Sueing The Adjuster And The Texas Insurance Code

Here is another Texas Insurance Code, Section 542A.006 case.  The opinion is from the Texas Southern District, Laredo Division.  It is styled, Yarco Trading Company, Inc., et al. v. United Fire & Casualty Company, et al.

This case was filed in State Court and United removed the case to Federal Court.  United argued the adjuster was improperly joined and after citing Texas Insurance Code, Section 542A.006, accepted responsibility for the adjuster, thus, arguing that the adjuster had to be dismissed, resulting in diversity jurisdiction pursuant to 28 U.S.C., Section 1441(a).  Yarco sought to have the case remanded to the State Court.

First, the court addressed the improper joinder argument and ruled in favor of Yarco.

Next, the court discussed the relatively new Texas Insurance Code, Section 542A.006.  This section allows an insurer to accept liability for an agent by providing written notice to a claimant.  If an insurer elects to accept responsibility for it’s agent, the statute requires the court to dismiss the action against the agent with prejudice.

After the lawsuit was filed, United elected to accept responsibility for the adjuster.  A rule regarding federal court jurisdiction has been judicially created that is called the voluntary-involuntary rule.  The voluntary-involuntary rule provides that a case removable on the initial pleadings can become removable only pursuant to voluntary act of the plaintiff.

It is undisputed that United notified Yarco in writing of its election to accept any of the adjuster’s potential liability under Section 542A.006.  That election would preclude Yarco from recovering from the adjuster in state court.

This Court granted the remand sought by Yarco.  The most important aspect of this case to this Court was that Yarco sued United and the adjuster before the insurer elected to accept its agent’s liability under Section 542A.006.  Since Yarco’s claims against the adjuster were not barred by 542A.006 at the time of the filing of the lawsuit, then United’s post-suit election does not retroactively make the adjuster an improperly joined party.