Timing Of Accepting Responsibility For Agent

Here is an opinion issued by a Magistrate Judge from the Western District, Austin Division, which says that the insurer was too late in accepting responsibility for the acts of its agent, the adjuster, when the company accepted responsibility the day before removal was filed.  The case is styled, Robbins Place West Campus, LLC v. Mid-Century Ins. Co. and Jillian Meghan Sherman.

In this case, Robbins had commercial insurance coverage with Mid-Century when Robbins suffered wind and hail damage.  Robbins was unhappy with the way the claim was handled by the adjuster, Sherman, and sued Sherman and Mid-Century in State District Court for various violations of the Texas Insurance Code and breach of contract.

Pursuant to Texas Insurance Code, Section 542A.006, Mid-Century made an election to legal responsibility for Sherman.  The next day, Mid-Century removed the case to this Federal Court.

Robbins then filed its Motion To Remand.  At issue in the motion was whether Mid-Century’s election of responsibility was sufficient to eliminate Sherman as a party, or to make her joinder as a party no longer proper.  This Court concluded the election was made too late to effect Sherman’s party status, and that because Sherman was otherwise a proper defendant, the Motion To Remand should be granted.

Federal Courts are courts of limited jurisdiction and possess only that power authorized by the Constitution and statute.  Pursuant to 28 U.S.C. section 1441(a), only state court actions that originally could have been filed in federal courts may be removed to federal court by the defendant.  According to the Fifth Circuit Court of Appeals, the Court must presume that a suit lies outside its limited jurisdiction.  In a removal action, the removing party bears the burden of establishing jurisdiction.  Further, any ambiguities are construed against removal because the removal statute should be strictly construed in favor of remand.

The Texas statute at issue makes clear that an insurer may accept liability both before suit or after suit.  If the election is made after suit has been filed, the statute makes clear that although dismissal of the agent is mandatory, it is not automatic, but rather requires that the court enter an order dismissing the adjuster.

Here, Mid-Century did not make an election until after suit was filed and was made the day before it filed the notice of removal.  This means that when the case was removed, Sherman was still a named party to the suit, since Mid-Century had not requested, nor had the state court granted, dismissal of the claims against Sherman.  Thus, at the time of removal Sherman was a party and complete diversity was lacking at that time, as both Robbins and Sherman are Texas residents.