Insured Can Prevent Removal to Federal Court by Adding Individual Adjuster as a Defendant

Chukly v. American Family – Insured Can Prevent Removal to Federal Court by Adding Individual Adjuster as a Defendant

Insurers routinely remove breach of contract and bad faith lawsuits to Federal Court, a forum typically thought of as more favorable.  The Arizona District Court recently confirmed that an insured, by adding a separate claim against an individual adjuster (or other employee of the insurer) could defeat the diversity requirement, allowing the case to be sent back to state court.

In Chukly v. American Family Ins. Co., 2017 WL 3262541 (D. Ariz. 2017), the insureds sued their homeowner’s insurer for bad faith arising out of a claim for storm damage to their home.  They also added a claim against the individual adjuster and the claims manager for “aiding and abetting” the alleged bad faith handling of the claim.  Because the individual employees were Arizona residents (as were the insureds), they moved to remand the case based on a lack of complete diversity.  The Court noted that it did not have jurisdiction unless there was complete diversity among all parties, unless one of those parties was “fraudulently joined” simply to defeat the diversity requirement.  Fraudulent joinder occurs if the claim “fails to state a cause of action” against a particular defendant and the failure is “obvious.”
 
The Court pointed out that Arizona courts, both state and federal, have reached “diverging outcomes” in terms of the validity of an “aiding and abetting” claim against an individual claims adjuster or other such employee.  Some have allowed such a claim.  Some courts have found that there is no basis for such a claim unless that adjuster actually engaged in a “separate tortious act” of his own.  As a result, the Court resolved this ambiguity in the law in favor of the insureds and remanded the case back to state court.

This may not create a blanket rule, as each case will depend on the claims raised in that particular lawsuit and the merits of those claims.  However, this ruling does potentially allow more insureds to defeat removal to Federal Court simply by adding this type of claim against individual adjusters and other employees if they are non-diverse.  Of course, if those claims are ultimately dismissed, insurers may have the opportunity to remove the case back to Federal Court at that time.

Learn more about the Barrett | Matura Insurance Litigation and Coverage Practice Group.

Contact Jennifer Bahling or Kevin Barrett for more information.