Houston Federal Judge Denies Remand of Bad Faith Case because of Improper Joinder of Policy’s “Producer”

Judge Keith Ellison denied a plaintiffs’ motion to remand this month in Bradley James v. Chubb Custom Ins. Co., 4:15-CV-3102, 2016 WL 258470 (S.D. Tex. Jan. 21, 2016). The case arose out of a drilling contract between the plaintiffs and Victory Drilling. After Victory allegedly failed to perform its obligations under the contact, the plaintiffs obtained a judgment against Victory in state court. The plaintiffs then pursued claims against Victory’s liability insurer Chubb Custom Insurance Company and the policy’s “producer” U.S. Risk, Inc., alleging that these defendants wrongfully refused to pay the judgment. Though not at issue in this opinion, the Court noted that the plaintiffs qualified as insureds under the plain language of the policy because they were third-party beneficiaries.

Chubb removed the action to federal court, alleging that U.S. Risk was improperly joined as a sole non-diverse defendant. Chubb argued that plaintiffs’ petition contained conclusory allegations that did not differentiate between the two defendants. Chubb also attached summary judgment-type evidence in the form of affidavits from officials of U.S. Risk and Chubb who testified that U.S. Risk did not issue the policy to Victory, had no contractual obligations under the policy, and did not have any responsibility regarding claims handling. Chubb also attached the policy, which simply listed U.S. Risk as the “Producer.”

Although courts generally look only to the pleadings in deciding a motion to remand, Judge Ellison was willing to consider Chubb’s extrinsic evidence because it went to an independent coverage issue. Based on Chubb’s evidence, he held the defendants met their burden of showing that plaintiffs’ improperly joined U.S. Risk to defeat federal diversity jurisdiction. He found that U.S. Risk was simply the agent or broker and that the plaintiffs did nothing to contradict Chubb’s supporting evidence. Concluding that the plaintiffs had no reasonable basis of recovery against U.S. Risk, the Court not only denied the motion to remand but also dismissed the claims against U.S. Risk with prejudice.