U.S. DISTRICT COURT ADDRESSES INSURANCE ADJUSTER’S LIABILITY FOR ALLEGED UNFAIR SETTLEMENT PRACTICES

Last week, the United States District Court for the Western District of Texas held that Texas Insurance Code Section 541.060(a)(2) (failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement) is ambiguous with respect to the issue of whether insurance adjusters can be held individually liable under the Section, but the Court refrained from deciding the issue and resolving the Fifth Circuit court split on the issue. In Shrimad Holdings, L.P. d/b/a Quality Inn & Suites v. Seneca Insurance Co. and David Carberry, No. 1:17-cv-968-RP, 2018 WL 1635655 (W.D. Tex. [Austin Division] March 04, 2018, mem. op.), one of Quality Inn & Suites’ hotels was damaged in a storm.  Quality Inn subsequently filed suit alleging that its insurer, Seneca Insurance Company, and Carberry, the adjuster, violated Texas Insurance Code Section 541.060(a)(2) by failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of Quality Inn’s insurance claim in which liability had become reasonably clear.  Seneca removed the case to the U.S. District Court for the Western District of Texas, Austin Division.  Seneca was not diverse from Carberry, but it contended that insurance adjusters, like Carberry, cannot be held liable under Section 541.060(a)(2) and, thus, Carberry was improperly joined in the suit and removal was proper because Seneca and Quality Inn were diverse.  In response, Quality Inn filed a motion to remand the cause to Texas state court. 

In support of its position, Seneca cited decisions of the Northern and Southern Districts of Texas holding that insurance adjusters cannot be held liable under Section 541.060(a)(2) because adjusters do not have settlement authority on behalf of the insurer.  In opposition, Quality Inn cited decisions of the Northern, Southern, and Western Districts of Texas holding that insurance adjusters can be held liable under Section 541.060(a)(2) because adjusters have the ability to affect or bring about the settlement of a claim.  

Instead of resolving the circuit court split, United States District Judge Robert Pitman concluded that “[b]oth the quantity of decisions on each side of this issue and the quality of analysis favoring each conclusion are evidence that reasonable jurists can disagree on the provision's scope, [and] there is thus an ambiguity with respect to the question of whether Section 541.060(a)(2) applied to Carberry.” Because ambiguities are construed against removal and in favor of remand, the court – “for the purpose of deciding Quality Inn’s motion to remand” – held that Section 541.060(a)(2) applied to Carberry.  As such, the parties lacked complete diversity and the case was remanded to Texas state court, without a resolution of the circuit court split and without a decision on whether claims against insurance adjusters under Section 541.060(a)(2) are actionable.