Opinion
Civil Action No. 3:02-CV-1680-M
October 15, 2002
MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiffs' Motion to Remand and for Costs. On July 2, 2002, the Plaintiffs, John Sohmer (acting as representative of Andrew Sohmer's Estate), Ed Sohmer, and Patti Sohmer, filed their First Amended Original Petition in the 134th Judicial District Court of Dallas County, Texas. The Petition asserted claims against Defendants American Medical Security, Incorporated ("American Medical") and United Wisconsin Life Insurance Company ("United Wisconsin") for breach of contract, breach of the duty of good faith and fair dealing, and violations of the Texas Insurance Code, Deceptive Trade Practices Act, and Prompt Payment of Claims Act. Against Defendant Southwest Business Insurance Agency, Inc. ("Southwest"), the Plaintiffs asserted only a negligent misrepresentation claim.
The Defendants removed on the basis of diversity jurisdiction. All of the Plaintiffs are Texas residents. Defendant American Medical is a Delaware corporation, United Wisconsin is a Wisconsin corporation, and both Defendants have their principal places of business in Wisconsin; they are, therefore, residents of Delaware and Wisconsin for purposes of jurisdiction. Defendant Southwest is an insurance agency that represents American Medical and United Wisconsin. It is a Texas corporation with its principal place of business in Texas; it is, therefore, a resident of Texas for jurisdictional purposes.
On August 7, 2002, Defendants American Medical and United Wisconsin removed the case. They asserted removal was proper because, although consideration of Southwest's citizenship would defeat complete diversity and thus make removal improper, Southwest was fraudulently joined. On August 19, 2002, the Sohmers filed a Motion to Remand and for Costs. For the reasons stated herein, the Court DENIES the Sohmers' Motion.
FACTUAL BACKGROUND
During part of 2001, Andrew Sohmer ("Andrew") had a health insurance policy with MEGA Life and Health Insurance Company ("MEGA"). He became dissatisfied with MEGA's policy and began exploring policies offered by other companies. In August 2001, Andrew contacted Southwest. Southwest provided Andrew with an application for health insurance coverage with United Wisconsin. American Medical was the administrator of United Wisconsin's policy. The application required Andrew to list his health history and prior places of treatment. United Wisconsin issued its policy on September 1, 2001.
On December 2001, Andrew suffered severe pain later determined to result from lymphoma. Andrew's doctors began immediate treatment, including surgery and chemotherapy. Andrew later moved in with his parents and received additional treatment. Andrew's health care providers sought and obtained preauthorization from American Medical to treat him.
In March 2002, American Medical and United Wisconsin informed Andrew that United Wisconsin was rescinding the insurance policy issued to Andrew retroactive to the date of its issuance, contending that Andrew failed to fully disclose on his application his prior medical conditions. On June 2, 2002, Andrew died.
ANALYTICAL FRAMEWORK AND STANDARD OF REVIEW
Under the doctrine of fraudulent joinder, "a federal court may assert diversity jurisdiction when a non-diverse defendant has been fraudulently joined in state court to simply disable removal." As the removing parties, American Medical and United Wisconsin bear the heavy burden of proving that the Sohmers fraudulently joined Southwest, the non-diverse party, by either showing that (1) there is an outright fraud in the Sohmers' recitation of jurisdictional facts, or (2) there is no possibility that the Sohmers could have established a cause of action for negligent misrepresentation against Southwest in state court. Because there is no claimed fraud in the recitation of jurisdictional facts here, the second prong is what is germane. Although the Court may "pierce the pleadings" and look at additional evidence regarding the alleged state law claim against Southwest, the Court cannot allow this additional evidence to breathe life into causes of action not asserted in the petition at the time of removal. After all issues are resolved in favor of the Sohmers, if there is no possibility that a Texas court would recognize a valid cause of action for negligent misrepresentation against Southwest, then the Sohmers fraudulently joined Southwest. The Court then must ignore Southwest for purposes of deciding if removal is proper on diversity grounds, thus providing the Court with proper subject matter jurisdiction.
Sanders v. Gen. Motors Corp., 2001 WL 1297443 *2 (N.D. Tex. 2001) (Lynn, J.).
See Burden v. Gen. Dynamics Corp., 60 F.3d 213, 217 (5th Cir. 1995); B, Inc. v. Miller Brewing Co., 663 F.2d 545, 549 (5th Cir. 1981).
See Burden, 60 F.3d. at 217. Defendants suggest that the Court "must" pierce the pleadings and look at additional, summary judgement type evidence; however, the decision whether or not to pierce the pleadings rests firmly within the Court's discretion. Id.
Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 263-64 (5th Cir. 1995).
See Burden, 60 F.3d. at 217; McCall v. UNUM Life Ins. Co. of Am., 2001 WL 1388013 *4 (N.D. Tex. 2001) (Lynn, J.).
Id.
This framework requires the Court to review Texas law regarding an insurance agent's potential liability for negligent misrepresentations in the sale of insurance policies. The Sohmers need to establish the following five elements to prevail on such a claim: (1) Southwest made the representation in the course of its business, or in a transaction in which Southwest had a pecuniary interest; (2) Southwest supplied false information to guide Andrew; (3) Southwest did not exercise reasonable care or competence in obtaining or communicating the information to Andrew; (4) Andrew and the Sohmers suffered pecuniary loss by justifiably relying on Southwest's representation; and (5) Southwest's negligent misrepresentation proximately injured Andrew and/or the Sohmers.
Clardy Mfg. Co. v Marine Midland Business Loans, 88 F.3d 347, 357 (5th Cir. 1996); Heller Healthcare Finance, Inc. v. Irving D. Boyes, 2002 U.S. District LEXIS 12755 *9 (N.D. Tex. 2002) (Fitzwater, J.); McCamish, Martin, Brown Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 791 (Tex. 1999).
In Texas, an insurance agent like Southwest is personally liable for misrepresentations made by its representatives during the course of the agency relationship. To be liable, however, the agent must misrepresent "specific policy terms prior to a loss, and the insured's reliance upon that misrepresentation must actually cause the insured to incur damages." Speculative and conclusory allegations of Southwest's misrepresentations do not support a cause of action. An insurance agent's statement that a policy will protect an insured is generally an expression of opinion, and opinion alone is not sufficient to support an action for fraud or misrepresentation. Moreover, the Court can consider that "given the relative financial positions of most [insurance] companies versus their . . . [agents], the only time an . . . [agent] is going to be sued is when it serves a tactical legal purpose, like defeating diversity."
Waters v. State Farm Mut. Auto. Ins. Co., 158 F.R.D. 107, 108 (S.D. Tex. 1994) (citing State Farm Fire Casualty Co. v. Gros., 818 S.W.2d 908, 913 (Tex.App.-Austin, 1991, no writ)).
Griggs v. State Farm Lloyds, 181 F.3d 694, 701 (5th Cir. 1999).
Waters, 158 F.R.D. at 108 (citing Jewell v. City of Covington, 425 F.2d 459, 460 (5th Cir. 1970)).
See Rodgers v. Insurance Co. of State of Pennsylvania, 513 S.W.2d 113, 119 (Tex.Civ.App.-Fort Worth 1974, writ ref d n.r.e.).
Waters, 158 F.R.D. at 109 (finding fraudulent joinder of insurance agent) (citing Ayoub v. Baggett, 820 F. Supp. 298, 298-300 (S.D. Tex. 1993) (finding fraudulent joinder)).
Here, the Sohmers plead nothing more than that a Southwest agent made a general statement about the policy's coverage:
Plaintiffs would show that Defendant [Southwest] was aware at the time of the application process the needs for which Andy sought to change from the Mega [sic] Policy to the subject [United Wisconsin /American Medical policy]. Despite being aware of these circumstances, [Southwest] misrepresented the coverage that was to be provided by the subject Policy in order to entice Andy to cancel the Mega [sic] Policy and purchase the subject Policy.
Pls.' First Am. Original Pet. ¶ 27.
This is the only reference to Southwest, the entity to which Andrew delivered his application. Deposition testimony that both parties rely on indicates that Andrew Sohmer filled out the application for the United Wisconsin policy on his own, without Southwest's help, and that he wanted to switch from his then-insurer, MEGA, because he was displeased with MEGA.
Def.'s App. in Support of Resp. at 3-7. On May 7, 2002, because of his failing health and pursuant to Texas Rule of Civil Procedure 202, Andrew Sohmer filed a petition to perpetuate testimony. His deposition took place on May 15 and 17, 2002.
The Petition is wholly devoid of any allegations supporting a cause of action for misrepresentation upon which the Sohmers could recover against Southwest. Although Southwest made representations to Andrew in the course of its business, thus satisfying the first element of Plaintiffs' claim, Plaintiffs cannot satisfy the other four elements. There is nothing in the pleadings or in Andrew's deposition testimony to indicate that information Southwest provided was false, nor anything to indicate that Southwest failed to exercise reasonable care. There is no pleading of evidence that Southwest knew or could have known that the insurers would later rescind the policy. The Sohmers' bare allegations also lack sufficient particularity for the Court to conclude that the Sohmers contend that Southwest actually enticed or "guided" Andrew, or that Andrew relied on any specific factual representation. Instead, the pleadings and record evidence indicate that Andrew approached Southwest because he was unhappy with MEGA and filled out the application on his own.
The Court concludes that the Sohmers simply cannot prevail against Southwest on a theory of negligent misrepresentation, the only cause pled in their petition against Southwest. As a result, the Court concludes that Southwest was fraudulently joined, and the Court must disregard Southwest for purposes of assessing whether removal is proper under diversity jurisdiction. Complete diversity exists among the remaining parties; thus, removal is proper. The Court, therefore, DENIES the Sohmers' Motion to Remand.
The Court concludes that when the Defendants filed their notice of removal, the Sohmers failed to plead a cause of action against Southwest upon which relief can be granted; however, the Court does not dismiss Southwest at this time. The Plaintiffs may seek to amend to assert a proper claim against Southwest and/or Southwest's counsel may file a motion to dismiss or for summary judgment.
SO ORDERED.