U.S. DISTRICT COURT HOLDS THAT INSURER’S POST-SUIT ELECTION OF ACCEPTANCE OF ITS AGENT’S LIABILITY RESULTS IN IMPROPER JOINDER

Recently, the United States District Court for the Western District of Texas concluded that insurer’s post-suit acceptance of its agent’s liability resulted in improper joinder of the agent.  Therefore, the court denied the insured’s motion to remand case to state court and dismissed the claims against the agent. In Southbound, Inc. v. Firemen’s Ins. Co. of Washington, D.C., et. al., No. SA-21-CV-78-XR, 2021 WL 932045 (W.D. Texas [San Antonio Division], March 10, 2021), Southbound owned properties damaged by a hail and windstorm. Southbound’s insurer, Firemen's Insurance, assigned Jim Amato to inspect and assess the claim. Amato subsequently estimated hail damage in the amount of $125,112.81. On the other hand, Plaintiff's inspector estimated damage in the amount of $960,912.63.

Believing that Firemen's Insurance improperly valued and assessed its insurance claim, Southbound brought suit in state court against Firemen's Insurance and Amato alleging various contractual and extra-contractual claims. In response, pursuant to Section 542A.006 of the Texas Insurance Code, Firemen's sent Southbound a letter accepting all of Amato's liability that may arise from Southbound’s claims. Two days later, Firemen's removed the case to federal court, asserting diversity jurisdiction. Southbound’s Motion to Remand followed on the basis that complete diversity was lacking as both Southbound and Amato were citizens of Texas.

In deciding whether removal to federal court was proper, the issue was whether Southbound had a reasonable basis of recovery against Amato, which turned on the court’s interpretation of Texas Insurance Code § 542A.006, which provides that “an insurer that is a party to the action may elect to accept whatever liability an agent might have to the claimant for the agent's acts or omissions related to the claim by providing written notice to the claimant.”

Noting that this provision has created a split among the district courts regarding whether an insurer's post-suit election of its agent's liability results in improper joinder, the court concluded “that both pre-suit and post-suit elections of acceptance of liability are sufficient to establish improper joinder.”  The court disagreed with other district courts’ conclusions that “if a party is improperly joined, it must be for a reason that predated his joinder.” Instead, the court concluded that “when a diverse insurer elects to accept liability for a non-diverse defendant under Section 542A.006, and that election establishes the impossibility of recovery against the non-diverse defendant in state court at the time of removal, the non-diverse defendant is improperly joined and its citizenship may be disregarded.” The court reasoned that “a plain reading of the Code requires a court to dismiss the action against the agent when the insurer elects to accept all liability, regardless of whether the election occurred before or after the filing of the action.”

Thus, the court denied Southbound’s Motion for Remand and dismissed all claims against Amato.