Last week, the U.S. District Court for the Southern District of Texas concluded that a reasonable basis existed to conclude that the insured might succeed on its claim against the adjuster; thus, the adjuster was not improperly joined and complete diversity of citizenship did not exist for federal jurisdiction. In KSN Hospitality LLC v Great Lakes Ins, No. 1:22-CV-092, 2022 WL 16815187 (S.D. Tex., Nov. 8, 2022, mem. op.), KSN Hospitality LLC (“KSN”) (a Texas company) sued its insurer, Great Lakes, and the insurance adjuster, Luis Miller (a Texas citizen), in state court, asserting claims of breach of contract and violations of the Texas Insurance Code, in connection with Great Lakes’ denial of KSN’s claim for coverage for roof damage allegedly caused by a storm.  As to the claims against Miller, KSN pled the following:  Miller misled KSN by saying that the policy did not cover the reported damage; Miller misrepresented that the property had no storm-related damage;  Miller failed to fully inspect all damage to the property and ignored the obvious damage to the property's roofing system; Miller refused to acknowledge the missing, torn, and loose shingle tabs that existed all over the roof; and Miller's conduct formed part of a results-oriented investigation of Plaintiff's claim, which resulted in a biased, unfair, and inequitable evaluation of Plaintiff's losses on the property.” 

Great Lakes removed the lawsuit to federal court, contending that Miller was improperly joined and, consequently, complete diversity existed between KSN and Great Lakes to establish federal jurisdiction.  In response, KSN filed a motion to remand to state court, which the U.S. District Court granted.   

In granting remand, the Court concluded that “a reasonable basis exist[ed] for the Court to conclude that KSN might succeed on a claim and recover damages from Miller.”  Thus, Miller was not improperly joined and complete diversity of citizenship did not exist. The Court reasoned that the factual allegations against Miller “support[ed] a cause of action under Section 541.051” and “KSN sufficiently pled that Miller engaged in an inadequate investigation and, in connection with and based on that investigation, made misrepresentations to KSN regarding the terms of the policy and the benefits that KSN merited under the policy.”  

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