Insurance Law Alert: California Appeals Court Allows Joinder of Employee Adjuster to Bad Faith Lawsuit Against Homeowners Insurer

In Bock v. Hansen (No. A136567, filed 4/2/14), a California appeals court held that an adjuster employed by an insurer can be sued personally for falsely representing that a first party claimant’s policy does not cover a loss.

In Bock, a 41-foot long, 7,300 pound tree limb crashed onto the insureds’ home, damaging the roof, chimney, living room walls, windows and floors. The assigned adjuster was alleged to have engaged in “appalling” conduct, including instructing the insureds to clean up the damage themselves (leading to personal injury); denying that the tree cracked the chimney; insulting and disparaging the insureds; altering the scene before taking photographs; misrepresenting the terms of the policy; preparing false claim reports; conspiring with a contractor to prepare an intentionally false report; and knowingly relying on the false report in order to deny a legitimate claim.

The homeowners sued the insurer and named the adjuster personally on causes of action for negligent misrepresentation and intentional infliction of emotional distress. But the adjuster demurred arguing that he could not be sued personally because, as an employee of the insurer, he owed no duty to the insureds. The adjuster relied on Sanchez v. Lindsey Morden Claims Services, Inc. (1999) 72 Cal.App.4th 249 and Lippert v. Bailey (1966) 241 Cal.App.2d 376, to argue that employees and agents of insurers cannot be held personally liable since, under the law of agency, the proper cause of action is against the principal and not the agent.

The appeals court found those cases distinguishable. Lippert involved broker-agents and underwriting issues, not claim handling. Sanchez was based on allegations of pure negligence which the Bock court distinguished from negligent misrepresentation as a species of fraud, saying that the elements of the tort are different, and public policy requires a different result from simple negligence.

The Bock court cited numerous authorities holding that insurers’ agents or employees can be held personally liable for independent torts such as misrepresentation or deceit, invasion of privacy or intentional infliction of emotional distress, even though they are not parties to the insurance contract. The court relied on Vu v. Prudential Property & Casualty Ins. Co. (2001) 26 Cal.4th 1142, for the principle that an insurer and its insureds are in a special relationship, based on unequal bargaining power, that carries special and heightened duties. The Bock court held that the adjuster, as an employee of the party in the special relationship, also has a duty to the insureds.

The Bock court also said that, independent from the special relationship, a cause of action for negligent misrepresentation can lie against an insurance adjuster based on the general duty to communicate accurate information if it can lead to personal injury or is conveyed for business purposes in a commercial setting.

Holding that a cause of action for negligent misrepresentation can lie against an employee insurance adjuster, the Bock court found that a claim had been adequately alleged in that the adjuster allegedly told the insureds, falsely, that their policy did not cover the cost of clean up; that he either knew the representation was false when he made it, or he made it with reckless disregard of its truth; and that the insureds relied on the false statements to their detriment.

The Bock court also held that a claim of intentional infliction of emotional distress can be stated against an employee adjuster, but that the case, as alleged, did not involve sufficiently outrageous conduct. The Bock court distinguished Younan v. Equifax Inc. (1980) 111 Cal.App.3d 498, where the insured could not provide for his family, and Little v. Stuyvesant Life Ins. Co. (1977) 67 Cal.App.3d 451, where the insured was forced to sell her house, as involving more outrageous conduct. The Bock court, however, held that it was possible that the insureds might amend their complaint to plead sufficiently outrageous conduct, and remanded the case with an instruction that they be permitted to do so.

This document is intended to provide you with general information about insurance law developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

March 4, 2014