Removal And 542A.006

Here is a case to watch closely.  The case is from the Eastern District of Texas, Sherman Division, and is styled, Charlotte Stephens v. Safeco Insurance Company of Indiana and Damon Edward Baker.

Stephens sued Safeco and Safeco’s adjuster, Baker, after a hail storm claim which resulted in a lawsuit being filed in State Court.  Safeco removed the case to Federal Court and invoked Texas Insurance Code, Section 542A.006.

542A.006 authorizes an insurer to elect to accept full responsibility of an adjuster’s acts or omissions and mandates that the adjuster be thereafter dismissed from any action to which they are a party.  This amendment spawns a novel question regarding removal based on diversity of citizenship under 28 U.S.C., Sections 1332(a), 1441(a), and 1446.  Namely, whether an action instituted in state court against a diverse insurer and a non-diverse adjuster — nonremovable to federal court due to the lack of diversity of citizenship — becomes removable upon, and solely because of, the diverse insurer’s election to accept complete liability of the nondiverse adjuster.  This Court found it did Not and remanded the case to State Court.  In this case, the Court found that the original joinder of the adjuster was proper.  Had the original joinder been improper the result would have been different.

The central issue before the Court is whether an action non-removable when commenced due to the lack of complete diversity among the parties, becomes removable based solely on a diverse insurer’s election to accept complete liability of a nondiverse adjuster.

The federal removal statute 28 U.S.C., Section 1446 provides:

(3) … if the case stated by the initial pleading is not removable, a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or had become removable.

Safeco argues that Baker’s dismissal establishes diversity jurisdiction thus deeming the action removable.  Stephens responds that the voluntary-involuntary rule bars removal solely because neither Safeco’s elections nor Baker’s dismissal were her own voluntary acts.  Safeco maintains that the voluntary-involuntary rule is inapplicable because Baker was improperly joined based on Stephens’s inability to recover against the adjuster.  The Court addresses these arguments in turn.

These points are then discussed in this opinion and are a most read for Insurance Lawyers.