Claims Against The Insurance Sales Agent

The Western District, San Antonio Division issued an opinion in a case that helps an insurance company keep his client’s case out of Federal Court by suing the insurance agent.  The opinion is styled, The New World Baptist Church, LLC v. Nationwide Property and Casualty Insurance Company, Kevin P. McLoughlin, and Michael Robert Stull.

Plaintiff owns a church under a policy issued by Nationwide and sold by McLoughlin, an insurance agent.  With respect to the sale of the policy, Plaintiff alleges that “Nationwide or its agent, McLoughlin, sold the policy, to Plaintiff.  Nationwide and / or McLoughlin represented to Plaintiff that the policy included wind and hailstorm coverage for damage to Plaintiff’s business ….  When Plaintiff negotiated the premium amount, McLoughlin represented that the policy Plaintiff purchased provided coverage for hail and wind losses.  Unfortunately, Nationwide later represented that the policy sold by McLoughlin did not afford full coverage.  Specifically, the policy sold by McLoughlin was not a full coverage policy, but rather, one with specific exclusions, ….  McLoughlin’s violations of the Texas DTPA include causing confusion as to policy benefits, and representing that the policy had benefits or characteristics that it did not possess.  … McLoughlin is liable to Plaintiff for common law fraud. … Specifically, McLoughlin represented to Plaintiff during the sale of the policy that the policy had benefits or characteristics it did not possess.”

Plaintiff suffered hail damage and made a claim for benefits and eventually a lawsuit was filed on the claim in State District Court and the was removed to Federal Court by the Defendants claiming that McLoughlin was improperly joined in order to defeat diversity jurisdiction.

The burden of demonstrating improper joinder is a heavy one and is placed on the party seeking removal.  In order to meet this burden, the removing party must show that there is no reasonable basis to predict that the Plaintiff might be able to recover against the non-diverse defendant.

The 5th Circuit requires that decisions about removal be made on the basis of federal law, not state law, therefore, courts use a Rule 12(b)(6) type analysis when determining whether a plaintiff may reasonably recover.

The 5th Circuit has recognized that under the Texas DTPA, a sales agent may be individually liable when the agent misrepresents specific policy terms prior to a loss, and the insured’s reliance upon the misrepresentation actually causes the insured to incur damages.

The crux of Plaintiff’s allegations against McLoughlin is that he “represented to Plaintiff that the policy included wind and hailstorm coverage for damage to Plaintiff’s business …  When Plaintiff negotiated the premium amount, McLoughlin represented that the policy Plaintiff purchased provided coverage for hail an wind losses.  Unfortunately, Nationwide later represented that the policy sold by McLoughlin did not afford full coverage.  Specifically, the policy sold by McLoughlin was not a full coverage policy, but rather, one with specific exclusions.  The Court reads the complaint as alleging that when McLoughlin sold the policy to Plaintiff, he affirmatively stated that it would provide full coverage for any and all wind and hail losses.

The Court got into a lengthy discussion of past cases of misrepresentations and statements made by agent and eventually stated:  The Court finds that there is a reasonable basis to predict that Plaintiff might be able to recover against McLoughlin based on the allegations in the complaint.

This case is good reading for the Court’s discussion of how statements by agents are looked at by the courts.