What Is Part Of The Insurance Claim And What Is Not?

Rock Springs, Texas insurance lawyers would want to know about this Houston Division, Southern District case.  The opinion was issued in January 2017, and is styled, JYC Enterprise Inc. v. Allied Property and Casualty Insurance, et al.

In this case JYC sued Allied, its adjuster (Heller), and Bay Area Fire & Safety, Inc., after a fire destroyed property belonging to JYC.  The suit was filed in state court and removed to federal court by the Defendants.  The Defendants are alleging the suit against Bay Area is a fraudulent and only brought in order to defeat diversity because Bay Area is a Texas corporation.

JYC asserted claims against Allied and Heller as to the sufficiency of the payment under the policy for Business Income losses and as to disputes about the policy’s coverage.  JYC asserted a claim against Bay Area for negligence in its inspection of the fire suppression system.  Allied responded, contending that because the claim against Bay Area was fraudulently misjoined, the Bay Area claim should be severed and remanded.

Fraudulent misjoiner occurs when (1) one party has been misjoined with another party in violation of the applicable state’s joinder rules; and (2) any misjoinder sufficiently egregious to rise to the level of a fraudulent misjoinder.  Under Texas Rules of Civil Procedure 40, parties may be joined together as defendants in an action if there is asserted against them jointly, severally, or in the alternative any right to relief in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all of them will arise in the action.  While there is no generally applicable standard for determining whether the misjoinder is so egregious as to be fraudulent, courts within the Fifth Circuit have found fraudulent misjoinder where a single plaintiff or group of plaintiffs has joined multiple defendants in the same action and is asserting claims against each defendant that are both factually and legally related.

The claims against both Allied and Bay Area do not arise out of the same transaction or occurrence, nor do claims against the two Defendants share a question of law or fact.  The claims against Allied arise out of a dispute over the value of the Business Income losses JYC is entitled to reimbursement for under the insurance policy.  The event giving rise to a right to relief is the contractual dispute over coverage.  The fire may have triggered the dispute about coverage under the policy, but Allied does not dispute whether the fire occurred or its liability to provide reimbursement for the losses under JYC’s policy.  Instead the dispute turns on the amount of reimbursement under the policy for Business Income losses.  The amount of Business Income losses do not  turn on any legal or factual question about the fire’s cause.

The claims against Bay Area turn on whether its negligence caused the fire and subsequent losses.  There is no allegation that Allied would be entitled to seek reimbursement from Bay Area, if it is in fact held liable, for the amounts paid under JYC’s policy with Allied.  Nor is there any allegation JYC’s right to coverage under the Allied policy turns of first seeking relief from Bay Area or that Bay Area caused Allied’s alleged failure to perform under the contract.  JYC’s right to relief against Allied arises pursuant to the contract.  No right to relief against Bay Area arises under the Allied policy.  The claims against the two Defendants are factually and legally distinct.  Asserting factually and legally distinct claims is sufficiently egregious to find misjoinder fraudulent.