FEDERAL COURT REMANDS INSURANCE DISPUTE TO STATE COURT DESPITE INSURER’S ACCEPTING LIABILITY FOR ITS ADJUSTER WHILE CASE WAS PENDING IN STATE COURT - REJECTS IMPROPER JOINDER ARGUMENT

August 30, 2022

Last week, a federal court in Fort Worth rejected an insurer’s argument that accepting liability for its adjuster made its case removable to federal court and that the adjuster was improperly joined. Davis v. Allstate Vehicle Property Insurance Co., No. 4:22-cv-705-P, 2022 WL 3641153 (N.D. of Tex.—Fort Worth Aug. 22, 2022) involved an insurance coverage dispute between Casey and Jared Davis (the “Davises”) and their homeowner’s insurance carrier Allstate Vehicle Property and Insurance Company (“Allstate”) that arose after the pipes burst in the Davises’ home due to a winter storm. The Davises sued Allstate and its adjuster Phillip Butler in state court and alleged various violations of the Texas Insurance Code by Allstate and Mr. Butler.

While the case was pending in state court, Allstate elected to accept liability for Mr. Butler under Chapter 542A of the Texas Insurance Code and moved to dismiss Mr. Butler from the lawsuit. However, before the state court could rule on the motion to dismiss, Allstate removed the case to federal court under a theory of diversity jurisdiction. In its notice of removal, Allstate did not dispute Mr. Butler’s Texas citizenry but claimed removal was proper because Mr. Butler was no longer a party to the case since Allstate accepted liability for him and, even if he was still a party, he was improperly joined.

The federal district court, on its own motion, concluded that it lacked subject matter jurisdiction and remanded the case to state court. In doing so, the federal district court held that, even if Allstate elected to accept liability for Mr. Butler, it could not make an action removable by doing so because “an action nonremovable when commenced may become removable thereafter only by the voluntary act of the plaintiff.” Further, the federal district court held that Mr. Butler remained a party because the state court did not grant Allstate’s motion to dismiss and, even if it had, such an order is interlocutory under Texas law and thus does not terminate a defendant’s status as a party.

As to Allstate’s contention that Mr. Butler was improperly joined because the Davises’ state court petition did not adequately state a viable cause of action against Mr. Butler, the federal district court held that the Davises’ state court petition sufficiently stated claims against Mr. Butler because they alleged he violated certain sections of the Texas Insurance Code.