FEDERAL COURT GIVES GUIDANCE ON DISMISSING ADJUSTER AND REMOVING UNDER CHAPTER 542A

In the wake of last year’s amendment of the Texas Insurance Code to add Chapter 542A, litigants and courts have worked to determine the correct procedural approach for an insurer to accept the liability of its adjuster and remove an otherwise non-removable case to federal court.  At least one federal court in the Southern District has previously rejected a method consisting of first moving for dismissal of the adjuster in state court, and then removing the case after the non-diverse defendant is dismissed.  See Massey v. Allstate Veh. and Prop. Ins. Co., No. H-18-1144 (S.D. Tex. May 16, 2018) (slip op.) 

Last week, in Electro Grafix, Corp. v. Acadia Ins. Co., SA-18-CA-589-XR, 2018 WL 3865416 (W.D. Tex. Aug. 14, 2018) (slip op.), a Western District court provided more definitive procedural guidance to successfully removing a case under 542A.  There, Acadia issued a notice under 542A accepting its adjuster’s liability as soon as it received the plaintiff’s pre-suit demand, and before it had been served with suit.  As soon as Acadia was served, it removed the suit to federal court, alleging the adjuster was improperly joined because its acceptance of the adjuster’s liability under 542A eliminated all claims against the adjuster.  

The plaintiff objected and argued the court could not consider Acadia’s pre-suit 542A acceptance because it was outside the four corners of the pleadings. The court admitted that in the first instance, the court ordinarily conducts a 12(b)(6) type analysis which examines the face of the pleadings.  However, in certain cases, the court may also, in its discretion, pierce the pleadings and conduct a summary inquiry. The court opined this was such a case. The court then took notice of the 542A acceptance, and held that in light of the acceptance, all claims against the adjuster “shall” be dismissed under state law.  Therefore, because there is no reasonable basis of recovery against the adjuster under state law, the adjuster was improperly joined. The court then dismissed the improperly joined adjuster and denied the plaintiff’s motion to remand.

Editor’s Note: This case provides guidance to Texas litigants strongly suggesting that at least one correct way (perhaps not the only correct way) to accomplish the dismissal of an adjuster and removal of the suit under 542A is to give notice of acceptance as soon the carrier becomes aware of the suit, and once served, immediately remove the suit on an improper joinder basis, without conducting any motion practice in state court.  As a matter of practice, it is likely advisable to ensure the 542A notice of acceptance is an exhibit to both the carrier’s notice of removal and to any answer filed in any court.