Adjuster’s Only Duty To Insurer And Not To Insured Manufacturer Following Workplace Incident

An employee of a staffing agency was critically injured while working at an assembly plant when he was pulled into a laser cutting machine.  The worker brought suit against the plant owner (the “Insured”).  The Insured forwarded the complaint to its Insurer.  The Insurer then assigned the task of handling the complaint to its Adjuster.  The Adjuster notified the Insured that it had received the complaint and despite several assurances by the Adjuster that it was handling the claim, the Adjuster did not retain counsel to defend the Insured against the worker’s claims.  On the same day an Indiana state court issued a default judgment against the Insured, the Adjuster sent the Insured an email stating, “Sincere apologies for any miscommunication in the past regarding the assignment of defense counsel.  Please note that [Insured] will need to retain its own defense attorney to represent you in this matter for as explained the [Insurer] does not appear to cover this loss.”  Several weeks later, the Insured and the worker settled whereby the Insured assigned all of its claims against the Insurer and the Adjuster to the worker and the worker agreed not to seek execution of any judgment against the Insured’s assets for any portion of the judgment.  Following an evidentiary hearing, the state court entered a final judgment of $3.86 million in favor of the worker against the Insured.

The Insurer then filed a declaratory judgment action in Indiana federal court seeking a declaration that it had no duty to indemnify the Insured.  The following day, the worker (as assignee of the claims held by the Insured) filed a complaint against the Insurer for breach of contract, bad faith, and negligence, and the Adjuster for negligence.  The district court granted the Adjuster’s motion to dismiss the claims against it and yesterday, the Seventh Circuit affirmed that dismissal.  The Seventh Circuit explained that the Adjuster’s only duty was to the Insurer and that the Adjuster owed no duty to the Insured as a matter of Indiana law (and noted that this outcome would be the same in most jurisdictions).