Washington State Returns the Tort of Bad Faith to Sanity

Washington State Adjusters Can Breathe Again

In the 1970’s California lawyers sued adjusters and lawyers for the tort of bad faith in order to destroy diversity and keep insurers from moving cases to federal court. California adjusters would be sued by the hundreds making it impossible for them to obtain a mortgage or a car loan even though the insurers for whom they worked would defend and indemnity them, it became an untenable situation for California lawyers and adjusters. I was personally sued dozens of times alleging that I had breached the insurance contract by representing clients. Finally, in 1973, the California Supreme Court decided Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 573, 108 Cal.Rptr. 480, 520 P.2d 1032) finding there was no case against adjusters and the frivolous suits stopped.

See my blog post “Mother, Don’t Let Your Child Become an Adjuster in Washington State” at http://zalma.com/blog/mother-dont-let-your-child-become-an-adjuster-in-washington-state/ where I opined: “Insurance adjusters who are not parties to the contract of insurance cannot breach the covenant of good faith and fair dealing because they are not a party to the contract, except in the State of Washington. No reasonable person would agree to be an adjuster unless the insurer agrees, in writing, to defend and indemnify the adjuster for any claim or judgment of bad faith made against the adjuster. This opinion will devastate the insurance industry’s ability to retain well trained and experienced adjusters in Washington state.”

Washington state courts rejected the precedent set by the California Supreme Court and found, until last week, that adjusters working in Washington state could be sued for bad faith.

On October 3, 2019 the Washington state Supreme Court decided Moun Keodalah and Aung Keodalah, husband and wife v. Allstate Insurance Company, a corporation, and Tracey Smith and John Doe Smith, husband and wife, No. 95867-0, Supreme Court of the State of Washington (October 3, 2019) reversing the court of appeal.


The court was asked to decided if in underinsured motorist case did a state statute, RCW 48.01.030 ,provide a basis for an insured’s bad faith and Consumer Protection Act (CPA), chapter 19.86 RCW, claims against an employee claims adjuster.


After a successful trial against a third party Keodalah filed a second lawsuit against Allstate and included claims against its adjuster Smith. The Court of Appeals held that the statutory duty of good faith applied to individual insurance adjusters and breach of that statutory duty could serve as a basis for Keodalah’s bad faith and CPA claims against Smith.


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.”

The Supreme Court noted that the interest addressed in RCW 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.” As a result, it concluded, the statute was enacted not enacted for the particular benefit of insureds.

The Supreme Court noted that the presence of specific provisions for enforcement of the insurance code indicated 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.  RCW 48.01.030 could only 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.

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. The plain language of the statute was intended to benefit the general public, and the broader statutory and historical context in which the statute appears, and it does not create an implied cause of action for insurance bad faith.

Although Keodalah, as the insured here, can sue Allstate, he cannot also sue Smith. Because Keodalah claims a breach of the duty of good faith by someone outside the quasi-fiduciary relationship, his claim based on RCW 48.01.030 was properly dismissed.

Employee adjusters are not subject to personal liability for insurance bad faith or per se claims under the CPA.


Although one justice dissented the decision of the Washington state Supreme Court made a practical and correct decision and made it possible for insurance adjusters to work in the state of Washington. Even if the insurers defended and indemnified each of its adjusters and each of its insurers the record of multiple suits for bad faith would force every adjuster to move to a state where such suits were not allowed. The Court of Appeal’s opinion devastated the insurance industry’s ability to retain well trained and experienced adjusters to work in Washington state. This decision corrected the error and citizens of the state of Washington can now breathe easy knowing that their insurers will be able to provide the service promised by their insurance policies.

© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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