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

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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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Inclusion of Adjuster Not Sufficient To Defeat Removal Jurisdiction In Bad Faith Case

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DALLAS, Oct. 6  — Ruling that the insured failed to shoe that an  adjuster could be directly liable for the claims alleged, a federal judge in Texas denied the insured request for remand of a removed bad faith case.

In  Ministerio Internacional Lirios del Valle v. State Farm Lloyds, et al., No. 16-1212, N.D. Texas; 2016 U.S. Dist. LEXIS 137453, the plaintiff sued State Farm Lloyds in the 160th Judicial District Court of Dallas County, Texas, over a property damage claim.   The suit included claims for breach of contract, breach of the duty of good faith and fair dealing and violations of the Texas Insurance Code.  The complaint included allegations that adjuster Aaron Galvan, who conducted an investigation denied the claim on grounds that the damage was uncovered, was liable.

State Farm Lloyds removed the case to the U.S. District Court for the Northern District of Texas, arguing the adjuster was not properly named as a defendant.  The plaintiffs moved for remand, and Judge Sidney A. Fitzwater denied the motion, holding:

“Defendants have met their heavy burden of demonstrating that there is no reasonable basis to predict that Ministerio might be able to recover against Galvan. . . Galvan is an adjuster, and ‘[a]n adjuster “cannot be held liable under this section [of the Texas Insurance Code] because, as an adjuster, he does not have settlement authority on behalf of the insurer…[the adjuster had] no obligation to provide a policyholder a reasonable explanation of the basis in the policy for the insurer’s denial of a claim, or offer of a compromise settlement of a claim.”

The judge also found that Galvan could not be held liable because the sections of the Texas Insurance Code relied upon by the Plaintiff applied to specifically listed ‘insurers,’ and Galvan was  “not an insurer.”

Ministerio Internacional Lirios del Valle v. State Farm Lloyds, et al., No. 16-1212, N.D. Texas; 2016 U.S. Dist. LEXIS 137453 (October 4, 2016, Fitzwater, J.)

Editor’s Note:  joinder of individual adjusters is a common tactic used by insureds to attempt to defeat federal removal jurisdiction, because it provides a “same state” defendant as the plaintiff.  While cases across the country have gone both ways, the individual liability of an adjuster is highly questionable under standard agency principles, if he or she is acting in the course and scope of his or her employment.

 

Sub-Surface Water Loss Mostly Excluded By Policy, Texas Judge Rules

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HOUSTON, Feb. 16 – A district judge in the Southern District of Texas has dismissed breach of coverage and bad faith claims against Praetorian Insurance Company, ruling that several of the policy’s coverage exclusions defeat the insured’s claims for property damage arising from a water related loss.

In Praetorian v. Arabia Shrine, a building owned by the Shrine suffered a subs-surface water loss which seeped into the building causing more than $1.8 million worth of damage to the foundation and building on March 14, 2014.   While the policy provided for coverage of for the loss of fire suppression equipment, and Praetorian paid nearly $64,000.00, it disclaimed nearly $2 million in other claims made by the Shrine.

The Policy contained an exclusion for damage to foundational elements, as well as an exclusion for damage to sub-surface piping.  The policy was also endorsed with a “Water Exclusion” disclaiming coverage for damage caused the escape or seepage of subsurface water into the building.

Judge Keith Ellison found that Praetorian met its burden of showing that the exclusions precluded the vast majority of coverage for the underground water loss.    The judge also found that since Praetorian had a reasonable basis to deny coverage, claims for breach of the Texas Insurance Code, and for the breach of Praetorian’s duty of good faith and fair dealing should also be dismissed by way of summary judgment as well.

Praetorian Ins. Co. v. Arabia Shrine Center Houston (S.D. Texas Feb. 16, 2016)

Texas Judge Rules Bad Faith Claim Inadequate To Survive Summary Judgment

SHERMAN, Feb 4 – A federal judge has ruled that a bad faith suit against State Farm Lloyds arising out of property damage claims lacked sufficient questions of material fact to avoid dismissal by summary judgment pursuant to F.R.C.P. 56.

After the case, involving breach of contract and statutory and common law bad faith claims was removed from Texas state court to federal court, the Plaintiff voluntarily dismissed common law bad faith claims, but retained statutory bad faith claims under the Texas Insurance Statute and the Texas Deceptive Trade Practices Act.

“Plaintiff has failed to cite any evidence that would create a genuine issue of fact as to whether Defendant acted unreasonably in its handling of the claims.”

Judge Amos Mazzant ruled.

He found that the Plaintiff did not produce any credible evidence that the insurer misrepresented provisions of the policy,  misrepresented the authority of the agents, or that it unreasonably delayed the investigation or the processing of the Plaintiff’s insurance claims.

The Court ruled that the Plaintiffs breach of contract claims for coverage should proceed to trial.

Broxterman v. State Farm Lloyds, (E.D. Tx. 2016)(Mazzant, J.)