The Personal Liability of Insurance Claims Adjusters for Insurance Bad Faith

Abstract

One of the currents of change sweeping through the insurance industry is the rise of insurance bad faith liability. There is an emerging legal question today as to whether the individual employee adjusters of insurance companies can be subject to bad faith liability.This article examines the question of whether employee-adjusters of insurance companies can and should be held liable for insurance bad faith liability. Early reported cases involving personal liability for bad faith generally held that insurance company employee adjusters were immune from bad faith claims as they were not in privity of contract with insureds. However, three significant decisions from the Montana Supreme Court (O’Fallon v. Farmers Insurance Exchange in 1993), Texas Supreme Court (Liberty Mutual Insurance Company v. Garrison Contractors, Inc. in 1998) and the West Virginia Supreme Court (Taylor v. Nationwide Mutual Insurance Company) in 2003 challenged this doctrinal rule in holding that bad faith claims can proceed against insurance company employee adjusters. Today a split has emerged among courts on the issue of whether bad faith claims can proceed against insurance company employee adjusters.This article proposes a uniform standard that courts can employ in cases where insureds allege insurance company employee adjusters act in bad faith. To keep insurance company employee adjusters fair and honest and to ensure the quasi-fiduciary nature of the insurance contract is upheld, this article contends that insurance company employee adjusters be held liable for insurance bad faith in cases where a trial court makes an evidentiary finding that an employee adjuster acts with the purposeful or actual malicious intention to prejudice the rights of an insured.