Negligence Claims Against Insurance Adjusters?

Claims professionals, a/k/a “adjusters” play an important role in evaluating and defending an insured claim as part of the tripartite relationship. When something goes wrong, it is not uncommon for the insured to turn on her attorney but the adjuster is never a target, right? Maybe not. At least two jurisdictions, New Hampshire and Alaska, permit claims of negligence against individual insurance adjusters on the theory that they owe a duty of ordinary care to conduct adequate investigations into an insured’s claim.  Pennsylvania recently considered the issue and concluded that the Pennsylvania Supreme Court may permit such a claim against an insurance adjuster.

In Kennedy v. Allstate Property and Casualty Insurance, the plaintiffs brought suit in state court against their insurance company and 3 adjusters alleging the adjusters misrepresented and concealed certain facts regarding their motor vehicle insurance claim.

The defendants sought to remove the action to federal court on the basis of federal diversity jurisdiction by alleging the insurance adjusters, who were all citizens of Pennsylvania, were fraudulently joined in order to destroy diversity jurisdiction. The defendants argued that Pennsylvania does not recognize a cause of action for negligence or any claims under the Pennsylvania Unfair Trade Practices against insurance adjusters.

The court concluded it was possible a Pennsylvania state court would find that their claims have at least “alleged a breach of a general social duty”  and therefore plaintiffs stated colorable claims for negligence against the insurance adjusters.

Several cases out of the Eastern District of Pennsylvania had previously split on whether state courts would allow claims of negligence against adjusters and Pennsylvania’s Supreme Court has been silent on the issue.  Therefore, in predicting how the state’s high court would rule, the District Court concluded there is “at least a ‘possibility’ that the Pennsylvania Supreme Court construing state ‘substantive law in favor of the plaintiff’ 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.”

While there is no formal decision by the Pennsylvania Supreme Court on this issue, insurance adjusters need to mindful of the possibility of such claims when conducting their investigations.  It will be interesting to see if this issue is litigated further at the state level in Pennsylvania or elsewhere.

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1 Comment

  1. Jack Christian Sales, Esq.

    In my humble opinion, the exposure is quite real. While General Counsel and as Associate GC for claim litigation, I always cautioned our team that the model act on unfair claims practices passed in nearly every state sets forth minimum claim handling responsibilities, the breach of which might be construed as negligence in the claim resolution process. The Illinois Supreme Court in Cramer v. Insurance Exchange Agency, 174 Ill. 2d 513 (IL 1996) alluded to this in dicta while addressing whether Illinois recognizes the claim of “bad faith” (it didn’t). However, the argument and potential exposure is real. With the litigation environment in Pennsylvania today, particularly in Philadelphia, this issue will be pressed and bumped up the Superior Court in short order. Stay tuned….

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