Insurance Adjusters Who Fail to Act in Good Faith May Face Personal Liability

In the early days of the consumer economy legal notions regarding the relationship between consumers and product manufacturers largely insulated the manufacture from most product liability actions – even when the result was foreseeable or likely. Potential personal injury lawsuits in this era were largely guided by and characterized by the concept of privity of contract. Privity in this sense is a narrow, legalistic concept that held that for an injured consumer to bring a viable personal injury suit, there must be a valid and direct contractual relationship between the injured person and the manufacturer of the defective or dangerous product. In short, this approach treated severe and serious injuries as a matter of contract rather than tort. Such an approach permitted culpable manufacturers to avoid liability for severe, life-altering injuries on technical, legalistic grounds.

Privity Is No Longer Required in Most Personal Injury Actions

In 1842, privity of contract was an absolute necessity to sustain an action for personal injury caused by a defective product. In the 1842 case, Winterbottom v. Wright, a postal worker was barred from recovery for his injuries caused by a faulty wagon wheel because the manufacturer of the wheel had contracted with the wagon manufacturer and not the postal worker. Such a result permitted industrial-scale manufacturers to avoid responsibility for their actions on technical legal grounds.  By 1916, however, the concept of privity was weakened due to a number of exceptions arising from decisions by judges including the MacPherson decision by Judge Cardozo.

In MacPherson v. Buick Motor Co., the facts roughly approximated those in Winterbottom where a defective wheel resulted in severe injury to the driver of the vehicle. Rather than approaching this matter in the traditional contractual manner, Judge Cardozo framed the legal action as a matter in tort rather than one in the contract. Cardozo held that privity between the manufacturer of the defective product and the injured consumer is not necessary when the manufacturer is aware or likely aware that the product is inherently dangerous. Cardozo wrote:

If the nature of a thing is such that it is reasonably certain to place life and limb in peril when negligently made, it is then a thing of danger. Its nature gives warning of the consequence to be expected. If to the element of danger there is added knowledge that the thing will be used by persons other than the purchaser, and used without new tests, then, irrespective of contract, the manufacturer of this thing of danger is under a duty to make it carefully. That is as far as we need to go for the decision of this case . . . . If he is negligent, where danger is to be foreseen, a liability will follow.

Essentially, Cardozo states that if a product is known to be dangerous, notice has already been provided that negligent or ineffective manufacturing is likely to cause injury. Furthermore, if the product is likely to be used by a person other than the contracting party – a consumer perhaps – then the duty to provide a safe product also coves the foreseeable user of the product.

In short, Cardozo’s framing of the issue placed liability squarely on the manufacturer and eliminated unpredictability and inequity through technical, legalistic rules that failed to contemplate how the character and nature of society had shifted since the advent of industrialization.

…But its Effects Are Still Felt in the Insurance Coverage Industry

According to a 2012 Ernst & Young study consumers, largely, still trust the insurance industry. However, by 2014 the annual Ernst and Young study’s first key finding was “high turnover and low trust signal serious [customer] relationship issues.” The 2014 study noted that among insurance companies, supermarkets, online retailers, banks, car manufacturers, and pharmaceutical companies only the car manufacturers and pharmaceutical companies had a lower percentage of consumers citing “complete trust” or moderate trust.” Furthermore, consumers cite the cost/terms and the policy benefits/coverage as the top two reasons why they replace an auto, home, or life insurance policy.

However, despite the importance of trust for insurers, some companies persist in using technical, legalistic grounds related to contractual relationships and counter to consumer expectations to avoid providing coverage for apparently insured losses or losses caused or exacerbated by an insurance adjuster. In a 2004 New York matter, Youngs v. Security Insurance Company, an insurance adjuster was permitted to avoid liability for gross negligence because the duty was derived from the employment contract held between the insurer and the insurance adjuster. Since there was no contractual duty between the insured and the insurance adjuster, the court found there were no grounds to impose liability for the gross negligence committed. In another recent 2015 case, Evans v. GEICO Gen. Ins. Co., a federal court in the Eastern District of Virginia held that the lack of a contractual relationship between the insured and the insurance adjuster meant that a cause of action could not be sustained.

To the consumer, it makes little difference whether it is the insurance adjuster or the company itself taking action. The consumer simply wants his or her loss covered and not made worse by the actions of an adjuster. As per the results of the Ernst & Young survey, most insured individuals trust the insurance adjuster and the insurance company to do the right thing. But all too often insurance companies and their adjusters dodge responsibility for the losses and damages they cause through technical, legalistic concepts bearing little relation to consumer expectations or actual industry practice.

But Courts Have Begun to Hold Insurance Adjusters Personally Liable in Some Instances

Both federal and state courts have recognized situations where an insurance adjuster may be held personally liable for wrongful acts or where the possibility of such liability exists. In a recent lawsuit against allegedly negligent insurance adjusters, Kennedy v. Allstate, the plaintiffs suffered severe injury in a car accident with an uninsured motorist. Ms. Kennedy carried an underinsured motorist (UIM) policy with Allstate. She claimed that the insurance adjusters improperly evaluated the claim, concealed material facts regarding the UIM claim and also engaged in affirmative misrepresentations & fraud to delay settlement. The plaintiffs believed and alleged that the motivation behind the delay and misrepresentations were to inflict financial hardship on the insureds so that they would be willing to settle for less. Like in the battle over liability regarding defective product injuries, the suit was filed with the plaintiffs making tort claims while the defendants urged the court to view the matter through a contractual lens.

In the matter, the court found both statutory and common law based grounds to sustain the action. The court found that it was at least possible that a state court could decide “that an insurance adjuster owes a duty of care to an insured that would be breached by failing to reasonably investigate an insured’s claims and making misrepresentations regarding the ongoing status of the investigation.” In fact, the federal court found at least one state court expressly stated that such a claim is colorable under a negligence theory when an insurer “den[ies] a claim without first conducting an adequate investigation into negligence.” Additionally, the court found a possibility that alleged acts were in violation of Pennsylvania’s Uniform Trade Practices and Consumer Protection Law (UTPCPL) and that the law could allow an action to be sustained.

In a particularly shocking case, McCarter v. Progressive Gulf Insurance Company, the injured driver suffered a traumatic brain injury (TBI) resulting in pronounced cognitive deficits. The deficits were so severe that an examining neuropsychiatrist recommended against placing the injured individual in a position where he would be required to make a decision or exercise judgment. Despite this recommendation, the insurance adjuster proceeded to settle this matter by procuring a signed release from the injured party.

Sometime later the injured party that filed the release filed suit alleging that the adjuster was aware of the insured’s severe injuries and reduced capacity and used this knowledge to fraudulently procure the release. The federal court in the Eastern District of Louisiana set forth a balancing test that could permit an insurance adjuster to be held personally liable.  Factors a court will consider include whether there was a misrepresentation or fraud, the content of the promises, the actual authority of the adjuster, the authority represented by the agent or perceived by the insured, and the difference in levels of education between the parties.

Findings of this type are not limited to Pennsylvania and Louisiana. In traditionally conservative Texas, North Carolina, and South Carolina courts have also found that it is at least possible to hold an insurance adjuster individually liable for the damages he or she may cause.

Has Your Insurer Engaged in Bad Faith or Fraud?

The insurance company and its adjusters know the insurance game and are frequent players. Thus, it is not surprising that injured people unfamiliar with the system and coping with severe injuries may face significant challenges when engaging in the negotiation and settlement process. Working with an experienced attorney can help you better leverage the favorable facts and circumstances of your case. To schedule a free and confidential consultation, call the attorneys of The Reiff Law Firm (215) 709-6940 or contact us online.