Texas Insurance Code, Section 542A.006

The Texas Insurance Code, Section 542A, became the law in Texas in September 2017.  The cases involving this law are working their way through the Court system.  This law was recently discussed in a U.S. Southern District, Houston Division opinion styled, Greatland Investment, Inc., a/b/a Southwest Plaza v. Mt. Hawley Insurance Company and Kevin Wilson Mayfield.

Greatland had property insurance with Mt. Hawley when it’s property was damaged in a storm.  Greatland assigned Mayfield to inspect and adjust the claim.  Mayfield found the claim did not fall within Greatland’s policy and Mt. Hawley refused to pay the claim.

On December 3, 2018, Greatland sent a demand letter to Mt. Hawley stating its intent to sue Mt. Hawley and Mayfield and others.  On January 15, 2019, Mt. Hawley responded and notified Greatland that Mt. Hawley was electing to accept liability for all its employees and the adjuster pursuant Texas Insurance Code, Section 542A.006.  On March 1, 2019, Greatland sued Mt. Hawley and Mayfield in Texas state court for breach of contract and Texas Insurance Code violations.

Mt. Hawley removed the case to Federal Court based on diversity jurisdiction.  Greatland filed a Motion to Remand and argued that itself and Mayfield are Texas citizens, thus, defeating diversity jurisdiction.  Mt. Hawley argues that it elected to accept responsibility for Mayfield pursuant to the Texas Insurance Code.  Thus, Mayfield is improperly joined and Mayfield’s citizenship must be ignored for diversity purposes.  Since Mt. Hawley is a citizen of Illinois, complete diversity exists.

To prove improper joinder, Mt. Hawley must show that there is no reasonable basis for the court to predict Greatland might be able to recover against Mayfield.  When the Court is conducting its analysis, in its discretion, it may pierce the pleadings and conduct a summary inquiry.

Pursuant to Section 542A.006(b), if an insurer makes an election to accept liability for an agent’s acts, no cause of action exists against the agent related to the claimant’s claim, and, if the claimant files an action against the agent, the court shall dismiss that action with prejudice.  If that happens, there is no reasonable basis to predict Greatland might be able to recover against Mayfield.  As a result, this Federal Court is to disregard Mayfield’s citizenship in determining whether complete diversity exists between the parties.

The Court then discussed the facts to show that 542A.006 applied to this case and Greatland’s Motion to Remand was denied.