Imagine that a policyholder makes a claim under a policy following an accident. A claims professional, an insurance company employee, then begins to handle the claim. The insured becomes disenchanted with the handling of the claim and a coverage and bad faith lawsuit is filed. Could the insured bring a negligence or consumer fraud claim directly against the claims professional? According to Judge O’Neill of the United States District Court, Eastern District of Pennsylvania (i.e. Philadelphia), the answer is “yes”.

In Kennedy v. Allstate, et al., Rachel Kennedy was injured in a car accident. Rachel Kennedy and her husband, Sean Kennedy, had an underinsured motor policy with Allstate Property and Casualty Insurance (“Allstate”). After settling with the tortfeasor, the Kennedys made a UIM claim under their Allstate policy. When they were unhappy with the results of that claim, the Kennedys instituted suit, in state court, against Allstate as well the Allstate claims professionals working on their claim. The Kennedys claimed, inter alia, that Allstate had improperly evaluated their claims and engaged in intentional delay, misrepresentation and fraud in the course of processing, investigating and arbitrating their claims. In respect of the Allstate adjusters handling their claims, the Kennedys alleged that the adjusters affirmatively misrepresented and concealed material facts so as to delay settling the Kennedys’ claims and to reduce the amount of money Allstate would ultimately have to pay for their claims. As a result, the Kennedys brought a negligence and consumer fraud claim personally against the Allstate adjusters.

In response to the Kennedys’ lawsuit, Allstate removed the case to federal court. Allstate claimed that the Kennedys had fraudulently joined the Allstate adjusters to defeat federal diversity jurisdiction and keep the case in state court; in other words, Allstate claimed that PA does not allow for insurance company employees to be personally sued for their claims decisions.

The Kennedys filed a motion to remand and Judge O’Neill was asked to decide whether the joinder of non-diverse defendants (i.e. the insurance company employees) was “fraudulent” (and designed only to defeat federal diversity jurisdiction) as there was no reasonable or legal basis to support the claims against them. Judge O’Neill ultimately ruled that the joinder was not fraudulent as a viable cause of action existed and thus remanded the case to state court.

In his opinion, Judge O’Neill concluded that there was at least “a possibility” that, under Pennsylvania law, an insurance claims professional owes a duty of care to an insured. If that duty was breached, if, for example, the adjuster failed to reasonably investigate an insured’s claims and/or made misrepresentations regarding the status of the investigation into the insured’s claims, a negligence claim could be filed.

Next, in respect of the viability of an insured bringing a consumer fraud claim against a claims professional (which opens the door to punitive or statutory damages), Judge O’Neill concluded that Pennsylvania allows consumer fraud claims directly against an insurance company’s employees.

While it is important to recognize that Judge O’Neil’s decision only dealt with the threshold issue of whether a colorable claim existed, the case will no doubt be seized upon by policyholder counsel. We fully expect to see an onslaught of claims in which both insurer and insurance professional are named as defendants. As if a claims job was not challenging enough…

Special thanks to Colleen Hayes for her contributions to this post. For more information about it, please e-mail Bob Cosgrove .