Texas Insurance Code, Section 542A Opinion

Here is another Federal opinion discussing Texas Insurance Code, Section 542A.  The opinion is from the Eastern District of Texas and is styled, John McAdams v. Palomar Specialty Insurance Company, Wellington Claim Service, Inc. and Nicholas Abdallah.

McAdams had a homeowners insurance policy with Palomar when he suffered damages alleged to have been caused by Hurricane Harvey.  Palomar assigned Wellington to investigate the claim and Wellington assigned adjuster Nicholas to inspect the claim.

The claim was not sufficiently covered according to McAdams and he eventually filed suit against Palomar, an out of state defendant, and against Wellington and Nicholas, both in-state defendants.  McAdams alleged wrongs committed in the claims handling process.

Palomar had the case removed to federal court contending that under 28 U.S.C., Section 1332(a)(1) that there is complete diversity of citizenship and that the amount in controversy exceeds $75,000.  Palomar alleges that Wellington and Nicholas were improperly joined and that their Texas citizenship should be disregarded for diversity purposes.  Palomar specifically alleges this because prior to suit being filed, Palomar had elected to take responsibility for Wellington and Nicholas pursuant to Texas Insurance Code, Section 542A, therefore, Wellington and Nicholas were improperly joined in the lawsuit.

Citing the law, the Court points out that this Federal Court is of limited jurisdiction and may hear a case only when jurisdiction is both authorized by the U.S. Constitution and confirmed by statute.  And, that it is presumed that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction.

Pursuant to 28 U.S.C., Sections 1331, and 1332, Federal courts have subject matter jurisdiction and are authorized to entertain a cause of action only where a question of federal law is involved or where there is diversity of citizenship between the parties and the amount in controversy exceeds $75,000.  In cases where there is no federal question involved, subject matter jurisdiction exists only if there is complete diversity among the parties and the amount in controversy exceeds $75,000.

28 U.S.C., Section 1447(c) authorizes remand to the state court if the removal was defective.  Jurisdiction is fixed at the time of removal.

Here, the jurisdictional limit of $75,000 is not being challenged.  As a result Palomar must only show that Wellington and Nicholas were improperly joined as defendants in this case.

This case turns on Palomar’s election of liability of behalf of Wellington and Nicholas pursuant to Texas Insurance Code, Section 542A.006.  Here, there is no disputing that Palomar elected liability on behalf of its agents, Wellington and Nicholas, prior to the lawsuit being filed.

This Court then discussed several other cases addressing this issue and ultimately ruled that Palomar’s election of liability on behalf of Wellington and Nicholas before suit was filed is dispositive and ruled in favor of Palomar.