Allstate adjuster practiced as an attorney, Washington Supreme Court rules.

An insurance adjuster acting as a lawyer must be held to practicing-attorney standards, the Washington Supreme Court recently ruled. (Jones v. Allstate Ins. Co., 45 P.3d 1068 (Wash. 2002).) The court said an Allstate claims adjuster was practicing as an attorney and failed to meet the standard of care when she advised a couple to sign a settlement and release without warning them of the legal consequences or advising them to hire a lawyer.

Since the 1990s, when Allstate adopted a Claims Core Process Redesign manual that encourages adjusters to offer to represent third-party crash victims in settling personal injury claims against its insureds, the company has encouraged this practice, according to John Budlong, a Seattle plaintiff attorney. The manual states: "Our communications with claimants should reinforce our central theme that claimants do not need attorneys to receive fair treatment or a fair settlement." (See John Budlong, Domino Strategy, TRIAL, June 2001, at 20.)

The company trains its adjusters to establish "empathetic, trust-based relationships" with claimants and to "act as an advocate" so that they will not hire lawyers. Then, when trust is established, the adjuster recommends an undervalued settlement, said Budlong.

In this case, Janet Jones was severely injured when teenage driver Jeremy France ran a stop sign and broadsided her Chrysler Plymouth Voyager minivan. She was hospitalized for 24 days, and her medical bills exceeded $100,000.

France was insured by Allstate under a $25,000 liability policy. An adjuster contacted Jones and her husband three days after the collision and worked closely with them to resolve the claim, without disclosing the conflict of interest generated by her representing them as third parties against the company's own insured. After several months, Allstate sent a check for $25,000, accompanied by a form requiring a full release of all bodily injury claims and all claims against all legally responsible parties.

The Allstate adjuster told the Joneses that the $25,000 policy limit was all the money available. She advised them to sign the release, without explaining the legal or economic consequences of settling: that they would not be able to obtain full compensation from France's parents under vicarious liability or from Chrysler for a potential seat belt defect under joint and several liability.

Janet Jones signed and deposited the check but didn't sign the release. When the Joneses learned that the broad release would preclude their suing the car manufacturer for products liability, they tried to return the check, but Allstate wouldn't accept it and said their file was closed.

Trial court Judge Philip Hubbard found that Allstate had engaged in the unauthorized practice of law and breached its fiduciary duty by representing third-party claimants. He reasoned that adjusters can avoid unauthorized practice when they maintain a plainly adversarial posture between themselves and the person they are working with, but in this case the adjuster did not. She was found negligent in advising the Joneses to sign the release without discussing the consequences.

Allstate "radically altered its approach to the business of claims [by] mimicking an attorney-client relationship" with third-party claimants, Hubbard wrote. He invalidated the settlement.

The state supreme court affirmed on appeal. Because no injunctive relief was requested, it declined to rule on whether the adjuster's actions constituted the unauthorized practice of law. It did state that "Allstate's employees who prepare legal documents and give advice affecting legal rights should be held to the standard of care of practicing attorneys."

"Allstate's claims adjuster here fell below that standard," wrote Judge Bobbe Bridge. The court found that the adjuster developed a nonadversarial relationship with an unrepresented claimant and breached her fiduciary duty. "The essence of the duty owed in this circumstance is that of an attorney to an unrepresented third party," Bridge wrote.

The decision is "a great victory for people who have been victims of Allstate's deceptive business practices and people who have entered into lowball settlement agreements because of them," said Budlong. "It may also help plaintiffs since the court recognized that Allstate had a duty. In other states, insurance companies don't owe any duty to an unrepresented claimant except not to engage in outright fraud."

The remaining claims for bad faith, civil fraud, and consumer protection act violations were remanded to the trial court.