Blog

Newly Enacted Chapter 542A Provides a Partial Safeguard for Adjusters

03/14/2018

By: Rebecca Moore

Under the Texas Insurance Code, an individual who has been damaged by “unfair methods of competition or unfair or deceptive acts or practices in the business of insurance” may bring a cause of action against the “person or persons engaging in such acts or practices.”[1] The prohibited conduct includes “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer's liability has become reasonably clear.”[2] The Insurance Code defines a “person” as any “legal entity engaged in the business of insurance, including an ... adjuster.”[3]

A common occurrence in recent weather-related first-party litigation involves the inclusion in a lawsuit of local or independent adjusters or consultants in a claim. Among other impacts, their inclusion prevents insurers from removing a state-filed case to federal court. Both the Texas Supreme Court and the Fifth Circuit have recognized that an insurance adjuster may be held individually liable for violating chapter 541 of the Insurance Code.[4] Following their lead, multiple lower courts throughout the past few months have found that an adjuster may be held personally liable for engaging in unfair settlement practices under §541.060 of the Texas Insurance Code.[5] 

While the Texas Insurance Code, and various courts for that matter, allow claims against an adjuster in all suits filed after September 1, 2017, the adjuster may no longer be a party that the insured can sue.[6]  Newly enacted Chapter 542A of the Texas Insurance Code requires an insured to give notice to a person that the insured may file suit against 61 days prior to filing suit.[7]  In that 61 days, the insurer may accept liability for the insurance adjusters on the claim. If the insurer makes the election, the insured can no longer file suit against the adjuster, and if the insured files an action, the court must dismiss that action with prejudice.[8] Alternatively, if the insurer accepts the adjuster’s liability while an action is pending, the court must also dismiss that action with prejudice. 

How exactly this will impact weather-related insurance claims is not yet known. If an insurer receives the required notice before a lawsuit is filed and makes a timely election, the insurer should be able to remove the case to federal court even if the local adjuster is named, because the claimant has no realistic chance of recovering against the local adjuster.  However, under existing precedent, if the insurer makes the election while an action is pending, the subsequent dismissal of the local adjuster may not allow the insurer to remove the case. The case law surrounding the removal statute states that the removability of a case is determined as of the date of filing, and a case becomes removable at a later date only by some voluntary action by the claimant. Thus, if an insured does not provide the required notice and files suit, the insurer may not have the opportunity to make the election beforehand. Arguably, the order of dismissal could be the start of the 30-day deadline for removal under 28 U.S.C.A. §1446(b)(3),[9] as long as the order of dismissal is entered no more than one year after commencement of the action. While this may be an incentive to file without notice, the prohibition on recovering attorney’s fees makes it less likely that an insured would file without notice, as cited in Lugenbuhl’s “New Texas Insurance Code Chapter 542A” blog.

So, while multiple courts have been remanding cases back to state court for lack of diversity jurisdiction (the adjuster in most cases is a Texas resident), many future weather related first-party property insurance cases in Texas will most likely be litigated in the federal court system if the carrier is not Texas-based.

[1] Tex. Ins. Code § 541.151.
[2] Tex. Ins. Code § 541.160(a)(2).
[3] Tex. Ins. Code § 541.002.
[4] Liberty Mutual Ins. Co., v. Garrison Contractors, Inc., 966 S.W.2d 482, 486 (Tex.1998) (concluding based on chapter 541's definition of a “person” that an individual employee of an insurance company may be held liable for violations of the chapter, so long as the employee is “engage[d] in the business of insurance”); Gasch, 491 F.3d at 282 (“Texas law clearly authorizes [chapter 541] actions against insurance adjusters in their individual capacities.”) (citing Liberty Mutual, 966 S.W.2d at 486).
[5] See  Adams v. Metropolitan Lloyds Insurance Company of Texas, 2018 WL 560260 (S.D. Tex. Jan. 25, 2018);  Avalanche Food Group, LLC v. Starr Surplus Lines Insurance Company,2018 WL 329826 (S.D. Tex. Jan. 9, 2018);  Kel Lee Properties, Inc. v. Evanston Insurance Company, 2018 WL 286758 (S.D. Tex. Jan. 4, 2018);  Anderson v. Continental Western Insurance Company, 2017 WL 7310390, (N.D. Tex. Dec. 29, 2017);  Mary v. Allstate Texas Lloyd's, 2017 WL 6462009 (N.D. Tex. Dec. 19, 2017); Fernandez v. Allstate Texas Lloyds, 2017 WL 6514684 (N.D. Tex. Dec. 19, 2017);  Cruz v. State Farm Lloyds, 2017 WL 6447200 (N.D. Tex. Dec. 18, 2017).
[6] Specifically, Chapter 542A applies to any first-party claim which arises from “damage to or loss of covered property caused, wholly or partly, by forces of nature, including an earthquake or earth tremor, a wildfire, a flood, a tornado, lightning, a hurricane, hail, wind, a snowstorm or rainstorm.”  Claims against the Texas Windstorm Insurance Agency are exempted from the new law.
[7] Tex. Ins. Code §542A.003.
[8] Tex. Ins. Code §542A.006.
[9] Except as provided in subsection (c), if the case stated by the initial pleading is not removable, a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable. 28 U.S.C.A. §1446(b)(3).

 


From our Houston office, Lugenbuhl shareholder Rebecca Moore focuses her practice on insurance litigation involving coverage issues and bad faith claims in both state and federal court. View her profile to learn more about her experience or visit our Insurance practice section to learn more about our firm’s expertise and services.

The content of this article is not intended to serve as an exhaustive review of the laws, statutes or issues related to insurance litigation, and it is not intended to provide legal advice. The opinions expressed through this article may not reflect the opinions of the firm, individual attorneys or clients.