Texas Insurance Code, Section 542A.006(c), is being a source of frequent litigation in Texas since it was en-acted. The various Federal Courts are treating it differently. Here is a case from the Western District of Texas, Austin Division, dealing with this issue. The case is styled, Shiv Partners LTD and Shiv Host, LLC D/B/A La Quinta Inn & Suites v. The Ohio Casualty Insurance Company and Kevin M. Witt.
La Quinta had suffered a loss as the result of storm damage. The insurer, Ohio, assigned the claim to Witt. Ohio is not a Texas resident but Witt is. La Quinta was displeased with the way the claim was handled and sued Ohio and Witt in State Court. La Quinta removed the case to Federal Court asserting that Witt had been improperly joined in the lawsuit thus, diversity existed between the parties giving the Federal Court jurisdiction of the lawsuit.
La Quinta failed to provide Ohio or Witt with pre-suit notification of 61 days prior to filing as required by Texas Insurance Code, Section 541.154 and 542A.003. The first notice of the lawsuit was when it was received by Ohio and Witt. Ohio then made immediate election of responsibility for Witt as allowed by Section 542A.006(c).
If an insurer makes an election pre-suit, no cause of action exists against the agent and the agent’s inclusion in the suit must be ignored when determining the jurisdictional facts as they pertain to removal for diversity. However, Federal District Courts disagree as to Section 542A.006’s effect on removability as applied to an insurer’s post-suit election to assume its non-diverse agent’s liability.
La Quinta contends that even though there is no possibility a plaintiff will recover against the non-diverse defendant in state court following an insurer’s post-suit election, the existence of a claim against the non-diverse party at the time the state-court petition was served means the joinder was proper. Ohio responds that even when a plaintiff asserts a viable claim against an agent in a state-court petition, an election of liability by the insurer for the agent’s acts or omissions is sufficient to show improper joinder because there is no reasonable basis to predict that the plaintiff might be able to recover against the agent.
Because a showing of improper joinder as to Witt does not compel the dismissal of all defendants in this case, the court looks at the jurisdictional facts that existed at time of removal. Though Ohio’s election to assume Witt’s liability was not a voluntary act by the plaintiffs, improper joinder is an exception to the voluntary-involuntary rule, so the court must inquire if Witt’s citizenship should be disregarded. Because there is no claim of fraud in the pleading of jurisdictional facts, the court conducts a Rule 1 2(b)(6)-type analysis to determine if La Quinta has stated a claim with a possibility of recovery against Witt.
Under the Code an insurer may “elect to accept whatever liability an agent might have to the claimant for the agent’s acts or omissions related to the claim.” This election is final, unappealable, and not subject to nullification by a court. Ohio’s letter to La Quinta states: “Pursuant to Section 542A.006 of the Texas Insurance Code, this letter serves as Ohio Casualty’s election in writing to accept whatever liability Witt might have to your client for any acts or omissions related to the referenced insurance claim.” Though there is the possibility that an insurer might elect to assume only some liability of its agent, that is not the case here. Ohio’s election accepts all of Witt’s liability relating to the claim, not just liability under the Code. Ohio’s election renders Witt improperly joined. The court disregards Witt’s citizenship for the purposes of diversity jurisdiction. Because the remaining parties’ citizenship was diverse at the time of removal and the amount in controversy exceeds $75,000, the court exercises jurisdiction over this case.
As a result, La Quinta’s motion to remand is denied.