Washington’s Supreme Court Holds Claims Handlers are Not Subject to CPA or Statutory Bad Faith Claim

By: Vicki Smith


Insurance claims handlers and attorneys handling coverage matters for insurers can breathe a little easier in Washington. The Court of Appeals previously held that claims handlers were personally subject to Consumer Protection Act and statutory bad faith claims in Keodalah v. Allstate Ins. Co. and Tracey Smith, 3 Wn App 2d 31 (Div 1, 2018). It appeared the reasoning and basis for that decision could also apply to attorneys handing insurance coverage matters as well. The Supreme Court recently reversed that decision in Keodalah v. Allstate Ins. Co. and Tracey Smith, 2019 Wash App LEXIS 591 (October 3, 2019).


The Supreme Court held RCW 48.01.030 (requiring all persons act in good faith in all insurance matters) does not create an implied cause of action for bad faith. To determine whether a statute creates an implied cause of action requires applying the three-part test set forth in Bennett v. Hardy, 113 Wn 2d 912 (1990). Each Bennett factor weighed against interpreting RCW 48.01.030 to include a cause of action. Specifically, 1) the statute expressly benefits the general public rather than creating duties to an identifiable class of people; 2) a common law duty of good faith existed at the time the statute was enacted, and the legislature did not modify that duty or include a cause of action within the statute itself; and 3) a broad interpretation of RCW 48.01.030 that “all persons” involved in insurance owe a duty of good faith meant that an insurer could bring bad faith claims against insureds as well, which was contrary to the legislative purpose of enforcing the insurance code and the common law cause of action for bad faith.


The Supreme Court also held that the Consumer Protect Act (“CPA”), chapter RCW 19.86, claims could not be raised against insurance claims handlers. A claims handler’s violation of certain Washington Administrative Code regulations were not per se CPA violations because the regulations applied only to “the insurer,” and the claims handler was outside the quasi-fiduciary insurer-insured relationship.


However, it should be noted that the Supreme Court did not address whether a claims handler owes a common law duty of good faith to the insured. The dissenting opinion suggests such a duty does exist because Washington’s precedent holds the duty of good faith relies on the contractual relationship between the insured and insurer but also on the high stakes involved in the insurance contract and the elevated level of trust an insured places on its insurer. A claims adjuster’s handling of the insured’s claim directly influences the insurer’s decision and implicates the latter two factors.


Hopefully, the Supreme Court will provide more guidance in the future on common law bad faith claims.

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