that he was
pursuing a common law bad faith claim against Smith. Wash. Supreme Court oral
argument, Keodalah v. Allstate Ins. Co., No. 95867-0 (Feb. 26, 2019), at 19 min..
Keodalah v. Allstate Ins.,'Ho. 95867-0
(Yu, J., dissenting)
42 sec. through 23 min., 32 sec., video recording by TVW, Washington State's
Public Affairs Network, http://www.tvw.org. Thus, Keodalah's common law
claim is pleaded in his complaint, is within the scope of issues on which the Court
of Appeals granted review, and has been fully briefed.
The fact that Keodalah cannot raise a statutory claim against Smith does not
resolve the question of whether he can raise a common law claim. Whether an
implied statutory cause of action exists is a question of statutory interpretation.
Perez-Crisantos v. State Farm Fire & Cas. Co., 187 Wn.2d 669, 676, 389 P.3d 476(2017). We therefore consider factors that clarify what the legislature intended.
See Bennett, 113 Wn.2d at 920-21. Meanwhile, our recognition of common law
causes of action depends on this court's consideration of"logic, common sense,
justice, policy, and precedent, as applied to the facts of the case." Centurion
Props. Ill, LLCv. Chi. Title Ins. Co., 186 Wn.2d 58, 65, 375 P.3d 651 (2016).
Where both common law and statutory claims are raised, as they are here, each
should be addressed independently.
The Court of Appeals ultimately did not reach the common law claim
because it reversed the trial court's CR 12(b)(6) dismissal based on Keodalah's
statutory claim. Keodalah, 3 Wn. App. 2d at 36. However, because we now
reverse on the statutory claim, we must consider Keodalah's common law claim,
an issue that was "raised" in the Court of Appeals and "might support" its decision
Keodalah v. Allstate Ins., No. 95867-0
(Yu, J., dissenting)
to reverse the trial court. RAP 13.7(b). We are required to "either consider and
decide" that issue here "or remand the case to the Court of Appeals" to do so. Id.The majority does neither, instead "revers[ing] the Court of Appeals and
reinstat[ing] the trial court's CR 12(b)(6) dismissal" without acknowledging
Keodalah's common law claim. Majority at 14.
I would address the viability of Keodalah's common law claim against
Smith in this court because it is a matter of first impression that has been fully
briefed and can be decided as a matter of law. At a minimum, however, the court
should acknowledge that Keodalah raises a common law bad faith claim against
Smith and remand to the Court of Appeals to consider whether that claim is viable.
C. The court should recognize an actionable common law duty of good faith
owed by claims adjusters to the insured
Insurance bad faith claims "are analyzed applying the same principles as any
other tort: duty, breach of that duty, and damages proximately caused by any
breach of duty." Smith v. Safeco Ins. Co., 150 Wn.2d 478, 485, 78 P.3d 1274(2003). At this stage of the proceedings, the parties dispute only the duty element:
whether a claims adjuster employed by the insurer (Smith) owes an actionable duty
of good faith to the insured (Keodalah).
"Whether an individual has a duty in the first instance is a question of law."
Kim V. Lakeside Adult Family Home, 185 Wn.2d 532, 548, 374 P.3d 121 (2016).
Keodalah v. Allstate /ra., No. 95867-0
(Yu, J., dissenting)
"Duty may be predicated on violation of a statute or common law principles."
Bernethy v. Walt Failor's, Inc., 97 Wn.2d 929, 932, 653 P.2d 280 (1982). When
considering common law duties, this court looks to "logic, common sense,justice,
policy, and precedent, as applied to the facts ofthe case." Centurion Props., 186
Wn.2d at 65.
While some precedent from other jurisdictions limits the common law duty
of insurance good faith to the insurer itself, other precedent suggests that claims
adjusters do owe the insured a common law duty of good faith as a matter of
Washington law. Furthermore, logic, common sense,justice, and policy, as
applied to the facts of this case, strongly support recognizing an actionable
common law duty of good faith owed by claims adjusters to the insured. I would
therefore recognize such a duty.
1. Relevant precedent is mixed
Although this court has never before considered whether a claims adjuster
owes a common law duty of good faith to the insured, courts in other jurisdictions
have done so. While a majority of other courts do not recognize such a duty, some
ofthem do, and Washington precedent indicates that we should not follow the
majority on this issue.
"[T]he majority of courts from other jurisdictions that have addressed this
issue have found that such an adjuster or investigator owes a duty only to the
Keodalah v. Allstate Ins., No. 95867-0
(Yu, J., dissenting)
insurance company that hired it" and owes no common law duty to the insured.
Akpan v. Farmers Ins. Exch., Inc., 961 So. 2d 865, 873 (Ala. Civ. App. 2007).
These courts have generally taken the view that an insurer's duty of good faith is
derived from its "unique relationship with the insured through the insurance
contract." Lodholtz v. York Risk Servs. Grp., Inc., 778 F.3d 635, 645 (7th Cir.
2015). Therefore, the "duty of good faith arising under the contract does not
extend to a person who is not a party to the insurance contract." Charleston Dry
Cleaners & Laundry, Inc. v. Zurich Am. Ins. Co., 355 S.C. 614, 618, 586 S.E.2d
586(2003).
However,the majority position is not unanimous. Several states explicitly
recognize some type of common law cause of action for bad faith against claims
adjusters. For instance, Mississippi recognizes a common law duty for adjusters to
refrain from '"gross negligence, malice, or reckless disregard for the rights of the
insured.'" Gallagher Bassett Servs., Inc. v. Jeffcoat, 98-CA-00192-SCT, 887
So. 2d 111,^ 25 (Miss. 2004)(quoting v. Cal. Life Ins. Co., 581 So. 2d 1087,
1090 (Miss. 1991)). New Hampshire imposes a common law duty of good faith on
insurers' agents, and Alaska holds that insurers' agents may be "liable for
negligence arising out of a breach of the general tort duty of ordinary care."
Morvayv. Hanover Ins. Cos., 127 N.H. 723, 725-26, 506 A.2d 333 (1986); Cont'l
Ins. Co. V. Bayless & Roberts, Inc., 608 P.2d 281, 287(Alaska 1980). Meanwhile,
Keodalah v. Allstate Ins.,'Ho. 95867-0
(Yu, J., dissenting)
Montana recognizes "a common law cause of action exists to redress violations of
Montana's Unfair Trade Practices and Consumer Protection Act. O'Fallon v.
Farmers Ins. Exch., 260 Mont. 233, 243, 859 P.2d 1008 (1993); MONT. CODE Ann.
ch. 30-14. In addition, several states recognize a common law duty in limited
circumstances where the adjuster (or other agent of the insurance company)
assumes primary control over handling a claim, thus stepping into the shoes of the
insurer. Robertson Stephens, Inc. v. Chubb Corp., 473 F. Supp. 2d 265, 274-75
(D.R.I. 2007)(applying Rhode Island law); Riccatone v. Colo. Choice Health
Plans, 2013 COA 133, 17-18, 315 P.3d 203, 207; Trinity Baptist Church v. Bhd.
Mut. Ins. Servs., LLC,2014 OK 106, 16, 341 P.3d 75, 81.
Cases applying Washington law indicate that our common law more closely
aligns with these minority positions. Unlike in some other states, the common law
duty of insurance good faith in Washington is not derived solely from the
contractual relationship between the insurer and the insured. See Lodholtz, 778
F.3d at 645. When we first recognized the common law duty, we did not attach it
to any contractual relationship, instead simply stating that "[o]f course, bad faith of
appellant insurer in [investigating and settling a claim] would render the insurer
liable." Burnham v. Commercial Cas. Ins. Co. ofNewark, 10 Wn.2d 624, 631, 117
P.2d 644 (1941). We later elaborated that the duty of insurance good faith "exists
not only as a result ofthe contract between insurer and insured, but because of the
10
Keodalah v. Allstate 7ra., No. 95867-0
(Yu, J., dissenting)
high stakes involved for both parties to an insurance contract and the elevated level
of trust underlying insureds' dependence on their insurers." Tank, 105 Wn.2d at
385 (emphasis added). As discussed further below, high stakes and an elevated
level of trust are clearly implicated by the work of a claims adjuster because the
claims adjuster's work directly influences the decisions of the insurer. Therefore,
unlike in some other states, it cannot be said that "[ajbsent an insurance contract,
the policy rationales for imposing a duty on a claims adjuster cease to exist" in
Washington. Lodholtz, 778 F.3d at 645.
In sum, relevant precedent is mixed. While the majority of cases applying
the law of other jurisdictions limit the common law duty of insurance good faith to
the insurer, some Washington precedent indicates that we should adopt the
minority position and recognize a common law duty of insurance good faith owed
by the insurer's claims adjusters.
2. Considerations of policy, common sense, logic, and justice support
recognizing a common law duty
In addition to precedent, we must also consider policy, common sense, logic,
and justice,"as applied to the facts ofthe case." Centurion Props., 186 Wn.2d at
65. Legislative enactments provide a clear source of public policy that this court
may consider when deciding whether to recognize a common law duty. See
11
Keodalah v. Allstate Ins., No. 95867-0
(Yu, J., dissenting)
Bernethy, 97 Wn.2d at 932-33. The most relevant statute in this case is RCW
48.01.030, which provides,
The business of insurance is one affected by the public interest,
requiring that all persons be actuated by good faith, abstain from
deception, and practice honesty and equity in all insurance matters.
Upon the insurer, the insured, their providers, and their representatives
rests the duty of preserving inviolate the integrity of insurance.
This language sets forth a strong public policy favoring good faith by all those
participating in insurance matters. As such, this court has regularly looked to "the
principles enunciated by the legislature in chapter 48.01 RCW:that the insurance
business requires good faith, honesty, and equity in all insurance matters." Onvia,
165 Wn.2dat 131.
As the majority acknowledges, majority at 9-10, these principles would be
promoted through "the deterrent effect oftort law" by recognizing an actionable
duty of good faith owed by claims adjusters to the insured. Davis v. Baugh Indus.
Contractors, Inc., 159 Wn.2d 413, 419, 150 P.3d 545 (2007). The majority also
correctly notes that there are good reasons not to recognize an actionable duty of
good faith on the part of every entity named in RCW 48.01.030, such as "the
insured" and all "providers" and "representatives." See majority at 10. However,
those reasons do not apply to an insurer's claims adjuster.
While the ultimate coverage decision is made by the insurer itself, that
decision is directly informed by the work of the claims adjuster. An adjuster's bad
12
Keodalah v. Allstate lns.,^o. 95867-0
(Yu, J., dissenting)
faith investigation or evaluation of a claim may lead directly to an insurer's
wrongful denial of coverage or refusal to settle a claim for what it is actually
worth. Claims adjusters should thus be "fully aware that the [insured] could be
harmed financially if they performed their investigation in a negligent manner and
rendered a report to [the insurer] that would cause the company to refuse
payment." Morvay, 127 N.H. at 726.
Common sense and justice "support[]placing liability on the party best able
to mitigate or control the anticipated harm." Centurion Props, 186 Wn.2d at 83.
The pivotal role of claims adjusters places them in a unique position either to
prevent harm to the insured by acting in good faith or to cause harm to the insured
by acting in bad faith. Indeed, the facts pleaded in the complaint suggest that
Smith's bad faith caused Keodalah harm in this case, with Smith asserting that
Keodalah was primarily at fault for the accident because he supposedly ran a stop
sign and was on his cell phone, even though there was no evidence to support these
allegations and Smith ultimately admitted they were not true. CP at 8.
At this early stage of the proceedings, we cannot know the full extent of
Smith's involvement with Keodalah's claim, but we must take the complaint as
true and "consider hypothetical facts supporting the plaintiffs claim."
FutureSelect Portfolio Mgmt., Inc. v. Tremont Grp. Holdings, Inc., 180 Wn.2d 954,
962, 331 P.3d 29(2014). The allegations in Keodalah's complaint are entirely
13
Keodalah v. Allstate lns.,lAo. 95867-0
(Yu, J., dissenting)
consistent with his claim that Smith acted in bad faith when adjusting his claim.
No party or amicus contends otherwise, and potential liability on the part of her
employer was clearly not sufficient to deter Smith's alleged bad faith conduct.
Therefore, in accordance with "logic, common sense,justice, policy, and
precedent, as applied to the facts of the case," Centurion Props., 186 Wn.2d at 65,
I would recognize a common law duty of good faith to the insured by the insurer's
claims adjuster and hold that Keodalah states a viable claim for common law
insurance bad faith against Smith.
In recognizing this common law duty, I would also recognize its limitations.
Most importantly, adjusters are liable only for knowing bad faith conduct that is
within their control. See Annechino v. Worthy, 175 Wn.2d 630, 638, 290 P.3d 126(2012)(quoting RESTATEMENT(Third)of Agency §§ 7.01-.02(Am.Law Inst.
2006) and citing Eastwood v. Horse Harbor Found., Inc., 170 Wn.2d 380, 400,
241 P.3d 1256 (2010)). Thus, where claims adjusters perform their own duties in
good faith, they cannot be liable for an insurer's ultimate decision to act in bad
faith. Likewise, where the insurer's policies or practices make it impossible for
claims adjusters to act in good faith while also fulfilling their employment
responsibilities, it is the insurer who is liable. Adjusters are not liable for the
insurer's policies, nor are they required to "place the insured's interests above
14
Keodalah v. Allstate Ins., No. 95867-0
(Yu, J., dissenting)
[their] own." Safeco Ins. Co. ofAm. v. Butler, 118 Wn.2d 383, 389, 823 P.2d 499(1992).
In this case, taking the facts alleged in Keodalah's complaint as true and
assuming hypothetical facts showing that Smith knowingly acted in bad faith when
adjusting his claim, I would hold that Keodalah does state a viable claim for
common law insurance bad faith against Smith. I would therefore affirm the Court
of Appeals on different grounds and remand Keodalah's common law claim to the
trial court for further proceedings.
CONCLUSION
I would hold that Keodalah's complaint does state viable causes of action
against Smith for per se CPA violations and common law insurance bad faith, and
remand those claims to the trial court for further proceedings. I therefore
respectfully dissent.
15
Keodalah v. Allstate /ra., No. 95867-0
(Yu, J., dissenting)
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16