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A federal district court in Texas has denied an insurance adjuster's motion to dismiss claims filed by insureds against her in an amended complaint. Because that defeated the district court's diversity of citizenship jurisdiction, it then remanded the case to state court.

The Case

After William W. Caruth, III, and Minnie A. Caruth sued their insurer, Chubb Lloyd's Insurance Company of Texas, and insurance adjuster Cynthia Morgan in a Texas state court, their case was removed to federal district court.

The Caruths moved to remand, contending that the district court did not have diversity jurisdiction because Ms. Morgan and they were citizens of Texas.

The district court dismissed the Caruths' claims against Ms. Morgan and denied the Caruths' motion to remand. The district court reasoned that although Texas law permitted recovery from insurance adjusters in their individual capacity, the Caruths had failed to plead sufficient facts to push their claims against Ms. Morgan across the threshold from conceivable to plausible.

The district court, however, afforded the Caruths an opportunity to amend their complaint in an attempt to cure its deficiencies with respect to their claims against Ms. Morgan.

Toward that end, the Caruths filed an amended complaint.

Ms. Morgan then moved to dismiss the Caruths' claims against her pursuant to Federal Rule of Civil Procedure 12(b)(6).

Texas Insurance Law

Section 541.060(a)(1) of the Texas Insurance Code provides:

It is an unfair method of competition or an unfair or deceptive act or practice in the business of insurance to engage in the following unfair settlement practices with respect to a claim by an insured or beneficiary: (1) misrepresenting to a claimant a material fact or policy provision relating to coverage at issue. . . .

The District Court's Decision

The district court denied Ms. Morgan's motion to dismiss the Caruths' claims against her – and remanded the case to Texas state court.

In its decision, the district court explained that it had to determine whether any of the Caruths' re-pleaded claims against Ms. Morgan was sufficient to survive a Rule 12(b)(6) motion; if so, the district court added, it had to remand the entire case.

The district court then ruled that the Caruths' amended complaint pleaded a “potentially valid claim for relief” against Ms. Morgan under the Texas Insurance Code. Unlike their original petition, the district court found, the Caruths' amended complaint contained “substantial factual allegations to substantiate” a Section 541.060(a)(1) claim against Ms. Morgan by alleging that:

- After receiving the assignment of the Caruths' claim, Ms. Morgan inspected the property and represented to the Caruths that certain damaged interior areas of the property would be covered by the Chubb policy;

- Ms. Morgan subsequently denied payment to the Caruths to repair the very damage she had previously represented would be covered;

- In her “First Report,” Ms. Morgan noted that although there was “an exclusion for the rotted wood and maintneance [sic] issues,” the “ensuing water damage” was covered;

- Despite this initial representation – and a second representation by Ms. Morgan at a meeting attended by a number of individuals including a public claims adjuster – Ms. Morgan subsequently “wholly failed and refused to pay [the Caruths] for the ensuing water damage to their home”; and

- The Caruths relied on this and other misrepresentations to their detriment.

Because the district court decided that the Caruths stated a viable claim against Ms. Morgan under the Texas Insurance Code, it said it did not have to consider the validity of the Caruths' additional claims against her. The district court concluded that because the Caruths had stated a valid claim against a non-diverse defendant, complete diversity – as required under 28 U.S.C. § 1332 – was lacking, and it remanded the case back to state court.

The case is Caruth v. Chubb Lloyd's Ins. Co. of Texas, No. 3:17-CV-2748-G (N.D. Tex. Aug. 16, 2018). Attorneys involved include: For William W Caruth, III, Minnie A Caruth, Plaintiff: Michael S Carnahan, LEAD ATTORNEY, Carnahan Thomas, Southlake, TX; Joseph C Edwards, Dallas, TX; Scott M Keller, Law Offices of Scott M Keller, Dallas, TX. For Chubb Lloyd's Insurance Company of Texas, Defendant: Jennifer Gossom Martin, Lisa M Wilson, William Nicholas Terrell, LEAD ATTORNEYS, Wilson, Elser, Moskowitz, Edelman& Dicker LLP, Dallas, TX.

Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.