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Civil Procedure Rules Strike Again

Insured Sees Claim Dismissed for Improper Joinder

For many attorneys, the rules of civil procedure are like a minefield. There are hidden traps everywhere as they seek to move their case along. One wrong step and BOOM, your case could be dismissed. That is exactly what happened in a recent case out of Dallas in Caruth v. Chubb Lloyd’s Insurance Company of Texas, No. 3:17-CV-2748-G. (Full case available HERE).

Factual Background

The original issue stemmed from water leaks that the Caruths allege were caused by wind and hail. The Caruths filed an insurance claim with their insurer, Chubb. Chubb then assigned Cynthia Morgan, an insurance adjuster, to assess and investigate the claim. Morgan hired Roof Technical Services, Inc. to perform the assessment. Roof Technical determined that the damage was not the result of wind or hail.

The Caruths allege “that Morgan mishandled the inspection, which resulted in underpayment and a partial denial of their insurance claim.” This led to the Caruths filing suit in August 2017, in Dallas County District Court. In October, defendants removed the case to federal court on a theory of diversity of citizenship, claiming that Morgan was improperly joined in the suit. Morgan also filed a motion to dismiss plaintiffs’ claims against her.

Court Analysis

After reciting the factual background, the court proceeded to examine whether they even had jurisdiction over this case. There were two possible scenarios for how this case could be decided. The first occurs “[i]f the court concludes that joinder of Morgan was improper, then the court will dismiss the plaintiffs’ claims against Morgan and the case will remain on this court’s docket.”

The second occurs “if the court were to conclude that the Caruths properly joined Morgan as a defendant in the suit, then this court would lack subject matter jurisdiction over the dispute and would therefore be required to remand the case to state court for further proceedings.”

The court explained that removal to federal court could be based on either a federal question or complete diversity of citizenship. Here, both the Caruths and Morgan are citizens of Texas, while Chubb is a citizen of New York, New Jersey, and Pennsylvania. Chubb contends that removal was proper as Morgan was improperly joined, thus keeping diversity of citizenship alive.

In order to conduct this analysis, the court had to examine whether the claims against Morgan were valid.

“Under Texas law, adjusters like Morgan may be held individually liable for violations under Chapter 541 of the Texas Insurance Code.” The Caruths allege that Morgan failed to act in good faith to “effectuate a prompt, fair, and equitable settlement” of their property damage claim. Chubb contended, and the court agreed, that “the Caruths fail[ed] to state a claim against Morgan because the Caruths’ complaint merely recites the statutory language with conclusory allegations that Morgan violated Chapter 541 of the Texas Insurance Code.”

The court further concluded that the Caruths never presented evidence to support violations of any part of Chapter 541. “Because the Caruths have not stated a claim against Morgan, this court concludes that joinder of Morgan was improper.” The court dismissed the claims against Morgan, thus keeping diversity of citizenship intact; the Caruths were free to amend their complaint.

Takeaway

The rules of civil procedure can be a tremendous ally or a formidable foe. In this case, the rules worked in Chubb’s favor as they were able to keep the case out of state court for the time being. Understanding the basic rules of civil procedure provides a strong base from which a winning case strategy can be created.

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