THIRD PARTY CLAIMS ADJUSTERS ARE NOT SUBJECT TO BAD FAITH CLAIMS
In De Dios, Iowa’s Supreme Court was asked if a third party claims adjuster that was retained by a self-insured company could be liable for bad faith. The Supreme Court ruled that the third party claims adjuster was not subject to a bad faith claim, the self-insured company was and could be held accountable for the adjusters’ actions.
The Supreme Court of Iowa ultimately ruled this way because they found no contractual or statutory duty between the third party claims adjuster and the claimant. Liability for bad faith arises out of three types of relationships: (1) a contractual relationship between insurer/insured, (2) a statutorily imposed duty, or (3) some combination of the two. Insurance companies do not have an insurer/insured relationship with claimant; Insurance companies are liable for bad faith under Iowa’s workers compensation statute. A third party claims adjuster is something else entirely, according to the Court.
When a company is big enough they may be allowed to become self-insured. In order to qualify for this special status special status, companies need to meet rigorous financial requirements and are subject to the ongoing supervision of the workers’ compensation commissioner. If a company meets all of these requirements they become self-insured and normally contract out the workers compensation claims process to a third party adjusters.
Iowa’s Supreme Court found that there is no insurer/insured relationship between the third party adjuster and the claimant; unlike the company itself, there is no rigorous financial requirements a third party adjuster must meet; and third party claims adjusters are not subject to the ongoing supervision of the workers compensation commissioner. The Court also pointed to some legislative history of distinguishing between a regular insurance company and a third party adjuster. All of these reasons led the Supreme Court of Iowa to find that there is no statutorily imposed liability for bad faith on third party claims adjusters.
The Court noted that even though third party claims adjusters were not subject to bad faith liability, the self-insured companies that hired them could be for the actions of their third party claims adjuster. The Court found that a company was liable for the bad faith denial of a claim because: (1) there is a fiduciary relationship between the third party claims adjuster and the self-insured company, and (2) the company had a statutorily imposed duty that subjected it to bad faith claims.
Other states like Colorado recognize a bad faith claim against third party adjusters, but Iowa Supreme Court distinguished itself from those states by arguing that Colorado imposed that liability based on a Colorado statute; Iowa does not as of yet have such a statute.
There are two big take always from De Dios for Iowans. First, is that self-insured companies are liable for the bad faith of their claims adjusters. The second is that while a third party claims adjuster is not liable for a claim of bad faith brought by the claimant for now, the Iowa legislature could easily change that in the future.