Last Tuesday, Houston District Judge Lee Rosenthal remanded a Hurricane Harvey lawsuit against an insurer and an agent who allegedly failed to procure adequate insurance.  In Muratore v. Texas Farmers Ins. Co., No. H-18-4654, 2019 WL 2053988 (S.D. Tex May 7, 2019) (slip op.), homeowners sued their insurer and their insurance agent, alleging the agent failed to procure the requested amount of flood insurance.  Farmers removed the suit to federal court on federal question grounds, arguing that the plaintiffs’ clams, alleged in part as breach of a flood insurance policy, arose under the National Flood Insurance Program.  The homeowners argued that because the suit was a failure-to-procure suit and not a claim handling suit, state law controlled and there was no federal question. 

The court agreed with the homeowners, drawing a distinction based on existing Fifth Circuit law between alleged harm to a policyholder under a flood policy, which would be pre-empted by federal law, and alleged harm to a prospective customer in the sale of the policy, which is not pre-empted and is controlled by state law.

Editor’s note: This ruling, issued by the Southern District’s Chief Judge, could have significant effects on the large number of Hurricane Harvey lawsuits expected to be filed this year, and might make it more difficult for insurers to successfully remove lawsuits which name non-diverse agents and allege failure to procure adequate flood insurance.  However, to the extent insurers are willing to accept liability for the acts of their agents, Insurance Code Chapter 542A still provides a route to federal court and dismissal of the non-diverse defendant.

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