Suing The Business Entity Rather Than The Insurance Company

Here is an unusual situation from the Northern District of Texas, Dallas Division.  The opinion is styled, Barry Green, Individually and as Attorney in Fact for Billie Green and Billie Green, Individually v. Allstate Texas Lloyds, Inc.

If the unusual aspect of this case is not pointed out in the beginning, some will miss it.  The Plaintiffs sued Allstate Texas Lloyds, Inc., rather than the insurance company Allstate Texas Lloyds.

The Plaintiffs had homeowners insurance coverage and sued Allstate Inc. in State Court.  Allstate Inc. then removed the case to Federal Court citing that the wrong entity had been sued and that Allstate Inc. was a Texas Company but Allstate Lloyds was not a Texas company and thus, the correct party, Allstate Lloyds created diversity jurisdiction, making removal proper.

In discussing the case, the Court pointed out the parties do not dispute that Plaintiffs are citizens of Texas.

However, the parties disagree on how to assess the citizenship of Defendant.  Defendant correctly points out that Plaintiffs have filed suit against the Attorney in Fact for Allstate Lloyds, rather than Allstate Lloyds itself.  Allstate Lloyds is asking the Court to assess diversity using Allstate Lloyds rather then Allstate Inc.

The Plaintiffs point out that it is Allstate Inc. who they have sued.

The Court ruled that whether Allstate Lloyds is the proper party is immaterial to the question of whether this Court has subject matter jurisdiction to hear the case.  The Fifth Circuit has held that a district court cannot appropriately assert removal jurisdiction by dismissing a nondiverse in-state defendant and replacing it with a diverse foreign defendant, where the nondiverse in-state defendant was the only named defendant in the action when the suit was removed.  In other words, a district court cannot create removal jurisdiction based on diversity by substituting parties.  The Court lacks authority to disregard Plaintiffs’ choice to sue Allstate Inc. rather than Allstate Lloyds, and assert diversity jurisdiction.

Plaintiffs motion to remand was granted.

While this situation is interesting/curious.  It is futile in the sense that in the State Court the claim against Allstate Inc. will have to be dismissed based on they being an incorrect party to the lawsuit.  After that, Plaintiffs will have to sue the correct party, their insurer, Allstate Lloyds.  When that happens, Allstate Lloyds will have the case properly removed to Federal Court.

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