Fraudulent Joinder of Adjuster ins Suit Against Insurer Does Not Work

Adjuster May Not Be Sued for Breach of Contract or Bad Faith

Aug 19, 2021

BACKGROUND

Alexander lives in Washington County, Pennsylvania. He was driving his motorcycle on State Route 136 in Somerset Township, Pennsylvania. At that time, an unidentified pick-up truck crossed the center line into Alexander's lane, causing Alexander to swerve off of the road to avoid a head-on collision. As a result, Alexander was hospitalized with numerous injuries.

Mid-Century is organized under California law, and has its principal place of business in Los Angeles County, California. Alexander's parents maintain an automobile insurance policy that was issued by Farmers Insurance (“Farmers”), which wholly owns MidCentury. Alexander alleges that because he resides with his parents, he was an insured under their policy with Farmers. That policy provides $100,000 in potential benefits for each vehicle, and it also allows those benefits to be aggregated or stacked for a total policy limit of $400,000. Alexander submitted a request for benefits under the policy and provided documentation in support of his request. Mid-Century, however, has not accepted or denied Alexander's request, or made any offers to resolve his claims.

Alexander alleges that Mid-Century and Bressi failed to objectively and fairly evaluate his claims in a prompt, reasonable, and/or timely manner. Bressi lives in Chester County, Pennsylvania. Alexander contends that Mid-Century and Bressi breached the underlying insurance policy by, inter alia, failing to reasonably investigate the claim. Alexander also contends that Mid-Century and Bressi acted in bad faith under § 8371 for numerous reasons set forth in the Complaint.

SUBJECT MATTER JURISDICTION AND FRAUDULENT JOINDER

Under 28 U.S.C. § 1441(a), a civil action filed in a state court may be properly removed if the federal court would have had original jurisdiction over the action. The removal statute is strictly construed, and all doubts are to be resolved in favor of remand.

Section 1332 requires complete diversity, meaning that every plaintiff must be of diverse state citizenship from every defendant. An exception to the complete diversity rule exists in cases where a non-diverse defendant has been fraudulently joined. The doctrine of fraudulent joinder permits a defendant to remove an action notwithstanding a lack of complete diversity, if the diverse defendant can establish that the non-diverse defendant was “fraudulently” named or joined solely to defeat diversity jurisdiction.

If a non-diverse defendant was fraudulently joined, then the Court may disregard the citizenship of the non-diverse defendant to determine diversity of citizenship.

Joinder is fraudulent where there is no reasonable basis in fact or colorable ground supporting the claim against the joined defendant, or no real intention in good faith to prosecute the action against the defendant or seek a joint judgment. In other words, joinder is fraudulent where a plaintiffs claim against a defendant is wholly insubstantial or frivolous. The removing party bears the “heavy” burden of demonstrating fraudulent joinder.

As pled, the presence of Bressi in this action would defeat subject matter jurisdiction and preclude the Court from examining the substance of her motion to dismiss. But the Defendants have argued that she was fraudulently joined for the sole purpose of defeating diversity jurisdiction and that the law is clear and free from doubt that she cannot be sued, as a matter of law.

ANALYSIS

Defendants requested that the Court dismiss Bressi from this action on the ground that because Bressi is an insurance adjuster employed by Mid-Century, Alexander can pursue neither a breach of contract action nor a statutory bad faith action under Pennsylvania law. Defendants therefore contend that the Court has diversity jurisdiction to adjudicate the remaining claims against Mid-Century because the parties reside in different states and the amount-in-controversy exceeds $75, 000.

The cases cited by Alexander in support of his contention that the so-called “participation theory” allows him to bring breach of contract and statutory bad faith claims against an insurance adjuster are unpersuasive because none dealt with either of those claims as applied to insurance adjusters.

The Supreme Court of Pennsylvania has squarely held that an insured may not maintain a breach of contract action against an insurance adjuster without allegations of a separate contractual relationship between those individuals. Hudock v. Donegal Mut. Ins. Co., 264 A.2d 668, 672 (Pa. 1970). The basic defect in these breach of contract allegations against adjusters is the failure to establish a contractual relationship between the adjusters and the insured appellants. Without such a relationship, it is impossible for the adjusters to be liable for breach of contract to the insureds. The Pennsylvania Superior Court has confirmed that under 42 Pa. C.S. § 8371, “a statutory action for bad faith can only be brought against the insurer.” Brownv. Everett Cash Mutual Ins. Co., 157 A.3d 958, 968 (Pa. Super. 2017).

The policy underlying his breach of contract claim is unquestionably only between his parents and Mid-Century. Nor has it been, nor can it be, alleged that Bressi is the insurer. Accordingly, Alexander is prohibited under Pennsylvania law from bringing either a breach of contract claim or statutory bad faith claim against Bressi. The Court granted Defendants' motion to dismiss the claims against Bressi and Alexander's claims against Bressi were dismissed with prejudice.

ZALMA OPINION

It is surprising to me that fraudulent joinder of adjusters and attorneys is still being tried by plaintiffs' lawyers who wish to avoid federal court. Thirty years ago, after a policyholders' lawyer gave a seminar, I, as a lawyer for insurers and each adjuster or claims manager for the insurer were added as defendants to bad faith lawsuits. I would be forced to use my E&O insurance to defend the lawsuits and defeated them at summary judgment with a declaration that "I am not now, nor have I ever been, and insurer." I then sued the lawyer and his clients for malicious prosecution until the frivolous suits were dismissed. Neither an adjuster nor a lawyer for an insurer have privity of contract with an insured and suing them for breach of contract is frivolous. Ms. Bressi should consider suing the plaintiff and his lawyers for the tort of Malicious prosecution.

© 2021 – Barry Zalma Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

He is available at

http://www.zalma.com

and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4