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Adjustor's Individual Liability

The case of Bock v. Hansen (2014) 225 Cal.App.4th 215 provides the legal authority that allows you to sue the handling adjustor for independent torts.


Sweet Mary purchased a home in Julian.  Following a recent heavy rainstorm, a large pine tree fell over and landed on part of her home.  Sweet Mary’s residence was insured by Allsnake Insurance Company and she immediately notified Allsnake of the claim.  Allsnake assigned the claim to its adjustor, Sean McScrewem.

Adjustor McScrewem visited the scene and took a few photographs.  He informed Sweet Mary he didn’t have much time to investigate her claim, but it did not matter because her claim was not covered by her policy.  He claimed the policy did not cover the loss and sent her a letter informing her of that fact but offered $2,000 as a good faith offer because of her long-standing relationship with Allsnake Insurance Company.  After receiving the letter, Sweet Mary purchased a chainsaw and cut up the tree and arranged for it to be hauled away.  While cutting up the tree, a limb fell and landed on her foot, causing her to suffer a broken ankle. 

Sweet Mary notified Adjustor McScrewem that a company had hauled away the tree limbs and provided him with an invoice that exceeded the settlement offer of $2,000.  She pointed out that the payment to have the tree limbs hauled away was only part of her damages because it did not include the cost of repairing the damage to her residence.

Sean McScrewem hired an unlicensed contractor to inspect the property once again.  He did not provide the contractor with photographs showing the location of the tree when it landed on her residence.  The contractor concluded that the damages to her chimney were preexisting and that the damages to the patio area could be repaired for $1,500.  The photographs taken by Adjustor McScrewem showed otherwise.  Adjustor McScrewem increased his settlement offer from $2,000 to $3,500.  Sweet Mary became enraged after reading the letter and contacted her attorney, Sickem Bulldog.

Attorney Bulldog immediately filed suit against Allsnake Insurance Company.  Besides suing Allsnake, Attorney Bulldog also named Adjustor Sean McScrewem in causes of action for negligent misrepresentation and negligent infliction of emotional distress. 

Allsnake Insurance Company retained its usual bad faith defense counsel, Pete Glee.  Attorney Glee immediately removed the case to federal court based upon diversity jurisdiction.  Attorney Glee maintained that the naming of the adjustor, Sean McScrewem, as a defendant was a sham defendant and that diversity jurisdiction existed.  Upon filing the notice of removal, attorney Glee also moved the court to dismiss defendant McScrewem based upon his argument that a cause of action could not be stated against Sean McScrewem.

Attorney Bulldog contacts you and asks your opinion on whether California law would permit him to sue Adjustor McScrewem individually and whether he has grounds to remand the case back to state court where he prefers to litigate his bad faith cases.

Adjustors Can Have Individual Liability Arising from the Handling of Claims

Insurance companies and their “agents and employees” may commit an independent tort while handling claims such as misrepresentation or deceit, invasion of privacy, intentional infliction of emotional distress, etc.  (Bock v. Hansen (2014) 225 Cal.App.4th, 215, 228.)  When such occasions occur, the agents and employees of insurance companies handling the claims can be held personally liable even though they are not parties to the insurance contract.  (Id.

The legal duty imposed upon adjustors handling claims arises from the special relationship that exists between the insurance company (the adjustor’s employer) and the insured.  (Bock v. Hansen, supra, 225 Cal.App.4that p. 229; see also, Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, 1150-1151.)  Therefore, Adjustor McScrewem owes a duty of care to Sweet Mary and the general law of negligent misrepresentation would apply.  Under California law, California courts have recognized the cause of action for negligent misrepresentation, which is a duty to communicate accurate information.  The courts recognize that duty in two circumstances.  The first circumstance arises when providing false information will pose a risk of harm and actually results in physical harm to person or property.  The second circumstance arises when the information is conveyed in a commercial setting for a business purpose.  (Bock v. Hansen, supra, 225 Cal.App.4th at p. 229.)  Here, both circumstances arose.  Sweet Mary was injured because of the misrepresentation by Adjustor McScrewem that the Allsnake policy did not cover the loss, which was untrue.  In addition, the misrepresentation occurred during a commercial setting for the business purpose of Allsnake Insurance Company. 

Attorney Bulldog is concerned about whether Adjustor McScrewem can be held personally liable for his own torts if Allsnake is also vicariously liable for his conduct.  You explain “an agent or employee is always liable his or her own torts, whether the principal is liable or not, and in spite of the fact that the agent acts in accordance with the principal’s directions.  [citations] [¶]  Similarly, an agent who commits an independent tort, such as fraud, remains liable despite the fact that the principal, by ratification, also becomes liable.”  (3 Witkin, Summary of Calif. Law (10th Ed. 2005) Agency & Employment, § 199, p. 252.)

California courts have recognized that only a small percentage of policyholders actually read and become knowledgeable about their insurance policies.  The language in the policies is prepared by experts of the insurance companies, contain highly technical language, and are both complicated and voluminous with numerous conditions and stipulations that pose traps for the unwary.  (Bock v. Hansen, supra,225 Cal.App.4th at 231.)  Therefore, “absent some notice or warning, [Sweet Mary] should be able to rely on an agent’s representations of coverage without independently verifying the accuracy of those representations by examining the relevant provisions.”  (Bock v. Hansen, supra,225 Cal.App.4th at 231-232.)

A cause of action for intentional infliction of emotional distress (IIED) has also been recognized as a basis to sue an adjustor individually where the cause of action has been adequately pled.  (Bock v. Hansen, supra,225 Cal.App.4th at 232-236.) 

You explain to Attorney Bulldog that case law has held that an adjustor cannot be sued for breach of the implied covenant of good faith and fair dealing or breach of contract because they are not parties to the contract.  (See Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 576; Cooper v. Equity Gen. Ins. (1990) 219 Cal.App.3d 1252, 1258-1260.)  However, the adjustor can be sued for IIED, misrepresentation, or other types of individual torts.

Motion for Remand Should Be Successful

The burden of establishing federal jurisdiction is placed upon the party seeking removal, and the removal statute is strictly construed against removal jurisdiction.  (Peak v. Progressive Select Ins. Co., 2017 WL 5479440 at p. 2.)  Diversity jurisdiction in civil actions exist where the matter in controversy exceeds $75,000, exclusive of interest and costs, and is between citizens of different states.  (Id.)  Proper jurisdiction under 28 U.S.C. § 1332(a) requires complete diversity of citizenship, so each plaintiff must be diverse from each defendant.  (Id.)

Removal based upon diversity jurisdiction is proper despite a non-diverse defendant where the non-diverse defendant is fraudulently joined or constitutes a sham defendant.  (See Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996).)  In the Ninth Circuit, a non-diverse defendant is deemed fraudulently joined or constitutes a sham defendant if, after all disputed questions of fact and all ambiguities in the controlling state law are resolved in the plaintiff’s favor, the plaintiff cannot state a cause of action against the non-diverse defendant according to the settled law of the state.  (Peak v. Progressive Select Ins. Co., 2017 WL 5479440 at p. 2.)

For Allsnake to prove that Adjustor McScrewem was a sham defendant, Adjustor McScrewem must establish that he cannot be held liable under any theory.  (Ibid. at p. 3.)  To meet that burden, Allsnake and Adjustor McScrewem must prove fraudulent joinder by “clear and convincing evidence.”  (Id.)  Fraudulent joinder claims may be resolved by “piercing the pleadings” and the court may consider affidavits and deposition testimony in ruling upon such motions.  (Id.)  However, the courts must resolve all doubts against removal and all material ambiguities in the state law in the plaintiff’s favor.  (Id.

Since California recognizes that an adjustor can be held individually liable for misrepresentation, intentional infliction of emotional distress, or other independent torts arising out of the mishandling of the claim, Adjustor McScrewem will be deemed a properly named defendant under California state law and the federal court will be required to remand the case back to state court.

Conclusion

Many attorneys avoid federal court because they have substantially more experience in state court.  Other attorneys avoid federal court because they have found that federal judges are much more conservative in their rulings, which work to the detriment of their clients.  Whatever the reasons for avoiding federal court, many attorneys face the problem of having their case removed to federal court and seek grounds to have it remanded back to state court.  If you are concerned about the case being removed to federal court, consider suing the adjustor individually based upon an individual tort.  Most insurance companies have local offices where the in-field investigation of the claim is conducted.  Since your client and the individual adjustor reside in California, complete diversity will generally not exist and that would prevent an insurance carrier from removing the case to federal court.  If your case has been removed because you did not name the adjustor and you want to have it remanded, consider filing an amended complaint to name the individual adjustor directly and simultaneously move to remand the case back to state court.  While there is a 30-day deadline to move to remand back to state court (28 U.S.C. § 1447(c), you can still remand back to state court if your amended complaint adding the adjustor is beyond the 30-day deadline because the district court is required to remand the case back to state court at any time before final judgment if the district court lacks subject matter jurisdiction.  (Id.)  The case of Bock v. Hansen (2014) 225 Cal.App.4th 215 provides the legal authority that allows you to sue the handling adjustor for independent torts.  The case of Peak v. Progressive Select Ins. Co. 2017 WL 5479440 relies upon the Bock decision and provides the legal authority to oppose the “sham defendant” argument and to remand the case back to state court.


This article was also published in the Trial Bar News. The APA citation for the Trial Bar News article is as follows:

Copley, R. K. (2018). Adjustor's individual liability. Trial Bar News, 41(7), 23-26.

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