Fraudulent Joinder of Lawyer Results In Denial of Remand Motion In Texas Bad Faith Case

discovery

SAN ANTONIO, October 21  — A federal judge denied a motion to remand a breach of contract and bad faith lawsuit to state court, finding that the joinder of the attorney who represented the insureds in the underlying tort action  was not proper.

In Amanda Montoya, et al. v. State Farm Mutual Automobile Insurance Co., et al., No. 16-00005, W.D. Texas; 2016 U.S. Dist. LEXIS 141322), U.S. District Judge Royce C. Lamberth held that the joinder of  a lawyer retained by State Farm Insurance Company to represent their insured, Andrew Acosta,  did not defeat federal diversity jurisdiction.

Amanda and Deandra Montoya were injured in an automobile accident when their car was hit by Acosta.  Acosta and a passenger in his vehicle were killed.  State Farm Mutual Automobile Insurance Co. insured Acosta under a policy with limits of of $25,000 per person and $50,000 per accident.  State Farm retained a lawyer, Jeff B. Frey, to represent Acosta’s estate.

Acosta’s lawyer settled for the policy limits with injured passengers, leaving the Montoyas with no access to the policy limits.  The Montoyas sued the Acosta estate in Bexar County, Texas, and obtained a verdict and judgment of $542,933.67.  The Montoyas took an assignment from the Acosta estate, and then sued State Farm, and the lawyer they retained, Frey, in state court for breach of contract and bad faith, as well as alleged breaches of the Texas Insurance Code and the Texas Deceptive Trade Practices Act (DTPA). The Montoyas claimed Frey improperly settled the case with the passengers, and that he acted as a claims adjuster in doing so, naming him as a defendant in the bad faith and breach of contract case.

State Farm removed the case to the U.S. District Court for the Western District of Texas on the basis of diversity jurisdiction, and argued that Frey’s Texas’ citizenship did not defeat diversity because Frey was improperly joined.

The Montoyas filed a remand motion which was denied by Judge Lamberth, who held that Frey could not be a proper defendant as an “insurance adjuster”:

“the Montoyas articulated no facts in their original petition that Mr. Frey himself had the authority to finalize a settlement himself… Instead, they merely state that Mr. Frey was hired to ‘evaluate, negotiate, and/or finalize the multiple settlements arising out of the collision,’ and that ‘State Farm and their agent Jeff B. Frey proceeded with finalizing settlements without the knowledge of, and to the detriment of, Plaintiffs.’  Thus, the Montoyas failed to allege that Mr. Frey had the authority to settle these claims himself, and this Court need not decide whether an attorney appointed to represent an insured is analogous to an adjuster under the Texas Insurance Code.  Even if he is, there is no liability under Section 541.060(a)(2) absent the authority to settle.  Since Mr. Frey did not have authority to settle, there is no reasonable basis to predict the Montoyas might be able to recover against Mr. Frey for violations of Section 541.060(a)(2).”

The judge also ruled that there were no allegations made against Frey regarding misrepresentation of the policy:

“[t]here are no factual allegations against Mr. Frey for misrepresentations of the policy; the only allegations made against him concern his role in evaluating and settling claims. . . The Montoyas now suggest that the single reference to State Farm in the petition is sufficient to maintain a cause of action against Mr. Frey as State Farm’s agent.  But ‘threadbare recitals of the elements of a cause of action, supported by mere conclusory statements’ do not satisfy Rule 12(b)(6).  The conclusory statement that State Farm was liable under § 541.061 was unsupported by any factual allegations against Mr. Frey specifically.  Thus, the Montoyas have not even stated a claim against Mr. Frey under § 541.061.”

 Amanda Montoya, et al. v. State Farm Mutual Automobile Insurance Co., et al., No. 16-00005, W.D. Texas; 2016 U.S. Dist. LEXIS 141322

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Florida: Policyholder Can Assign Benefits Without Insurer Consent

FLORIDA, Feb. 5 – An intermediate state appeals court in Florida has ruled that the policyholder can assign the right to post loss benefits to third parties without insurer consent.  In Bioscience W., Inc. v. Gulfstream Prop. & Cas. Ins. Co., 2016 Fla. App. LEXIS 1548 (2nd Dist. 2016), a unanimous three-judge panel held that the homeowner/insured could assign post loss benefits to Bioscience W., reversing a summary judgment entered for Gulfstream by the trial court.

In Bioscience the homeowner-insured, Gattus, engaged Bioscience, an emergency water mitigation company, to provide cleanup services after a water loss her home.  As part of Gattus’ arrangement with Bioscience she assigned all loss-related policy benefits to them as compensation.  Following the loss, and the assignment, Gattus made a claim under her property insurance policy with Gulfstream.

Gulfstream denied the claim as an uncovered loss, and Bioscience subsequently filed suit against Gulfstream for breach of the policy.  Gulfstream sought dismissal, and the  trial court granted summary judgment to Gulfstream on grounds that the policy had an anti-assignment provision, requiring Gulfstream’s consent to any policy assignment.

In reversing the trial court, the appeals court held:

“Gulfstream does not and cannot argue that the entire policy was unilaterally transferred from Ms. Gattus to Bioscience, which would have been void under the language of the policy’s anti-assignment clause. Instead, it is clear that Ms. Gattus merely assigned to Bioscience the “insurance rights, benefits, and proceeds pertaining to services provided by” the policy in consideration for Bioscience’s emergency mitigation services and authorization to directly bill and to be directly paid by Gulfstream. (Emphasis added).  Stated differently, it was a post-loss assignment of a benefit under the policy to Bioscience, namely a right to seek payment for the mitigation services it rendered under the policy, not an assignment of “this policy” issued by Gulfstream to Bioscience.”

The Court also found support for its ruling in the policy’s loss payable provisions, which contemplated that payment of policy benefits might be made to persons or entities other than the insured.  It also pointed out a long history of Florida case law which permitted post-loss assignment of policy benefits without the insured’s consent.

The case remanded to the trial court for further proceedings.

Bioscience W., Inc. v. Gulfstream Prop. & Cas. Ins. Co., 2016 Fla. App. LEXIS 1548 (2nd Dist. 2016)