Suing The Insurance Agent

Here is a case where an insurance law lawyer sued an agent and was able to prevent the case from being held in Federal Court.  The case is from the Southern District of Texas, Houston Division, and is styled, Mary’z Mediterranean Cuisine, Inc. v. Blackboard Insurance Company f/k/a Hamilton Insurance  Company, Texas General Insurance, and Mir Khan.

This lawsuit was filed in State District Court and the defendants removed it to Federal Court based on their assertion that Texas General and Khan were improperly joined in an effort to defeat diversity jurisdiction.  Mary’z filed a motion to remand to State Court which the Court granted.   Here is why:

Mary’z alleges that Khan and Texas General sold a commercial policy to Mary’z with full knowledge of Mary’z business operations, building design, and Mary’z lack of an internal fire alarm by falsely representing to Mary’z that damages caused by a fire would be covered by the policy.  A fire occurred and Blackboard denied the claim based on Mary’z not having an internal fire alarm.

Mary’z claimed insurance code violations, breach of contract, violations of the DTPA, fraud, negligence, and negligent misrepresentation.  There is diversity between Mary’z and Blackburn but no diversity with Texas General and Khan.

Blackburn carries a heavy burden in showing that Texas General and Khan were improperly joined in an effort to defeat diversity jurisdiction and must prove either (1) actual fraud in the pleading of jurisdictional facts or (2) inability of Mary’z to establish a cause of action against the non-diverse parties in State Court.

The question for this Court in this case is whether Blackboard has demonstrated that there is no possibility of recovery by Mary’z against Texas General or Khan.

Whether Mary’z has alleged a valid cause of action depends upon and is tied to the factual fit between Mary’z allegations and the pleaded theory of recovery.

Blackboard argues among other things that Mary’z cannot recover against Texas General and Khan because they were merely insurance agents who had no involvement in the adjustment of the claim or decision to pay.  Mary’z argues that under Texas law, Texas General and Khan, as insurance agents, are subject to liability for negligence, negligent misrepresentation, and for violations of the Texas Insurance Code and the DTPA.

In Texas, an insurance agent who undertakes to procure insurance for another owes a duty to a client to use reasonable diligence in attempting to place the requested insurance and to inform the client promptly if unable to do so.  Texas courts have held agents liable for negligence when the agent wrongly led clients to believe their policy provided protection against a particular risk that was in fact excluded from the policy’s coverage.

The Texas Insurance Code, Section 541.003 and 541.051, prohibits any “person” from engaging in deceptive practices in the business of insurance, such as misrepresenting the terms of a policy or the benefits or advantages promised by the policy.  Agents are “persons” engaged in the business of insurance for purposes of the Insurance Code, Section 541.002(2).

Mary’z allegations, if proven true, would create a reasonable possibility that Mary’z could prevail on its negligence and Insurance Code claims against Texas General and Khan.

The Motion to Remand was granted.