FEDERAL COURTS IN NORTH TEXAS CONTINUE TO HOLD 542A DOES NOT SUPPORT REMOVAL WHEN ELECTION IS MADE AFTER SUIT IS FILED

A federal judge in Wichita Falls recently continued the established practice of the Northern District of Texas, remanding a removed insurance case to state court because the insurer accepted liability for its adjuster too late.  In Duncan v. Safeco Ins. Co., No. 7:20-CV-00119-M-BP, 2020 WL 6799180 (N.D. Tex. Nov. 19, 2020) (slip op.) Chief Judge Barbara Lynn adopted a magistrate judge’s prior recommendation (2020 WL 6811485 (N.D. Tex. Oct. 30, 2020)) to remand a first-party insurance case to state court.

Safeco and its Texas adjuster were sued for their handling of a windstorm claim.  Upon receipt of the lawsuit, Safeco immediately elected to accept responsibility for its adjuster under Texas Insurance Code §542A.006, which mandates dismissal of the adjuster.  Safeco removed the case to federal court, contending the non-diverse adjuster was not a proper party to the suit because of its 542A election.

The court granted the policyholder’s motion to remand, holding the adjuster was a proper party at the time suit was filed, and Safeco’s post-suit election could not create diversity jurisdiction if it did not exist at the time suit was filed.  The court also considered the traditional improper joinder standard and concluded the policyholder had pleaded a viable claim against the adjuster.

Editor’s note: Courts in the Northern District of Texas are continuing to build a body of law holding a post-suit election under 542A.006 does not create a genuine improper joinder of the adjuster.  The court’s opinion here was silent on the question of whether Safeco had received the pre-suit notice required by the Insurance Code and the DTPA.  It is likely it did not receive a pre-suit notice, or it presumably would have made the 542A.006 election before being served with the suit.  This ruling, along with other similar rulings in the Northern and Eastern Districts, will likely motivate more policyholder attorneys to ignore the statutory pre-suit notice requirements so they can avoid litigating in federal court.