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Insurance Law

Two Courts Hold That Adjuster Can Be Personally Liable For Wrongful Claims Handling Conduct

Needless to say, claims adjusters won’t be happy with the Texas federal court’s decision in Linron Properties v. Wausau Underwriters Insurance Co., No. 15-293 (N.D. Tex. June 16, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance]. The court held that an adjuster could be personally liable for her wrongful conduct in handling a claim.

Linron Properties sued Wausau Insurance and insurance adjuster Sara Springman for the improper handling of an insurance claim under a property policy. Linron sought coverage for the cost of repairs from a storm. Wausau hired Springman to serve as the adjuster. Linron asserted that Springman “conducted an outcome-oriented investigation and also hired experts she knew would under-scope Plaintiff's damages in order to allow Wausau to avoid payment on the claim.” Linron claimed that, as a result, it was wrongfully denied full coverage for the damages sustained to the property.

Linron filed suit against Wausau, as well as against Springman for violations of chapter 541 of the Texas Insurance Code, including for “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim.” The court explained that, “[u]nder the Insurance Code, an individual who has been damaged by ‘unfair methods of competition or unfair or deceptive acts or practices in the business of insurance’ may bring a cause of action against the ‘person or persons engaging in such acts or practices.’ The Insurance Code defines a “person” as any “legal entity engaged in the business of insurance, including an ... adjuster.”

The Linron court noted that both the Texas Supreme Court and the Fifth Circuit have recognized that an insurance adjuster may be held individually liable for violating chapter 541 of the Insurance Code. The court also pointed out that, despite the abundance of case law supporting adjuster liability under § 541.060, [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], some courts have recently begun to question the appropriateness of holding an adjuster individually liable for unfair settlement practices. These courts have gone in this direction because an adjuster “does not have settlement authority on behalf of [the insurance company]” and his or her “sole role is to assess the damage.”

Nonetheless, despite some courts getting away from holding an adjuster individually liable for unfair settlement practices, the Linron court was not prepared to join them. The court explained: “[W]hile the courts’ reasoning in these cases has some logical appeal, a closer examination of the precise language of § 541.060(a)(2)(a) and the role played by insurance adjusters in the claims handling process belies their conclusions.”

The Linron court analyzed the statutory language as follows:

“Section 541.060(a) (2)(A) prohibits those engaged in the business of insurance from ‘failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement.’ Webster’s defines the word ‘effectuate’ by reference to the definition for ‘effect,’ meaning ‘to cause to come into being’ or ‘to bring about.’ The fact that the statute uses the word ‘effectuate’ rather than a word that conveys finality (e.g., finalize), suggests that its prohibition extends to all persons who play a role in bringing about a prompt, fair, and equitable settlement of a claim.

As the persons primarily responsible for investigating and evaluating insurance claims, insurance adjusters unquestionably have the ability to affect or bring about the ‘prompt, fair, and equitable settlement’ of claims, because it is upon their investigation that the insurance company’s settlement of a claim is generally based. . . . As such, a delay in an adjuster’s investigation will undoubtedly cause a delay in the payment of the claim, and an insufficient investigation may well lead to a less than fair settlement of a claim.”

Following this interpretation of the statute, the Linron court turned to the specific matter at hand and held that Springman’s actions – retaining an engineer and contractor who were known for arriving at findings that favored insurance companies, refusing to identify damage to the structure that was covered under the Policy, and failing to respond to Linron’s inquiries regarding the status of the claim and payment -- were sufficient to support a claim against her, in her individual capacity, for violating § 541.060(a)(2)(A) of the Insurance Code.

[Update: Just as this edition of Coverage Opinions was going to press the Eastern District of Pennsylvania handed down Kennedy v. Allstate, No. 15-2221 (E.D. Pa. July 8, 2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], where the court held that insureds stated colorable claims for negligence and violation of the Pennsylvania Uniform Trade Practices and Consumer Protection Law. The insureds argued that adjusters affirmatively misrepresented and concealed material facts from them to delay the resolution of their claims.]

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

    Randy Maniloff is Counsel at White and Williams, LLP in Philadelphia. He previously served as a firm Partner for seven years and transitioned to a Counsel position to pursue certain writing projects including Coverage Opinions . Nonetheless he still maintains a full-time practice at the firm. Randy concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies, including commercial general liability and various professional liability policies, such as public official’s, law enforcement, educator’s, media, computer technology, architects and engineers, lawyers, real estate agents, community associations, environmental contractors, Indian tribes and several others. Randy has significant experience in coverage for environmental damage and toxic torts, liquor liability and construction defect, including additional insured and contractual indemnity issues. Randy is co-author of “General Liability Insurance Coverage - Key Issues In Every State” (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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