Claims That The Adjuster Did His Job Wrong

Claims against adjusters for violations of the Texas Insurance Code must be very specific.  This is illustrated in a 2021, opinion from the Eastern District of Texas.  The opinion is styled, Fred Vernon, II v. Palomar Specialty Insurance Company, Wellington Claim Services, Inc., One Call Claims, David Cardenas, and Tanya Spalding.

This case was filed in State Court and Palomar caused the case to be removed to Federal Court asserting that the adjusting companies were improperly joined in an effort to defeat diversity jurisdiction.  Vernon filed a motion to remand which is the subject of this opinion.

Pursuant to 28 U.S.C., Section 1332, in removed cases where, as here, there is no suggestion that a federal question is involved, subject matter jurisdiction exists only if there is complete diversity among the parties and the amount in controversy exceeds $75,000.00.

In the case at bar, although there is no dispute that Vernon and Palomar are citizens of different states and that more than $75,000.00 is at issue, complete diversity may still be lacking because Vernon, Wellington, Cardenas, and Spalding are citizens of Texas. Therefore, to establish the existence of diversity jurisdiction, Palomar must show that the Adjuster Defendants were improperly joined as defendants to this action.  The removing party bears the heavy burden of proving that a non-diverse defendant has been fraudulently joined to defeat diversity, either 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.

In the instant case, because Palomar does not claim actual fraud in Vernon’s recitation of jurisdictional facts, it must demonstrate that there is no possibility that Vernon could establish a cause of action against Wellington, Cardenas, and Spalding.  In other words, the court should find improper joinder if there is no reasonable basis for the district court to predict that the plaintiff might be able to recover against an in-state defendant.

The United States Court of Appeals for the Fifth Circuit has held unequivocally that a federal court must apply the federal pleading standard when determining whether a plaintiff has a reasonable basis for recovery under state law.  Furthermore, the Fifth Circuit instructs that, in the absence of a decision to “pierce the pleadings and conduct a summary inquiry,” the court must conduct a Rule 12(b)(6)-type analysis.  Specifically, the court must consider whether the plaintiff has pleaded “enough facts to state a claim to relief that is plausible on its face” against the in-state defendant.  If the plaintiff’s claim does not survive the
Rule 12(b)(6) inquiry, the court must dismiss that party without prejudice as being improperly joined to defeat diversity jurisdiction.

Where the well-pleaded facts of a complaint do not permit a court to infer more thanthe mere possibility of misconduct, the complaint has alleged—but it has not shown that the pleader is entitled to relief.  Hence, a complaint’s allegations
must make relief plausible, not merely conceivable, when taken as true.

Moreover, claims for violations of the Texas Insurance Code must satisfy the pleading standards of Rule 9(b) of the Federal Rules of Civil Procedure.  Rule 9(b) provides that in order to state a claim for fraud in federal court, the plaintiff must state with particularity the circumstances constituting the fraud.  Specifically, Rule 9(b) states:
In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.

Therefore, instead of the “short and plain statement of the claim” required by Rule 8(a) of the Federal Rules of Civil Procedure, Rule 9(b) imposes a heightened standard of pleading for averments of fraud. A party must plead, at the minimum, the who, what, when, where, and how of the alleged fraud.

This Court then discussed the pleading of plaintiff in this case.  It appears to have been an effort by plaintiff to satisfy the pleading requirements, but they ultimately fell short as discussed by the Court.  It is a good, thorough read of this area of the law.

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