As is acknowledged in the following case, the federal courts are mixed as to their rulings on the timing of when an insurance company adjuster is sued and how that affects diversity cases.
This case is from the Western District of Texas, San Antonio Division. It is styled, Bexar Diversified MF-1, LLC v. General Star Indemnity Company, Paul R. White And Company Inc.
Bexar had an insurance policy with General Star. Bexar suffered a weather related loss and reported it to General Star. General Star assigned White, a company, to adjust the claim. Bexar was dissatisfied with the way the claim was handled and sued General Star and White in state court for violations of the Texas Insurance Code, Sections 541 and 542.
General Star removed the case to federal court based on diversity jurisdiction. General Star is an out of state defendant. White is an in state defendant. At the time of removal, General Star invoked Texas Insurance Code, Section 542A.006 by accepting liability for White.
Here is how this court analyzed and ruled in this case.
General Star elected to accept whatever liability White has to Plaintiff for White’s acts or omissions related to the claim in its Notice of Removal. Under Section 542A.006, this election is irrevocable and requires the dismissal of the action against White. Because General Star’s election establishes no possibility of recovery by Plaintiff against White at the time of removal, White is an improperly joined party and the Court will disregard its citizenship for the purposes of diversity jurisdiction. With only Plaintiff (a citizen of Texas)and General Star (a citizen of Delaware and Connecticut) remaining in this case, complete diversity of citizenship exists, and this Court may exercise subject matter jurisdiction over this case. Plaintiff asserts five arguments why the Court should not reach this conclusion, which are addressed in turn below.
Plaintiff first argues that General Star’s election does not meet the requirements of Chapter 542A because White is not an“agent” as defined by statute. Section 542A.006 provides that an insurer “may elect to accept whatever liability an agent might have.” In Section 542A.001, “Agent” is defined as “an employee,agent, representative, or adjuster who performs any act on behalf of an insurer.” Plaintiff argues that White is “not an individual but an incorporated entity.” But Chapter 542A does not require an agent to be an “individual.” There is no reason a business entity cannot bean “agent, representative, or adjuster who performs any act on behalf of an insurer.” Section 542A.001 also defines “person”to include “a corporation, association, partnership, or other legal entity or individual.”
Next, Plaintiff argues that General Star failed to move the state court to dismiss White, and because White has not yet been dismissed “diversity currently exists.” Neither Chapter 542A nor the Fifth Circuit’s improper joinder doctrine require a removing party to first move to dismiss a non-diverse defendant. We find no reason to impose such a procedural hurdle now. And, as General Star points out, requiring a defendant-insurer who has made an election to first achieve dismissal of the non-diverse defendant in state court could make it impossible for that defendant to timely remove under the 30-day deadline imposed by 28 U.S.C. Section 1446(b).
Plaintiff next asserts that the voluntary-involuntary rule bars removal of this matter. It is well-established law that improper joinder is an exception to the voluntary-involuntary rule.
Plaintiff argues that General Star has not met its burden to prove improper joinder because it relied exclusively on its Section 542A.006 election to establish diversity. But, as explained above, this Court follows the rule that an insurer’s election that renders it impossible for a plaintiff to recover against a non-diverse defendant at the time of removal is sufficient to establish improper joinder.
Finally, Plaintiff rehashes its allegations against White and argues these are “sufficiently pled, valid causes of action under Texas law.” The Court need not examine the merits of these causes of action, because General Star’s election requires the dismissal of these claims against White. Whether Plaintiff’s claims against White would otherwise survive a 12(b)(6)-type analysis in the absence of General Star’s election is not currently before this Court. Plaintiff also attempts to distinguish the present case from this Court’s decision in Flores, arguing that decision was “based on the fact that, prior to removal, the Defendant had elected responsibility for the adjuster and successfully sought a dismissal in state court” whereas here, General Star did not file or obtain a dismissal prior to filing its removal. Contrary to Plaintiff’s assertion, Flores did not depend on the defendant seeking or obtaining dismissal before removal. As discussed at length above, the improper joinder doctrine does not require General Star to seek dismissal before removal, but only requires that it meets its burden of demonstrating the inability of Plaintiff to establish a cause of action against non-diverse White.
Bexar’s motion to remand was denied.