Articles & Updates

“Participation Theory” Insufficient to Render Liability Against Insurance Professional

Aug 13, 2021 | Articles & Updates

The Western District of Pennsylvania recently granted an insurer’s motion to dismiss claims asserted against an insurance adjuster after finding that the insured could not maintain breach of contract or bad faith claims against the insurance adjuster. See Alexander v. Mid-Century Ins. Co., 2021 WL 3173621 (W.D. Pa. Jul. 26, 2021).

In Alexander, the insured was injured in a motorcycle accident. After receiving $25,000 in first-party benefits from his motorcycle insurer, the insured, who lived with his parents, sought coverage under his parents’ policy, which provided for stacked UIM policy limits of $400,000. After the insurer did not accept or deny the insured’s request, or make any efforts to resolve the insured’s claim, the insured sued the insurer and the individual insurance adjuster in state court for breach of contract and bad faith. The insurer timely removed the action to federal court on the grounds that it has diversity jurisdiction over the case because the insurance adjuster, a resident of Pennsylvania, was fraudulently joined to defeat diversity jurisdiction. The insurer subsequently moved to dismiss the claims against the insurance adjuster.

In support of its motion, the insurer argued that the insured could not pursue a breach of contract or statutory bad faith action against the insurance adjuster under Pennsylvania law. Because no action could be brought against the insurance adjuster, the insurer argued that diversity jurisdiction was proper. In response, the insured argued that the insurance adjuster should not be dismissed from the action because Pennsylvania law allows an insured to sue an insurance adjuster for breach of contract and statutory bad faith under a “participation theory.”

The court rejected the insured’s “participation theory” argument after finding that the cases cited by the insured did not apply the participation theory to insurance adjusters for breach of contract or bad faith claims. The court held that it is well-established in Pennsylvania that an insured may not maintain a breach of contract action against an insurance adjuster without allegations of a separate contractual relationship between those individuals, which had not been alleged here. The court additionally cited a Pennsylvania Superior Court opinion, which held that a Section 8371 statutory action for bad faith can only be brought against the insurer. The court noted that the insured did not allege that the insurance adjuster was the insurer. Accordingly, the court granted the insurer’s motion to dismiss, and the insurance adjuster was dismissed from the case.