Should Texas Insurers Revisit Removal in Bad Faith Cases?
In order to destroy diversity jurisdiction in bad faith cases, insureds routinely join non-diverse insurance adjusters or agents as co-defendants, thus discouraging insurers from removing these cases to federal court. Recent decisions from Texas federal courts analyzing the improper joinder of insurance adjusters, however, suggest insurers should revisit the issue of whether to seek removal, or remain in state court.
Of course, federal courts lack jurisdiction over an action in which any party “has been improperly or collusively made or joined to invoke the jurisdiction of such court.” 28 U.S.C. § 1359. Insurers in Texas and elsewhere in the Fifth Circuit can establish improper joinder by showing “(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.”[1]
Thus, when an insurance adjuster or agent is alleged to have been improperly joined, Texas courts will not remand the matter to state court unless the plaintiff can establish a cause of action against the non-diverse adjuster or agent.
Recently, in One Way Investments, Inc. v. Century Surety Company, the Northern District of Texas found that “defendants have met their heavy burden of demonstrating that [the adjuster] has been improperly joined” where plaintiff pleaded conclusory allegations that could not establish liability on the part of the adjuster under the Texas Insurance Code.[2]
Other Texas federal courts have similarly found an insurance adjuster was improperly joined where the plaintiff included conclusory allegations that did not support any claim against the adjuster and failed to differentiate between the alleged actions of the insurer and the alleged actions of the adjuster.[3]
On the other hand, where a plaintiff pleads more specific allegations, supporting a cause of action against the insurance adjuster, Texas federal courts may find the adjuster was in fact properly joined.[4]
Under this growing body of case law, where an insurance dispute involves an adjuster that destroys diversity of citizenship, Fifth Circuit practitioners should look closely at the petition to determine whether the case involves improper joinder. In particular, are there specific allegations against the adjuster that are separate and apart from the allegations against the insurer? Are those separate allegations against the adjuster actionable under the Texas Insurance Code or other applicable law? If the answer to both of these questions is no, the defendant insurer should consider removal (and avoid remand) if it can be argued that the insurance adjuster was improperly joined.
[1] Messersmith v. Nationwide Mutual Fire Ins. Co., 10 F. Supp. 3d 721 (N.D. Tex. 2014).
[2] One Way Investments, Inc. v. Century Sur. Co., 3:14-CV-2839-D, 2014 WL 6991277, at *1 (N.D. Tex. Dec. 11, 2014).
[3] Messersmith v. Nationwide Mutual Fire Ins. Co., 10 F. Supp. 3d 721 (N.D. Tex. 2014); Holmes v. Acceptance Casualty Insurance Co., 942 F. Supp. 2d 637 (E.D. Tex. 2013).
[4] E.g., Esteban v. State Farm Lloyds, 23 F. Supp. 3d 723 (N.D. Tex. 2014).