Dallas Fort Worth Insurance Lawyer Blog
Insurance lawyers know the insurance laws change every year and know that they have to keep up with those changes. One significant change was when Texas Insurance Code, Section 542A was added. While this change is to the advantage of the insurance company, there are times when the insurance company does not properly take advantage of the change.
This happened in a 2020 case in the Southern District of Texas, Houston Division, styled, Mohammad Shenavari v. Allstate Vehicle and Property Insurance Company, et al.
Shenavari, a homeowner with insurance through Allstate suffered storm damage and made a claim with Allstate. Allstate assigned adjuster Idolina Stockert to the claim. Stockert made an offer to Shenavari that was unacceptable and a lawsuit being filed in State Court suing Allstate and Stockert resulted.
Allstate responded by accepting responsibility for Stockert pursuant to Texas Insurance Code, Section 542A.006 and removed the case to Federal Court.
Allstate removed this action to this Court on the basis of complete diversity under 28 U.S.C. § 1332(a). Shenavari promptly filed a motion for remand back to the State Court.
Allstate contends that because Allstate elected responsibility for Stockert before removing the action to federal court, Stockert was improperly joined and this action was thus properly removed. According to Allstate, once Allstate elected responsibility, Shenavari no longer had any possibility of recovery against Stockert, thereby rendering her joinder improper.
Section 542A.006 of the Texas Insurance Code authorizes an insurer to elect to accept full legal responsibility of an adjuster’s acts or omissions, and provides that if an insurer elects responsibility after a lawsuit has commenced, “the court shall dismiss the action against the agent with prejudice.” Allstate contends that because Allstate elected responsibility for Stockert before removing the action to federal court, Stockert was improperly joined and this action was thus properly removed. According to Allstate, once Allstate elected responsibility, Shenavari no longer had any possibility of recovery against Stockert, thereby rendering her joinder improper.
Whether a Sectio 542.006 election that is made after an insured files suit in state court but before the action is removed renders a non-diverse agent an improper party has not been addressed by the Fifth Circuit. Much ink has been spilt, however, by district courts that have split on the impact of such an election on the improper joinder analysis.
One line of decisions concludes that a Section 542.006 election made after a lawsuit commences but before removal renders the in state adjuster improperly joined because the election, which requires that the adjuster be dismissed with prejudice, precludes any recovery against the adjuster. The other line of decisions concludes that the touchstone of the improper joinder inquiry is whether parties were improperly joined at the time of joinder, and thus that an insurer’s Section 542.006 election after a lawsuit has commenced does not by itself establish improper joinder.
The Court agrees with the reasoning set forth in the latter approach. The Fifth Circuit has stated that since the purpose of the improper joinder inquiry is to determine whether or not the in-state defendant was properly joined, the focus of the inquiry must be on the joinder, not on the merits of the plaintiff’s case. It further explained that the burden on the removing party is to prove that the joinder of the in-state parties was improper—that is, to show that sham defendants were added to defeat jurisdiction. Applying this ruling to the improper joinder analysis involving Section 542.006 elections, the focal point of the analysis is on the joinder and thus an insurer’s election after a lawsuit has commenced does not by itself establish improper joinder to defeat remand. Here, the parties do not dispute that Allstate’s election of responsibility did not occur until after Shenavari filed the instant lawsuit. This election does not by itself establish that Stockert was improperly joined.
Thus, the mere fact of Allstate’s election of responsibility does not by itself establish improper joinder to defeat remand.