Insurance Company Eats Its Own—Sues Independent Adjusters and Lawyer Who Denied Coverage

Are insurance company claims managers pleased when their independent adjusters and lawyers deny a claim on their behalf? Does it matter if the decision to deny was based on wrong facts because an inadequate investigation was made? A property insurance company filed suit against its claims administrator and its lawyer for wrongfully denying a property insurance claim in Washington.1

This lawsuit follows the policyholder lawsuit, which alleged:

Sirius unreasonably denied the Association’s insurance claim without conducting an intrusive investigation of the hidden damage at the Northgate Plaza Condominium. Pursuant to the IFCA, the Association provided written notice to Sirius on March 5, 2020, which explained why Sirius’ coverage denial was unreasonable. The Association’s IFCA letter explained that, among other deficiencies, Sirius’ denial was unreasonable in that its grounds for denying coverage ignored relevant Washington case law that previously interpreted identical policy provisions in favor of coverage. Sirius failed to timely respond to the Association’s IFCA letter.

Sirius must have agreed with part of those allegations regarding the wrongful denial because it settled the policyholder’s claims and then brought this suit alleging in part:

29. Defendant PRM breached the Agreement with Sirius when it conducted an unreasonable investigation into the Association’s claim by failing to adequately investigate the damage to the Northgate Property when it merely took photographs, failed to attend the follow-up investigation, and denied the Association’s claim based on solely the exterior investigation of the Northgate Property.

30. The Agreement provides that Sirius shall have the right to render a final decision regarding denial of coverage.

31. Defendant PRM breached the Agreement with Sirius when it failed to allow Sirius to render a final decision regarding denial of coverage to the Association.

Please note that the insurance company alleges what we have stated is required for an insurance company to do in good faith—conduct a full investigation of all available facts.

Insurance defense attorneys have obligations to their insurance clients. Regarding the malpractice action, the insurer alleged:

41. Dynan owed a duty to Sirius as Dynan’s services were intended to benefit, through
PRM, Sirius. Dynan owed a duty to comply with the standard of care for attorneys.

42. Dynan breached that duty when it issued the declination letter to the Association without ensuring that such declination was in accordance with applicable statutes and regulations. Dynan’s actions fell below that of a reasonable, careful, and prudent practicing attorney.

I am certain that many readers of this blog will say that the insurance attorney was acting in the most standard way insurance defense attorneys tend to do. The claim was denied without requiring the insurer to conduct a good faith investigation which would have found facts supporting coverage.

Unfortunately, a subsequent Order has sent the dispute between the adjusters and the insurer into arbitration. We will keep readers up to date on any significant developments regarding the remaining malpractice action.

Thought For The Day

Your most unhappy customers are your greatest source of learning.
—Bill Gates
________________________________________________________________
1 Skyward Specialty Ins. Group v. Precision Risk Management, Case No. 3:21-05553 (W.D. Wash. 2022).