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Insurer Accepted Responsibility for Adjuster’s Conduct But District Court Still Remands Case

A federal district judge in Texas, rejecting a conclusion he reached several months ago, has decided that he had to remand a case brought by an insured against its insurance company and adjuster on diversity grounds even though the insurer availed itself of a relatively new statutory right under Texas law to elect responsibility for the adjuster.

The Case

Unhappy with how Church Mutual Insurance Company handled its claim for damage to its church, River of Life Assembly of God sued Church Mutual and the adjuster who handled the claim, Jim Turner Harris, in a state court in Texas.

Church Mutual was diverse from River of Life but Mr. Harris was not. Availing itself of a relatively new statutory right, Church Mutual elected responsibility for Mr. Harris and removed to the U.S. District Court for the Western District of Texas.

River of Life moved to remand.

The District Court’s Decision

The district court, in an opinion by District Judge Robert Pitman, granted the motion.

In its decision, the court explained that, as of September 2017, the Texas Insurance Code allowed an insurer to accept whatever civil liability an agent might have to a claimant for the agent’s conduct related to the claim by providing written notice to the claimant. Tex. Ins. Code § 542A.006(a). If an insurer elected to accept responsibility for the agent, the court had to dismiss all claims against the agent with prejudice.

The court added that because Church Mutual had elected responsibility for Mr. Harris and removed the case to federal court, it was required to dismiss with prejudice River of Life’s claims against Mr. Harris relating to River of Life’s insurance claim.

The court, however, rejected Church Mutual’s argument that Mr. Harris had been improperly joined because River of Life was unable to recover against him and, therefore, that it was entitled to remove River of Life’s case to federal court.

The court reasoned that River of Life filed its action in state court on October 25, 2018 but Church Mutual did not elect responsibility for Mr. Harris until January 3, 2019. In the court’s opinion, Church Mutual’s argument that its election rendered Mr. Harris improperly joined required the court to consider whether an action that was not removable when commenced because of incomplete diversity later became removable based on a diverse insurer’s election of responsibility for the non-diverse adjuster.

According to the court, Church Mutual’s argument that Mr. Harris had been improperly joined based solely on its Section 542A.006 election misunderstood the doctrine of improper joinder. The court reasoned that the focus “must remain on whether the nondiverse party was properly joined when joined” – that is, whether the plaintiff could recover against the nondiverse defendant at the time of joinder.

Accordingly, the court ruled that it could not deny remand based on Church Mutual’s Section 542A.006 election alone. It stated:

River of Life joined Mr. Harris as a defendant when it named him in its original petition in October 2018. . . . Church Mutual did not elect responsibility for Mr. Harris for more than another two months. . . . Church Mutual’s election of responsibility therefore did not render Mr. Harris’s joinder improper, because it did not preclude recovery against Mr. Harris until months after his joinder. If Mr. Harris was improperly joined, it must be for a reason that predated his joinder.

The court concluded by rejecting its prior decision reaching a different result. Jiang v. Travelers Home & Marine Ins. Co., 1:18-CV-758-RP (W.D. Tex. Nov. 28, 2018) (Pitman, J.)

The case is River of Life Assembly of God v. Church Mutual Ins. Co., No. 1:19-CV-49-RP (W.D. Tex. April 3, 2019). Attorneys involved include: For River of Life Assembly of God, Plaintiff: Shannon E. Loyd, LEAD ATTORNEY, Loyd Law Firm, PLLC, San Antonio, TX. For Church Mutual Insurance Company, Defendant: Todd Frederick Newman, LEAD ATTORNEY, Sheiness Glover & Grossman LLP, Houston, TX; Marc A. Sheiness, Sheiness, Glover & Grossman, LLP, Houston, TX. For Jim Turner Harris, Defendant: Marc A. Sheiness, Sheiness, Glover & Grossman, LLP, Houston, TX.