Don't Mess with Texas Adjusters in Hail Damage Claims
Jennifer L. Gibbbs | Texas Law360
February 6, 2015
Texas hail claim policyholder lawyers, like many plaintiffs’ lawyers, clearly prefer to be in state court rather than federal court. To accomplish this and prevent the defendant insurer from properly removing the lawsuit to federal court, Texas policyholder attorneys simply sue the adjuster (who, like the policyholder, is almost always a Texas resident). This common act of gamesmanship ostensibly destroys the complete diversity of citizenship required for federal court diversity jurisdiction, allowing the policyholder to litigate its hail damage claim in state court.
But for policyholders and their attorneys who routinely engage in this ruse, the game is up. Several recent Texas federal court decisions hold that when a policyholder files a boilerplate petition with nothing more than unsubstantiated and conclusory allegations against the Texas resident adjuster, the inclusion of the adjuster as a named defendant constitutes fraudulent joinder and the lawsuit is properly removable to federal court.
U.S. District Judge Sidney A. Fitzwater’s holding in One Way Investments Inc. v. Century Surety Company is the most recent addition to this growing body of precedent. In One Way Investments, the insured claimed its commercial building sustained hail damage during a June 13, 2012, storm. One Way’s insurer, Century Surety Company, retained VeriClaim to oversee the adjustment process, and VeriClaim assigned the claim to field adjuster, Richard Mattoni. Mattoni inspected the insured’s building and determined that the insured’s covered damages totaled approximately $2,000. Because the damages did not exceed the applicable $2,500 deductible, the claim was closed without payment.
Apparently dissatisfied with both the adjustment of the claim and the coverage decision reached by Century, One Way brought suit against Century, VeriClaim and Mattoni in Dallas County district court. In addition to the claims asserted against Century and VeriClaim, One Way’s petition claimed that Mattoni:
- Failed to conduct a reasonable investigation and concluded that there was no wind or hail damage to the building caused by the storm (in violation of Texas Insurance Code § 541.060(a)(1)).
- Observed damage to the roof and interior units, but attributed the damage to other factors, including water intrusion through every other opening besides the roof (in violation of § 541.060(a)(1)).
- Substantially underestimated the damages to the building and under-scoped the damages during his investigation (in violation of § 541.060(a)(1)).
- Misrepresented that the damage to the property was not covered under the policy, even though the damage was caused by a covered occurrence (in violation of Tex. Ins. Code § 541.060(a)(1)).
- Failed to make an attempt to settle One Way’s claim in a fair manner, even though he was aware of liability under the policy (in violation of §541.060(a)(2)).
- Failed to affirm or deny coverage within a reasonable time (in violation of § 541.060(a)(4)(A)).
- Refused to fully compensate One Way under the policy, even though Mattoni failed to conduct a reasonable investigation (in violation of § 541.060(a)(7)).
- Knowingly and recklessly made false representations as to material facts and/or knowingly concealed all or part of material information from One Way (in violation of § 541.060(a)(1)).
Century and VeriClaim removed the case to the U.S. District Court for the Northern District of Texas, claiming Mattoni’s citizenship should be disregarded for jurisdictional purposes because Mattoni was improperly joined as a defendant in the action. Century and VeriClaim specifically asserted that One Way’s improper claim handling allegations against Mattoni lacked merit because Texas law did not contemplate that adjusters could be held individually liable for a carrier’s decision regarding a claim. Century and VeriClaim further argued that One Way’s misrepresentation-based claims against Mattoni could not stand because: (a) post-loss representations are not actionable under the Texas Deceptive Trade Practices Act or Texas Insurance Code; and (b) a dispute over whether a claim was factually within the policy’s terms was not sufficient to be a misrepresentation under the Texas Insurance Code.
One Way moved to remand the case to state court, but Judge Fitzwater denied the motion. In doing so, Judge Fitzwater recognized that to prove improper joinder (and avoid remand), Century and VeriClaim had to demonstrate there was no reasonable basis to predict One Way might recover against Mattoni. After carefully scrutinizing each of One Way’s allegations against Mattoni, he concluded Century and VeriClaim had met this heavy burden.
With regard to One Way’s allegations under Section 541.060(a) of the Texas Insurance Code, which prohibits misrepresenting a material fact or policy provision relating to the coverage at issue, Judge Fitzwater found that Mattoni could not be held liable because One Way did not allege that Mattoni made misrepresentations about the details of the policy.
With regard to Section 541.060(a)(2)(A) of the Texas Insurance Code, which prohibits a party from “failing to attempt in good faith to effectuate a prompt, fair and equitable settlement of claim where the insurer’s liability is reasonably clear,” Judge Fitzwater found that Mattoni, as an adjuster, could not be held liable because his sole role was to assess the damage claimed by One Way, and he did not have settlement authority on behalf of the carrier.
With respect to Section 541.060(a)(7) of the Texas Insurance Code, which prohibits a party from “refusing to pay a claim without conducting a reasonable investigation [regarding] the claim,” Judge Fitzwater found that Mattoni could not be held liable because that particular provision only applied to the individual at the insurance company who refused to pay the claim, not the individual responsible for conducting the investigation.
And finally, with regard to Section 541.060(a)(4)(A) of the Texas Insurance Code, which prohibits unreasonable delay in affirming or denying coverage of a claim, Judge Fitzwater found that Mattoni, as an adjuster, could not be held liable because he was not authorized by the insurer to affirm or deny coverage of a claim to a policyholder.
Given this series of findings, Judge Fitzwater unsurprisingly denied One Way’s motion to remand and retained jurisdiction over the lawsuit. The message of One Way Investments is unmistakable: A policyholder’s factual allegations against an adjuster in a Texas hail claim lawsuit will be carefully scrutinized, and baseless allegations made solely to deprive the federal court of jurisdiction will not support a motion for remand.
Judge Fitzwater is not alone in his response to the all-too-common practice of naming a Texas adjuster as a defendant in a hail claim or windstorm lawsuit. A host of federal judges sitting in Texas have reached the same conclusion when faced with a petition containing only boilerplate claims against the resident insurance adjuster.
These decisions, each of which concluded that the policyholder’s claims against a Texas adjuster were made for the sole purpose of avoiding federal court jurisdiction, are consistent with the down-in-the-trenches realities of hail claim litigation. Policyholders rarely, if ever, include the insurance adjuster as a party to the lawsuit when the defendant insurer is a Texas resident. In such cases, naming the adjuster as a defendant is not necessary to destroy diversity jurisdiction.
When the defendant insurer is not a Texas resident, prompting the policyholder to join a Texas adjuster as a defendant, the claims against the adjuster are rarely, if ever, actively litigated. Settlements are negotiated with and funded exclusively by the defendant insurer, with the adjuster included in the release as a mere afterthought. And, in candid acknowledgement of the fact that joinder of an insurance adjuster is nothing more than a strategic ploy to deprive the federal courts of jurisdiction, policyholders routinely offer to dismiss the adjuster from hail claim actions at an early stage in exchange for the defendant insurer’s agreement to refrain from removing the case to federal court.
Fortunately, One Way Investments and similar federal court decisions signal the end of this transparent game. Absent highly unique circumstances, suing Texas adjusters in Texas hail damage claims will almost always be considered fraudulent joinder.
The content of this article is intended to provide general information and as a guide to the subject matter only. Please contact an Advise & Consult, Inc. expert for advice on your specific circumstances.