Improperly Suing The Adjuster

Here is a 2023 opinion that finds the suing of the insurance adjuster was improper.  The opinion is styled, Hang Nguyen, et al v. AmGuard Insurance Company, et al.  The opinion is from the Eastern District of Texas, Sherman Division.

Plaintiffs own a homeowners insurance policy with AmGuard.  After a hail and windstorm that caused damage to their property, the Plaintiffs submitted a claim under the policy for repairs.  The adjuster assigned to the case is Shawn Mitchell.  Coverage was eventually denied.

The Plaintiffs eventually sued AmGuard for breach of contract and both faith causes of action and various violations of the Texas Insurance Code.  They sued Mitchell for civil conspiracy and various violations of the Insurance Code.  After the action was filed, AmGuard filed an Election of Legal Responsibility, accepting any liability on behalf of Mitchell.

AmGuard then removed this matter based upon diversity jurisdiction under 28 U.S.C. Sections 1332(a), 1441(a), and 1446. AmGuard asserts that, while on the face of the pleadings there is not complete diversity between the parties because Plaintiffs and Defendant Mitchell are both citizens of Texas, the Court nevertheless has jurisdiction because Mitchell was improperly joined and therefore must be disregarded for the purpose of determining jurisdiction.  AmGuard offers two reasons supporting the improper joiner of Mitchell: (1) AmGuard accepted liability for Mitchell’s actions pursuant to Texas law; and (2) the Nguyens’ pleadings provided no reasonable basis for recovery against Mitchell.  The Court agrees with AmGuard’s first argument: AmGuard’s acceptance of liability for Mitchell under Texas law renders Mitchell an improperly joined Defendant and requires denial of the Nguyens’ remand motion.

There is a legal discussion by the Court dealing with diversity jurisdiction and the amount in controversy and citizenship.

Here is what the Court stated regarding Mitchell.

The parties agree that, under the Fifth Circuit’s recent decision in Advanced Indicator, Mitchell was improperly joined because, under applicable Texas statutory law, AmGuard had already accepted liability on behalf of its agent, Mitchell, before removal.  Section 542A.006 of the Texas Insurance Code allows an insurer to elect to accept whatever liability an agent might have to the claimant for the agents acts or omissions related to the claim, and such an election may be made either before or after suit is filed.  In Advanced Indicator, the Fifth Circuit resolved a dispute among lower courts when it held that, even when an insurer makes the Section 542A.006 election after a state court suit is filed, so long as the election is made prior to removal the agent is necessarily an improper defendant for purposes of removal jurisdiction.  That is because, as soon as the insurer’s election was made, Texas statutory law required that “the court shall dismiss the action against the agent with prejudice.”  So, whenever an insurer accepts liability of its agent under the Texas statute prior to removal, the district court may properly conclude that, at the time of removal, there was “no possibility of recovery” against the agent.

Because Mitchell is unquestionably an improperly joined defendant under Advanced Indicator, and improperly joined defendants are not considered when determining whether the Court has subjectmatter jurisdiction, the Court will not consider Mitchell’s Texas citizenship in reviewing whether there is complete diversity between the parties

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