Hail Claims – Removal To Federal Court

Mansfield attorneys handling hail damage claims can tell you that the insurance companies are always trying to have lawsuits in Federal Court rather than State Court. Here is another opinion on that issue from the US Court, Northern District, Dallas Division. The style of this case is Ocotillo Real Estate Investments I, LLC, v. Lexington Insurance Company, et al.
This action arises from an insurance claim Ocotillo submitted to Tudor Insurance and Lexington Insurance Company regarding property loss from hail. Ocotillo filed suit against Defendants in state court. Ocotillo alleged claims for violations of the Texas Insurance Code, violations of the Texas Deceptive Trade Practices Act, breach of contract, and negligence. The carriers removed the state court action to Federal Court. Ocotillo moved to remand.
A defendant may remove a state court action to federal court if he establishes the federal court’s original jurisdiction over the action. It is the defendant’s burden to establish the existence of federal jurisdiction. Thus, to remove a case, a defendant must show that the action either arises under federal law or satisfies the requirements of diversity under 28 U.S.C. § 1441(b). Because removal raises significant federalism concerns, the removal statute is strictly construed and any doubt as to the propriety of removal should be resolved in favor of remand. A district court must remand a case if, at any time before final judgment, it appears that the court lacks subject matter jurisdiction. 28 U.S.C. § 1447(c).
As a general matter, a federal court must remand a removed case where, as here, one of the defendants is a citizen of the State in which the action is brought. Such a case may remain in federal court, however, if the defendant shows the plaintiff improperly joined the in-state defendant. The Fifth Circuit recognizes two ways to establish improper joinder:
(1) actual fraud in the pleading of jurisdictional facts, or
(2) inability of the plaintiff to establish a cause of action against the non-diverse party in state court.
Where the defendant alleges the latter, he must demonstrate that there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant.
The Defendants argue that Ocotillo improperly joined Defendants Bigham-Kliewer Insurance Agency, Inc. and Carrie K. Hensley (collectively, “Agent Defendants”), both citizens of Texas, to prevent removal. In its complaint, Ocotillo asserted claims against Agent Defendants for violation of the Texas Deceptive Trade Practices Act (the “DTPA”) and negligence. Carrier Defendants argue that, because these claims are subject to a two-year statute of limitations, they are time barred and Ocotillo cannot establish a cause of action against Agent Defendants. The Court agreed.
Under Texas law, negligence and DTPA actions are subject to a two-year statute of limitations. As a general rule, a cause of action accrues and the statute of limitations begins to run when facts come into existence that authorize a party to seek a judicial remedy. When a cause of action accrues is normally a question of law. When insurance benefits are the subject of any of the extra-contractual claims at bar, the statute of limitations begins to run when the insurer denies the claim for those benefits.
On March 1, 2012, Lexington’s third-party claim administrator notified Ocotillo that “Lexington Insurance Company has concluded that the hail damage observed occurred prior to their policy period and they have advised us that they must respectfully deny coverage for your claim at this time.” On March 19, 2012, Tudor sent Ocotillo a letter notifying Ocotillo that Tudor had completed its investigation of the claim and “must deny coverage . . . .” These letters communicated an unequivocal decision to deny coverage. Upon receipt of the denial letters, Ocotillo had enough information to enable it to go to court and seek a judicial remedy. Thus, the causes of action against Agent Defendants accrued in March 2012.
Having determined when Ocotillo’s cause of action against the Agent Defendants accrued, the Court turned to whether Carrier Defendants’ subsequent conduct somehow affected accrual.
First, Ocotillo maintains that because Carrier Defendants were reassessing the insurance claim as late as 2013, its claims are not time barred. Courts have explicitly rejected this argument. As one court has aptly noted, under such an interpretation of the law “an insurer faced with a request for reconsideration of a denial of coverage would be put to the choice between refusing it outright, thereby risking a bad faith claim, or considering the request and restarting the limitations period.
Second, Ocotillo argues that its claim did not accrue until it knew of the details surrounding the denial, which it maintains did not occur until it received a meteorology report that “clearly laid out the position for denial of Plaintiff’s claim” or until Carrier Defendants “refused to admit liability during mediation.” However, Ocotillo did not need to have every piece of information regarding the denial to know that it suffered injury. The law is clear once the insured knows that the insurer has not paid the claim, the insured has sufficient facts to seek a judicial remedy. Ocotillo provided no support for its argument that it somehow needed to know every detail surrounding the denial before it could pursue a judicial remedy. Accordingly, the Court determined that neither the receipt of the meteorology report nor the Carrier Defendants’ conduct during mediation had an effect on when the claims against the Agent Defendants accrued. Third, Ocotillo maintained that by asserting claims for additional payments, it reset the statute-of-limitations clock. Ocotillo maintained that, because it sent a letter notifying Carrier Defendants of additional damages to its gutters, doors, and trim in July 2014, the statue of limitations restarts as of that date. The Court noted that Ocotillo’s letter maintained that the insurance adjustors already had this information and that it was “reaffirming that portion of the claim.” Even assuming this information is appropriately categorized as a claim for additional payments, the Court determined that Ocotillo’s submission did not affect the accrual date. Here, there is no indication that Carrier Defendants reconsidered their unequivocal denials. Ocotillo’s July 2014 letter did not reset the statute of limitations.
Because the statute of limitations bared Ocotillo’s claims against Agent Defendants, Ocotillo cannot establish a cause of action against them. Applying the doctrine of improper joinder, the Court did not consider the citizenship of the Agent Defendants in determining whether remand is proper. Because there was diversity jurisdiction and the in-state defendant barrier did not apply, the case was properly removed and the Court denied the motion to remand.