What exactly is insurance?

Seems like an obvious question. Most people you know probably have some kind of insurance—car insurance, health insurance, and life insurance are the big three—so we have a pretty good idea of what insurance does. 

But what does the word insurance actually mean? “Insurance” means a relationship where one party (the insurance company) promises to compensate the second party (you the policyholder) if the policyholder is injured or sustains property damage. In exchange for this service, the policyholder pays a premium (i.e. a monthly cost).

In other words, insurance is a promise. You're paying for a promise. In virtually everything else in life, when we pay for a service, we expect something in return—and we expect it immediately.

But insurance is different. You pay for a service, but you hope you never have to use the service. In that sense, insurance is a pretty radical concept. You're paying for nothing, and you hope it stays that way.

But when something does happen, you hope, expect, and demand that your insurance company comes to the rescue.

Sometimes, however, your insurance company doesn't.

What you can you do? You sue.

This is what happened in Keodalah v. Allstate Insurance Company and Tracey Smith, a Court of Appeals case from March 2018.

You're in good hands with Allstate? Definitely not here

In Keodalah, a man was involved in a collision with a motorcycle in Seattle. Keodalah was stopped at a stop sign when the motorcyclist crashed into him. The motorcyclist died and Keodalah was injured. The motorcyclist did not have insurance.

Keodalah had insurance through Allstate; his policy included uninsured motorist coverage (UIM), which obligates the insurance company to pay for your medical bills, lost wages, and property damages if the at-fault driver does not have insurance.

The Seattle Police Department investigated the accident. Police determined that the motorcyclist was going over 70 mph in a 30 mph zone. They also pulled Keodalah's phone records and confirmed that he wasn't on his cell phone when the collision occurred.

Allstate conducted its own investigation. The company hired its own accident reconstruction firm, which reached three conclusions: (1) the motorcyclist was speeding; (2) Keodalah had stopped at the stop sign; (3) the motorcyclist's speed caused the collision. 

Keodalah demanded that Allstate pay the $25,000 limit on his UIM policy. Clearly, Allstate would pay. This was a no brainer, right?

Wrong. Allstate refused to pay. Inexplicably, Allstate claimed that Keodalah was 70 percent at fault for the collision, and offered a reduced settlement.

Not surprisingly, Keodalah sued Allstate, asserting coverage for the full UIM policy limit of $25,000. Allstate's adjuster (Smith) claimed during litigation that Keodalah had run the stop sign and had been on his cell phone, despite all evidence to the contrary. Even more strangely, Smith later admitted that neither of these things was true.

Not surprisingly, a jury determined that the motorcyclist was 100 percent at fault and awarded him over $100,000.

Not surprisingly, Keodalah was pretty angry with Allstate for dragging him through a trial. He sued Allstate a second time and also sued Smith personally. In this second lawsuit, he argued that Allstate and Smith had acted in bad faith for refusing to pay, and demanded additional damages.

Smith argued that she couldn't be sued because she worked for Allstate and she was merely acting in the scope of her employment. The case wound up in the Court of Appeals.

Yes, you can sue your insurance adjuster for acting in bad faith

The Court made four important rulings:

1. Under Washington law, an insured can assert a bad faith insurance claim against any “person” engaged in the business of insurance.
2. Every person engaged in the business of insurance has a duty to act in “good faith.” (Good faith is   lawyer-speak for acting fairly).
3. Smith was clearly engaged in the business of insurance because she was acting as Allstate's representative. Therefore, Keodalah had the right to sue both Allstate and Smith for bad faith.
4. An insured can also sue his insurance adjuster under the Consumer Protection Act. Under the CPA, a party can be sued for engaging in unfair or deceptive business practices (clearly in this case). There doesn't even have to be a contractual relationship between the plaintiff and defendant. That is why Keodalah could bring a CPA claim against both Allstate (where there was a contract) and Smith (where there wasn't).

You can read the Court of Appeals' full opinion in Keodalah v. Allstate Insurance Company here.