September 23, 2015

In Mainali Corp. v. Covington Specialty Ins. Co., 3:15-CV-1087-D, 2015 WL 5098047, at *1 (N.D. Tex. Aug. 31, 2015), Federal District Court Judge Sid Fitzwater of the Northern District of Texas denied an insured plaintiff’s Motion to Remand and determined Plaintiff improperly joined the adjuster of Covington Specialty Insurance Company in an attempt to defeat diversity jurisdiction.

The case involved a fire that damaged the insured’s property, a Chevron station and convenience store.  Plaintiff alleged Covington insured the property and the policy covered fire damage and business interruption losses.  The insured alleged the field adjuster failed to conduct a reasonable investigation, improperly denied coverage for damage to the property and business losses, underestimated the damage, improperly reduced the amount payable to the insured under the policy, relied on the field adjuster’s inadequate investigation and conclusions regarding the damage, and only paid a portion of the amount due on the claim.  Consequently, the insured was unable to reopen the Chevron station/ convenience store and suffered additional damage in lost business income.  Plaintiff alleged breach of contract, Texas Insurance Code and DTPA causes against Covington, and Texas Insurance Code and DTPA causes of action against the field adjuster.

Covington removed the case on the basis of diversity citizenship, contending Plaintiff improperly joined the field adjuster.  Plaintiff moved to remand shortly thereafter.

Covington argued the field adjuster had been improperly joined because Plaintiff had not alleged a reasonable basis for the court to predict that it could recover against the adjuster.  Covington argued every cause of action alleged in the petition lumped together the allegedly wrongful conduct of the adjuster with that of Covington, without distinguishing the adjuster’s conduct.  It argued the allegations against the adjuster were too conclusory and vague to demonstrate a plausible right to relief. 

The Court determined the allegations against the adjuster for violations of Chapter 541 of the Texas Insurance Code were not actionable because the alleged misrepresentations relate only to the adjuster’s investigation and the scope of the damage, and they did not relate to the coverage provided under the terms of the policy.  Importantly, the Court held the individual adjuster could not be liable under Tex. Ins. Code Ann. §§ 541.060(a) (1), 541.060(a)(2), 541.060(a)(3), and 541.060(a)(7) as a matter of law because an adjuster does not have the ability to affirm or deny coverage of a claim to a policyholder, nor does the adjuster have settlement authority on behalf of an insurer.  The Court further reiterated that an individual adjuster cannot be liable under Chapter 542 of the Texas Insurance Code because that chapter applies only to insurers.

The Court further held there was no reasonable basis to predict that Plaintiff could recover against the adjuster for common law fraud.  As such, Judge Fitzwater dismissed the adjuster from the lawsuit and denied Plaintiff’s motion to remand.