Opinion ID: 1316290
Heading Depth: 3
Heading Rank: 2

Heading: Does an Insurer's Salaried Adjuster Owe the Insureds a Tort Duty of Reasonable Care?

Text: The district court first poses this certified question: Does a salaried employee in the claims department of an insurance company owe those who are insured by the company a duty enforceable in a tort action against the employee personally to exercise reasonable care in connection with claims by the insureds that are assigned to the employee for investigation, evaluation and adjustment, to avoid interfering with the insureds' rights under the policy of liability insurance to receive a defense and indemnity against tort claims made against them by third-parties? C.P. argues that Alaska law already recognizes a cause of action against liability insurers' adjusters for negligent adjustment (including investigation and evaluation) of a claim. C.P. relies on two cases  Continental Insurance Co. v. Bayless & Roberts, Inc. [5] and Sauer v. Home Indemnity Co. [6]  to support her contention. Amicus J.D. Glass & Door, Inc. supports C.P.'s contention. Allstate contends that an insured's claims for negligent adjustment are contract claims which can only be made against Allstate itself. (Allstate also contends that the settlement agreement permitted C.P. to sue only Allstate, and that the Lancasters' assignment does not cover suits against Norton. We do not consider this contention because it is not part of the certified question.) The Continental line of cases answers the broad question posed. The Continental Insurance Company discovered midway through its defense of its insured, Bayless & Roberts (B & R), that B & R had changed its story as to the facts of the third-party liability claim being litigated. [7] When Continental refused to defend B & R further, B & R sued it and its claims adjuster, Arthur Stanford. [8] Stanford held the title of branch manager at the Underwriters Adjusting Company. [9] But we recognized that Underwriters Adjusting was a subsidiary of Continental Corporation and functioned as the claims department of Continental Insurance Company, another subsidiary. [10] We also concluded that Stanford was Continental's claims adjuster [11] and that Continental assigned the adjustment of the ... claim against B & R to Stanford. [12] B & R's suit against Stanford alleged that Stanford breached his fiduciary duty in failing to adequately investigate  the claim in question, and in failing to fully inform B & R, Continental, and Continental's attorney of the facts of the case. [13] Stanford contended that he had no duty to B & R under his contract with Continental that would subject him to personal liability. [14] We concluded that Stanford could not be held liable for a breach of the fiduciary duty of good faith arising out of the insurance contract, but he could be held liable for negligence arising out of a breach of the general tort duty of ordinary care. [15] Allstate argues that Continental is legally and factually inapplicable here because it concerned a third party adjuster, not an employee of the insurer, and it concerned defense of a claim, not negligent investigation. But we treated Stanford as though he were the insurer's employee, [16] and the suit dealt directly with Stanford's allegedly negligent investigation. [17] Allstate alternatively contends that two cases we decided after ContinentalO.K. Lumber Co. v. Providence Washington Insurance Co. [18] and Alaska Pacific Assurance Co. v. Collins [19]  clearly dictate a finding that the employee is not personally liable. C.P. asserts that Sauer dictates the opposite result. Both cases Allstate cites are inapposite, and each undercuts Allstate's argument. In O.K. Lumber, Providence Washington insured two companies that caused property damage to O.K. Lumber. [20] When O.K. Lumber sued the two companies, Providence Washington defended them. In one suit, O.K. Lumber recovered a substantial judgment that exceeded what Providence Washington had unsuccessfully offered to pay. In the other, Providence Washington eventually paid O.K. Lumber's entire claim. O.K. Lumber then sued Providence Washington for bad faith. [21] We held that third parties cannot maintain a cause of action against insurers for bad faith: An insurer could hardly have a fiduciary relationship both with the insured and a claimant because the interests of the two are often conflicting. [22] O.K. Lumber is distinguishable because Providence Washington's insureds had not assigned their rights to O.K. Lumber. But we recognized there that [t]he insured's cause of action for breach of the implied covenant is assignable to the injured third party claimant. [23] Because C.P. is the assignee of the insureds' rights against their insurer, she is suing as a first party, not as a third party. O.K. Lumber therefore supports C.P.'s claim. Collins is also distinguishable, but nonetheless supports C.P.'s claim. The insured there sued his liability insurer for bad faith failure to provide a defense, and the jury found for the insured. [24] Although we reversed the verdict because a jury instruction had erroneously assumed facts not stipulated, we took pains to reaffirm that it was proper for the superior court to permit [the insured] to sue on the implied covenant of good faith and fair dealing in tort.... [25] C.P. refers us to Sauer, in which Delores Gross was sued by residents of her trailer park. [26] She notified her liability insurer, Home Indemnity, which retained Larry Larson, an adjuster with Northern Adjusters. [27] Larson investigated and sent a report to Home Indemnity; Home Indemnity then apparently forgot about the claim. [28] Gross eventually filed for bankruptcy, and sued Larson, Northern Adjusters, and Home Indemnity for negligent failure to investigate, adjust, resolve or defend her claim. [29] Summary judgment was entered against Gross. We reversed, noting: In [ Continental ] we recognized that an insurance adjuster owes a duty of care to the insured which is independent of any contractual obligation arising out of the insurance policy, and that a breach of this duty is actionable. [30] But we also noted that there was no motion before the court concerning the adjusters' liability, separate from that of Home Indemnity, and the record does not otherwise demonstrate the adjusters' right to summary judgment.... [31] Continental, which involved an adjuster whom we treated as a direct employee of the insurer, and Sauer, which involved an independent adjuster, establish that an insurer's adjusters personally owe duties to an insured under a liability policy to adjust (investigate and resolve) claims against the insured. O.K. Lumber and Collins confirm that proposition. Does it matter that Norton was Allstate's salaried employee? Continental broadly indicates that it does not. The certification order suggests that Restatement (Second) of Torts § 766C (1979) might convince us to draw a distinction between salaried employees and independent adjusters. Section 766C bars recovery for nonphysical harm resulting from interference with contract. Because the parties' briefs have not addressed the Restatement issue, we decline to address § 766C here. [32] Thus, existing Alaska law answers the first question. The answer is yes: the insurer's salaried insurance adjuster owes the insureds the described duty of care.