REMOVAL AND DISMISSAL OF ADJUSTERS UNDER 542A CONTINUES TO BE A MINEFIELD

Federal courts are continuing their efforts to interpret Texas Insurance Code Chapter 542A’s provisions regarding dismissal of adjusters and determine the impact of those provisions on a carrier’s ability to remove a lawsuit naming an adjuster.  In the latest iteration, a Houston federal judge recently granted an adjuster’s motion to dismiss and denied the policyholder’s motion to remand the case to state court.

In Ewell v. Centauri Specialty Ins. Co., CV H-19-1415, 2019 WL 2502016 (S.D. Tex. June 17, 2019) (slip op.), the carrier invoked 542A prior to suit, in response to the plaintiff’s statutory pre-suit notice.  After the carrier removed the case on improper joinder grounds, the adjuster sought dismissal, and the policyholder sought remand.  The court held that because the carrier invoked 542A before suit was filed, there was no possibility of recovery against the adjuster, and the adjuster was improperly joined at the time suit was filed.  The court therefore rejected the policyholder’s effort to invoke Massey v. Allstate Vehicle & Prop. Ins. Co., 2018 WL 3017431 (S.D. Tex. June 18, 2018) (unpub. op.), and its use of the voluntary-involuntary rule as grounds to remand the suit. 

Editor’s Note: A consensus among federal courts appears to be building that the surest way to successful dismissal of the adjuster and removal to federal court depends heavily on notifying the claimant of the 542A election as early as possible – ideally, in response to the claimant’s statutory pre-suit notice.  As we recently reported, at least one federal judge in Austin has held that when no 542A election has been made at the time suit is filed, the adjuster is properly joined and the case is not removable even though the adjuster is subject to immediate and mandatory dismissal under 542A as soon as it is invoked.  See River of Life Assembly of God v. Church Mutual Ins. Co., No. 1:19-CV-49-RP, 2019 WL 1767339, (W. D. Tex. April 22, 2019). READ ARTICLE The Ewell court did not discuss River of Life, but it is clear from the facts of Ewell that because Centauri made its 542A election before being sued, its removal could have survived the logic of River of Life. 

However, these cases leave unanswered the question of what happens when there is no pre-suit notice, and the lawsuit naming the adjuster is the carrier’s first opportunity to invoke 542A. If River of Life proves the dominant logic, it may motivate policyholder attorneys to stop making the required statutory pre-suit notices in an effort to prevent carriers from removing cases to federal court. If River of Life and Massey together form the prevailing law, the functional result may be that policyholder attorneys can deprive out-of-state carriers of their legal right to litigate in federal court simply by willfully violating the pre-suit notice requirements.