Dalton v. State Farm Lloyds et al

Filing 20

OPINION and ORDER denying 4 MOTION to Remand; Granting 8 MOTION to Dismiss (Rule 12(b)(6) Partial Motion to Dismiss. Plaintiff is Granted leave to file Amended Complaint within twenty days of entry of this order. (Signed by Judge Melinda Harmon) Parties notified.(rvazquez) Modified on 6/20/2013 (rvazquez).

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
SARA DALTON,
Plaintiff,
VS.
STATE FARM LLOYD’S, INC. AND
STEWART BROWN,
Defendants.

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CIVIL ACTION H-12-3004

OPINION AND ORDER
Pending before the Court in the above referenced cause arising
out of an insurance dispute over recovery for hail storm damage to
Plaintiff Sara Dalton’s house and property on January 9, 2012 and
over State Farm’s handling of the claim, timely removed from state
court on diversity grounds based on Plaintiff Sara Dalton’s First
Amended Petition, are Plaintiff’s motion to remand (instrument #4)
and

Defendant

State

Farm

Lloyds’

(“State

Farm’s”)1

motion

to

dismiss (#8).
Allegations of Plaintiff’s First Amended Petition (#1, Exhibit E)
In a bare-bones, conclusory, amended pleading filed in state
court, Plaintiff, a named insured under a property insurance policy
issued by State Farm, filed a claim after her house and property in
Katy, Texas were damaged by a January 9, 2012 hail storm.

1

She

State Farm Lloyds points out that it is incorrectly named
here as State Farm Lloyd’s, Inc.
-1-

asserts that Defendants improperly denied and/or underpaid the
claim. She further alleges that Defendant Stewart Brown (“Brown”),
a Texas resident like Plaintiff, was assigned as an individual
adjuster on the claim, conducted a substandard investigation and
inspection of the property, prepared a report that omitted some of
the damage that he had noted during the inspection, undervalued the
damage he observed, and thus his unreasonable investigation “led to
the underpayment of Plaintiff’s claim.”

She maintains that “State

Farm and Brown performed an outcome-oriented investigation of
Plaintiff’s

claim,

which

resulted

in

a

biased,

unfair

and

inequitable evaluation of Plaintiff’s losses on the Property.” #1,
Ex. E at p.2.
Against State Farm Plaintiff asserts breach of insurance
contract (wrongfully denying and/or underplaying her claim) and
violation of the prompt payment of claims statute (Article 542.051
et seq.) of the Texas Insurance Code.
without

identifying

which

portions

Against both Defendants,
of

the

statutes

she

is

utilizing, she asserts breach of duty of good faith and fair
dealing under §§ 541.051,2 541.060,3 and 541.0614 of the Texas

2

Section 541.051, styled “Misrepresentation Regarding Policy
or Insurer,” provides,
It is an unfair method of competition or an unfair or
deceptive act or practice in the business of insurance
to:
(1) make, issue, or circulate or cause to be made,
issued, or circulated an estimate, illustration,
-2-

circular, or statement misrepresenting with respect to a
policy issued or to be issued:
(A) the terms of the policy;
(B) the benefits or advantages
promised by the policy; or
(c) the dividends or share of
surplus to be received on the
policy;
(2) make a false or misleading statement
regarding the dividends or share of surplus
previously paid on a similar policy;
(3) make a misleading representation
misrepresentation regarding:

or

(A) the financial condition of an
insurer; or
(B) the legal reserve system
which a life insurer operates;

on

(4) use a name or title of a policy or class
of policies that misrepresents the true nature
of the policy or class of policies; or
(5) make a misrepresentation to a policy
holder insured by the insurer for the purpose
of inducing or that tends to induce the
policyholder to allow an existing policy to
lapse or to forfeit or surrender the policy.
3

Section 541.060, addressing “Unfair Settlement Practices,”
provides,
(a) 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;
-3-

(2) failing to attempt in good
effectuate a prompt, fair, and
settlement of:

faith to
equitable

(A) a claim with respect to which
the insurer’s liability has become
reasonably clear or;
(B) a claim under one portion of a
policy with respect to which the
insurer’s
liability
has
become
reasonably clear to influence the
claimant to settle another claim
under
another
portion
of
the
coverage unless payment under one
portion of the coverage constitutes
evidence of liability under another
portion;
(3) failing to promptly provide to a policyholder a reasonable explanation of the basis
in the policy, in relation to the facts or
applicable law, for the insurer’s denial of a
claim or offer of a compromise settlement of a
claim;
(4) failing within a reasonable time to:
(A) affirm or deny coverage of a
claim to a policyholder; or
(B) submit a reservation of rights
to a policyholder;
(5)
refusing,
failing,
or
unreasonably
delaying a settlement offer under applicable
first-party coverage on the basis that other
coverage may be available or that third
parties are responsible for the damages
suffered, except as may be specifically
provided in the policy;
(6) undertaking to enforce a full and final
release of a claim from a policyholder when
only a partial payment has been made, unless
the payment is a compromise settlement of a
-4-

doubtful or disputed claim;
(8) with respect to a Texas personal
automobile insurance policy, delaying or
refusing settlement of a claim solely because
there is other insurance of a different kind
available to satisfy all or part of the loss
forming the basis of that claim; or
(9) requiring a claimant as a condition of
settling a claim to produce the claimant’s
federal income tax returns for examination or
investigation by the person unless:
(A) a court orders the claimant to
produce those tax returns;
(B) the claim involves a fire loss;
or
(C) the claim involves lost profits
or income.
(b) Subsection (a) does not provide a cause of action to
a third party asserting one or more claims against an
insured covered under a liability insurance policy.
4

Entitled “Misrepresentation of Insurance Policy,” Section
541.061 states,
It is an unfair method of competition or an unfair or
deceptive act or practice of the business of insurance to
misrepresent an insurance policy by:
(1) making an untrue statement of material
fact;
(2) failing to state a material fact necessary
to make other statements made not misleading,
considering the circumstances under which the
statements were made;
(3) making a statement in a manner that would
mislead a reasonably prudent person to a false
conclusion of a material fact;
-5-

Insurance Code and violations of the Texas Trade Practices-Consumer Protection Act (“DTPA”), Tex. Bus. & Com. Code § 17.50.
She seeks exemplary and treble damages.
The Court addresses the jurisdictional issue in the motion to
remand first.
Standard of Review
In federal court the standard for stating a claim for which
relief may be granted is controlled by Federal Rules of Civil
Procedure Rule 12(b)(6), 8 and, in the case of fraud, 9, and the
case law addressing them.
12(b)(6)

motion

allegations,

.

to
.

.

“While a complaint attacked by a Rule

dismiss
a

does

plaintiff’s

not

need

obligation

detailed
to

factual

provide

the

‘grounds’ of his ‘entitle[ment] to relief’ requires more than
labels and conclusions, and a formulaic recitation of the elements
of a cause of action will not do . . . .”

Bell Atlantic Corp. v.

Twombly, 127 S. Ct. 1955, 1964-65 (2007)(citations omitted).
“Factual allegations must be enough to raise a right to relief
above the speculative level.”

Id. at 1965, citing 5 C. Wright & A.

Miller, Federal Practice and Procedure § 1216, pp. 235-236 (3d ed.
2004)(“[T]he pleading must contain something more . . . than . . .

(4) making a material misstatement of law; or
(5) failing to disclose a matter required by
law to be disclosed, including failing to make
a disclosure in accordance with another
provision of this code.
-6-

a statement of facts that merely creates a suspicion [of] a legally
cognizable right of action”).

“Twombly jettisoned the minimum

notice pleading requirement of Conley v. Gibson, 355 U.S. 41 . . .
(1957)[“a complaint should not be dismissed for failure to state a
claim unless it appears beyond doubt that the plaintiff can prove
no set of facts in support of his claim which would entitle him to
relief”], and instead required that a complaint allege enough facts
to state a claim that is plausible on its face.”

St. Germain v.

Howard,556 F.3d 261, 263 n.2 (5th Cir. 2009), citing In re Katrina
Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)(“To survive
a Rule 12(b)(6) motion to dismiss, the plaintiff must plead ‘enough
facts to state a claim to relief that is plausible on its face.’”),
citing Twombly, 127 S. Ct. at 1974).

See also Alpert v. Riley, No.

H-04-CV-3774, 2008 WL 304742, *14 (S.D. Tex. Jan. 31, 2008).

“‘A

claim has facial plausibility when the pleaded factual content
allows

the

court

to

draw

the

reasonable

inference

that

the

defendant is liable for the misconduct alleged.’” Montoya v. FedEx
F.3d

Ground Package System, Inc.,

, No. Civ. A. L-08-39,

2010 WL 3081504, * 3 (5th Cir. Aug. 9, 2010), quoting Ashcroft v.
Iqbal, 129 S. Ct. 1937, 1940 (2009). Dismissal is appropriate when
the plaintiff fails to allege “‘enough facts to state a claim to
relief that is plausible on its face’” and therefore fails to
“‘raise a right to relief above the speculative level.’” Montoya,
2010 WL 3081504 at * 3, quoting Twombly, 550 U.S. at 555, 570.
-7-

Furthermore, the plaintiff must plead specific facts, not
merely conclusory allegations, to avoid dismissal. Collins v.
Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000)
“Dismissal is proper if the complaint lacks an allegation regarding
a required element necessary to obtain relief . . . .“

Rios v.

City of Del Rio, Texas, 444 F.3d 417, 421 (5th Cir. 2006), cert.
denied, 549 U.S. 825 (2006).
In addition to Rules 8(a) and 12(b)(6), fraud claims must also
satisfy the heightened pleading standard set out in Federal Rule of
Civil Procedure 9(b): “In allegations alleging fraud . . ., a party
must state with particularity the circumstances constituting fraud
or mistake.

Malice, intent, knowledge, and other conditions of a

person’s mind may be alleged generally.”

A dismissal for failure

to plead with particularity as required by this rule is treated the
same as a Rule 12(b)(6) dismissal for failure to state a claim.
Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir.
1996).

The

Fifth

Circuit

interprets

Rule

9(b)

to

require

“specificity as to the statements (or omissions) considered to be
fraudulent, the speaker, when and why the statements were made, and
an explanation of why they were fraudulent.”

Plotkin v. IP Axess,

Inc., 407 F.3d 690, 696 (5th Cir. 2005).
Plaintiff’s Motion to Remand
Plaintiff

claims

that

this

Court

lacks

subject

matter

jurisdiction because both she and Brown are domiciled in and
-8-

citizens of Texas, and thus not diverse.
In its response in opposition, State Farm contends that the
First Amended Petition, with its “mere three sentences of vague
factual allegations that barely reference Brown as a Defendant,”
“coupled with her formulaic regurgitation of the elements of the
DTPA and Texas Insurance Code,” does not allege sufficient facts to
maintain any cause of action against Brown that could provide the
Court with a reasonable basis to predict that Plaintiff might be
able to recover against him, and that he is improperly joined.

As

pointed out in State Farm’s Notice of Removal (#1), Plaintiff does
not identify any act performed by Brown, but merely alleges that he
assisted in adjusting Plaintiff’s claim. State Farm highlights the
fact that Plaintiff has still not served Brown, “a clear indication
of her effort to hinder this Court’s jurisdiction.”5

The First

Amended Petition fails to plead any fact for which Brown could be
held individually liable–-no false, misleading or deceptive acts or
unconscionable acts are identified. This Court has previously held
that when an adjuster’s actions “can be accomplished by [the
insurer] through an agent,” and when the claims against the
adjuster are identical to those against the insurer, the adjuster’s

5

In her reply (#9), Plaintiff asserts and provides
documentary evidence that she has made good faith attempts to
locate and serve Brown, including through his driver’s license and
insurance address and by means of requests for disclosure by State
Farm, but has been unable to find him. The fact remains that she
filed this suit on August 15, 2012, more than nine and a half
months ago, and he has still not been served.
-9-

actions are “indistinguishable from [the insurer’s actions” and
thus insufficient to support a claim against the adjuster.
Atascocita Realty, Inc. v. Western Heritage Ins. Co., Civ. A. No.
4:10-CV-4519, 2012 WL 4052914, *3 (S.D. Tex. Sept. 13, 2012),
citing Cristiano Cosecha Final, Inc. v. Ohio Cas. Ins. Co., Civ. A.
H-10-1846, 2011 WL 240335, *14 (S.D. Tex. Jan. 20, 2011). Moreover
the Fifth Circuit has concluded that “there is no reasonable
possibility that Texas would allow recovery under Article 21.21 (or
the

Texas

Deceptive

Trade

Practices

Act

(DTPA))

against

an

insurance company employee who in the course of his employment
engages in business of insurance, in the absence of evidence
sufficient

to

sustain

a

finding

that

that

employee

himself

committed a violation of Article 21.21 (or the DTPA)(and that such
violation was a cause of damage or legally recognized harm to the
plaintiff.” Hornbuckle v. State Farm Lloyds, 385 F.3d 538, 545 (5th
Cir. 2004)(emphasis in original). The First Amended Petition fails
to allege any false, misleading, deceptive, or unconscionable acts
by Brown or individual acts by Brown to state a claim for violation
of the Texas Insurance Code or the DTPA.
Relevant Law on Improper Joinder
Under 28 U.S.C. § 1441(a)6 any state court action over which
6

Title 28 U.S.C. § 1441(a) states, “Except as otherwise
expressly provided by Act of Congress, any civil action brought in
a State court of which the district courts of the United States
have original jurisdiction, may be removed by the defendant or the
defendants, to the district court of the United States for the
-10-

federal courts would have original jurisdiction may be removed from
state to federal court.

Gasch v. Hartford Accident & Indemnity

Co., 491 F.3d 278, 282 (5th Cir. 2007; Guttierrez v. Flores, 543
F.3d

248,

251

(5th

Cir.

2008)(“A

district

court

has

removal

jurisdiction in any case where it has original jurisdiction.”).
The right to remove depends upon the plaintiff’s pleading at
the time of the petition for removal, i.e., here Plaintiff’s First
Amended Petition.

Pullman Co. v. Jenkins, 305 U.S. 534, 537-38

(1939); Cavallini v. State Farm Mutual Auto Ins., 44 F.3d 256, 264
(5th Cir. 1995); Ford v. Property & Cas. Ins. Co. of Hartford, No.
Civ. A. H-09-1731, 2009 WL 4825222, *2 (S.D. Tex. Dec. 9, 2009).
A plaintiff cannot defeat removal by amending her complaint after
removal.

Cavallini v. State Farm Mutual Ins. Co., 44 F.3d 256, 264

(5th Cir. 1995)(“The rationale for determining jurisdiction based
on the state court complaint a the time of removal is that
“[w]ithout such a rule, disposition of the issue would never be
final, but would instead have to be revisited every time the
plaintiff sought to amend the complaint to assert a new cause of
action against the nondiverse defendant”).

Moreover post-removal

affidavits, such as those from Plaintiff’s son and an alleged
expert

witness

attached

to

her

motion

to

remand,

cannot

be

considered if they present new causes of action or theories not

district and division embracing the place where such action is
pending.”
-11-

raised in the governing state court petition. Griggs v. State Farm
Lloyds, 181 F.3d 694, 694 (5th Cir. 1999)(Post-removal affidavits
may be considered “only to the extent that the factual allegations
in [the] affidavit clarify or amplify the claims actually alleged
in the amended petition that was controlling when the suit was
dismissed.”).

The vague, conclusory First Amended Petition fails

to state a plausible claim for relief for either Defendant here.
The removing party bears the burden of showing that subject
matter jurisdiction exists and that removal was proper. Manguno v.
Prudential Prop. & Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002).
Any doubts are construed against removal because the removal
statute is strictly construed in favor of remand.

Id.

Under 28 U.S.C. § 1441(b), when original federal jurisdiction
would be based on diversity, as is claimed by State Farm here, a
defendant may remove a state court civil action only “if none of
the parties in interest properly joined and served as defendants is
a citizen of the State in which such action is brought.”

The

doctrine of improper joinder, or fraudulent joinder,7 prevents
defeat of federal removal jurisdiction premised on diversity by the
presence of an improperly joined, non-diverse defendant. Borden v.
Allstate Ins. Co., 589 F.3d 168, 171 (5th Cir. 2009).
7

Citizenship

The Fifth Circuit prefers the term “improper joinder” to
“fraudulent joinder” because it is more consistent with the
statutory language in 28 U.S.C. §§ 1141 and 1332. Smallwood v.
Ill. Cent. R. Co., 385 F.3d 568, 571 n.1 and 572-73 (5th Cir.
2004)(en banc), cert. denied, 544 U.S. 992 (2005).
-12-

of an improperly joined party is totally disregarded in determining
the court’s subject matter jurisdiction.

Smallwood v. Illinois

Cent. R.R. Co., 385 F.3d 568, 572 (5th Cir. 2003).
Improper joinder may be established by showing (1) actual
fraud in the pleading of jurisdictional facts or (2) an inability
to establish a cause of action against the non-diverse defendant in
state court.

Gasch, 491 F.3d at 281; Smallwood, 385 F.3d at 573.

The latter is alleged here.

Defendants claiming improper joinder

based on the second type bear a heavy burden of showing there is no
possibility of recovery by the plaintiff against the in-state
defendants, i.e., in other words that there is no reasonable basis
for predicting that state law would allow recovery against the instate defendants.

Travis v. Irby, 326 F.3d 644, 649 (5th Cir.

2003); Smallwood, 385 F.3d at 576. A “reasonable basis” means more
than a mere a hypothetical basis.

Griggs v. State Farm Lloyds, 181

F.3d 694, 701 (5th Cir. 1999)(“whether the plaintiff has stated a
valid state law cause of action depends upon and is tied to the
factual fit between the plaintiffs’ allegations and the pleaded
theory of recovery”).
To determine whether a plaintiff has a “reasonable basis for
recovery under state law, the court may “conduct a Rule 12(b)(6)type analysis.”

Smallwood, 385 F.3d at 573; Anderson v. Georgia

Gulf Lake Charles, 342 Fed. Appx. 911, 915 (5th Cir. 2009).

First

the court should look at the pleadings to determine whether the

-13-

allegations state a claim under state law against the in-state
defendant.

Smallwood, 385 F.3d at 573.

If the “plaintiff has

stated a claim, but has misstated or omitted discrete facts that
would determine the propriety of joinder,” the court may look
beyond the pleadings and consider summary judgment-type evidence.
Georgia Gulf, 342 Fed. Appx. at 915-16.

Discovery should be

restricted and the summary inquiry should be limited to identifying
“discrete

and

undisputed

facts

that

would

bar

a

plaintiffs’

recovery against an in-state defendant; anything more risks ‘moving
the court beyond jurisdiction and into the resolution of the merits
. . . .’”

Id. at 916, quoting Smallwood, 385 F.3d at 573-74.

Furthermore, where the reasons for finding that there is no
reasonable basis for recovery against the in-state defendant would
also dispose of all claims against the diverse defendants, the
entire case should be remanded because “there is no improper
joinder; there is only a lawsuit lacking merit.”

Id. at 574.

The district court must resolve all contested fact issues and
ambiguities of state law in favor of the plaintiff and remand.
Gasch, 491 F.3d at 281.

The Fifth Circuit explains, since “‘the

effect of removal is to deprive the state court of an action
properly
concerns.’

before

it,

removal

raises

significant

federalism

The removal statute is therefore to be strictly

construed, and any doubt about the propriety of removal must be
resolved in favor of remand.”

Id. at 281-82, quoting Carpenter v.

-14-

Wichita Falls Indep. Sch. Dist., 44 F.3d 362, 365-66 (5th Cir.
1995).
An adjuster can be liable under the Texas Insurance Code and
the DTPA.

Chapter 541 of the Texas Insurance Code, a “tie-in

statute,” expressly provides a cause of action for any practice
“specifically enumerated in a subdivision of Section 17.46 of the
DTPA.”

Tex. Ins. Code § 541.151(2)(Vernon 2010).

Department

of

Insurance

adopted

section

21.21

The Texas

of

the

Texas

Administrative Code to “further define” those who may be held
liable under the Insurance Code (“insurers and insurance agents and
other persons in their conduct of the business of insurance . . .
irrespective of whether the person is acting as insurer, principal,
agent, employer or employee, or in other capacity or connection
with

such

insurer”).

Liberty

Mutual

Ins.

Co.

v.

Garrison

Contractors, Inc., 966 S.W. 2d 482, 485 (Tex. 1998)(citing 28 Tex.
Admin. Code § 21.21).

Chapter 541 Subchapter A of the Texas

Insurance Code prohibits any “person” from engaging in deceptive
practices in the business of insurance.

Tex. Ins. Code Ann. §

541.003; see also Gasch, 491 F.3d at 282.

“Person” is defined as

“any individual, corporation, association, partnership . . .

and

any other legal entity engaged in the business of insurance,
including

agents,

counselors.”

brokers,

adjusters,

and

life

insurance

Tex. Ins. Code Ann. § 541.002 (emphasis added).

See

also Garrison Contractors, 966 S.W. 2d at 486-87 (the definition of
-15-

a “person” engaged in the business of insurance in Chapter 541,
Subchapter A, is not limited to insurers, but includes individuals
and company employees, including adjusters); Gasch, 491 F.3d at
283-84 (an adjuster can be held liable under the Texas Insurance
Code).8

Thus a plaintiff may bring a cause of action against an

adjuster who has engaged in deceptive trade practices.
There is no dispute here that in addition to an insurer, as a
matter of law an adjuster may be found liable in his individual
capacity for deceptive or misleading acts in violation of the Texas
Insurance Code and the DTPA.

Garrison Contractors, 966 S.W. 2d at

486; Griggs v. State Farm Lloyds, 181 F.3d 694, 701 (5th Cir. 1999).
Both statutes apply to “any person” who commits one of their
prohibited acts or practices. Tex. Ins. Code Ann. §§ 541.002-.003;
Tex. Bus. & Com. Code Ann. § 17.50; Blanchard, 206 F. Supp. 2d at
845.

District courts within the Fifth Circuit have also found

that a plaintiff can sue an adjuster in his individual capacity for
common law fraud.

See, e.g., Leisure Life, 2009 WL 3834407 at *2;

Lakewood Chiropractic Clinic, 2009 WL 3602043 at *2.
Rather, the issue here is whether State Farm has shown that
there is no reasonable basis to predict that state law would allow

8

Plaintiff explains that while Garrison and Gasch were
decided under Article 21.21, Chapter 541 of the Texas Insurance
Code is a recodification of Article 21.21. Acts 2003, 78th Leg.,
R.S., Ch. 1274, H.B. 2922. The Texas Legislature explicitly stated
that Chapter 541 was enacted as a non-substantive revision of
Article 21.21. Id.
-16-

recovery against the in-state defendant Brown. Smallwood, 385 F.3d
at 573.

In essence State Farm has argued that the pleadings,

although tracking statutory boiler plate, are factually deficient
and fail to state a cause of action against Brown.
Because determining whether an adjuster may be found liable in
his individual capacity for deceptive or misleading acts, also key
here

is

the

“adjuster,”

definition
according

and
the

nature

of

the

work

Texas

Insurance

done

Code

by

an

Ann.

§

4101.001(a)(1), which in relevant part (emphasis added by the
Court) provides
“[A]djuster” means an individual who:
(1)
investigates or adjusts losses on behalf of an
insurer as an independent contractor or as an employee
of:
(A) an adjustment bureau;
(B) an association;
(C) a general property and casualty agent or
personal lines property and casualty agent;
(D) an independent contractor;
(E) an insurer; or
(F) a managing general agent;
Brown undisputedly investigated and prepared a report for
State

Farm

regarding

the

damage

to

Plaintiff’s

property

for

purposes of insurance coverage and thus qualifies as an “adjuster”
under the Code.

As noted earlier, an “adjuster” is expressly

listed as one of the class of persons that engages in the business
of insurance under Texas Insurance Code § 541.002(2).

Moreover,

the Texas Supreme Court has specifically held that “[t]he business

-17-

of insurance includes the investigation of claims and losses.”
Vail v. Texas Farm Bur. Mutual Ins. Co., 754 S.W. 2d 129, 132 (Tex.
1988).

Finally

the

Fifth

Circuit

held

that

an

independent

insurance adjuster that services insurance policies for an insurer
“engages in the business of insurance” and can be held individually
liable under the Texas Insurance Code.

Gasch, 491 F.3d at 282.

As an initial inquiry, the court must ask whether it appears
from the petition that the plaintiff actually intended to sue the
non-diverse defendant, i.e., whether “the record . . . support[s]
any inference that the [plaintiff] intended to actively pursue
claims” against Brown.

Griggs, 181 F.3d at 699.

Factors for the

Court to consider include whether the defendant is merely minimally
mentioned, whether he was ever served, and whether any actionable
claims are specifically alleged against him.

Brown is identified

in the First Amended Petition by name, but he has still not been
served.

The allegations against him are minimal and provide no

facts and therefore fail to establish a plausible claim.

For the

most part the allegations merely track the statutory provisions,
alleging only that Brown inspected the Property and that he
submitted an undervalued repair estimate to State Farm.

These

actions can be accomplished by State Farm through an agent, and as
such, are indistinguishable from State Farm’s actions. No specific
misrepresentation

by

Brown

to

Plaintiff

is

pleaded

nor

any

specified deficiencies determined during his investigation or

-18-

contained in his report are alleged.

Plaintiff’s conclusory claim

against Brown, individually, for insufficient investigation and
undervaluing the claim, presumably incorporated into a report to
State Farm, is insufficient to establish the possibility of a claim
against him individually for violation of the Texas Insurance Code
and/or the DTPA. In Griggs, the Fifth Circuit determined that such
a factually deficient petition that fails to specify any actionable
conduct against the insurance agent individually does not meet even
Texas’ liberal notice pleading standard9 and declined “to expand
the concept of notice pleading this far.”

Griggs, 181 F.3d at 699.

Because, as emphasized by State Farm, the Court must base its
decision on the controlling pleading at the time of removal, i.e.,
the

First

Amended

Petition,

and

because

the

affidavits

of

Plaintiff’s son Jack DeBolt and expert and adjuster Shannon Kimmel
submitted

by

Plaintiff

do

not

clarify

or

amplify

ambiguous

jurisdictional facts or causes of action or theories set forth in
the First Amended Petition in state court,10 the Court finds that
Brown is improperly joined and must be dismissed.

Plaintiff’s

claims against him in the Amended Petition conclusorily track the
statutory language, unsupported by any specific facts regarding his
actions.

The Court reaffirms its conclusion in Atascocita and

Centro Cristiano that where “the claims against the adjuster are

9

10

See discussion below.
Griggs, 181 F.3d at 700.
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identical to those against the insurer, the adjuster’s actions ‘are
indistinguishable from [the insurer’s] actions’ and hence are
insufficient to support a claim against the adjuster.”

Atascocita

Realty, Inc., 2012 WL 4052914 at *3, citing Centro Cristiano, 2011
WL 240335 at *14.

Thus the Court find the plaintiff fails to

establish a cause of action that would be recognized in state
court.

Therefore the Court dismisses Brown from this action

without prejudice as improperly joined, concludes that it has
diversity jurisdiction over this action, and denies Plaintiff’s
motion to remand.
State Farm’s Motion to Dismiss (#8)
State Farm maintains that this action should be dismissed
under Federal Rules of Civil Procedure 8, 9(b), and 12(b)(6)
because it “contains nothing more than the bare bones regurgitation
of sections of the Texas Insurance Code that have become all too
common in first-party bad-faith litigation.”
“Claims challenging violations of the Texas Insurance Code and
the Deceptive Trade Practices Act . . . are subject to the
requirements of Rule 9(b).”

Frith v. Guardian Life Ins. Co. of

America, 9 F. Supp. 2d 734, 742-43 (S.D. Tex. 1998); Tracy v. Chubb
Lloyds Ins. Co. of Texas, Nos. 4:12-cv-042-A, 12-cv-174-A, 2012 WL
2477706. *7 (N.D. Tex. June 28, 2012).
There

is

a

substantial

difference

pleading

standards

between Federal and Texas Rules of Civil Procedure.

Pleading

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in

standards are far more lenient in Texas state court, as summarized
in 1 Tex. Prac. Guide

Civil Pretrial § 5:39 (Database updated

through September 2010):
A petition is sufficiently pleaded if one can
reasonably infer a cause of action or defense from what
is specifically stated. Boyles v. Kerr, 855 S.W. 2d 593,
601 (Tex. 1993); In re Credit Suisse First Boston
Mortgage Capital, LLC, 273 S.W. 3d 843, 850 (Tex. App.–Houston [14th Dist.] 2008, orig. proceeding)(petition
can be sufficient if a claim reasonably may be inferred
from what is specifically stated, and thus, a petition is
not necessarily defective even if the plaintiff has not
specifically alleged one of the elements of a claim); In
re P.D.D., 256 S.W. 3d 834, 939 (Tex. App.--Texarkana
2008, no pet.); San Saba Energy, L.P. v. Crawford, 171
S.W. 3d 323 (Tex. App.--Houston [14th Dist.] 2005, no
pet.); Tull v. Tull,159 S.W. 3d 758, 762 (Tex. App.Dallas 2005, no pet) . . . . Woolam v. Tussing, 54 S.W.
3d 442. 448 (Tex. App.–-Corpus Christi 2001, no
pet.)(pleadings will generally be construed as favorably
as possible to the pleader; the court will look to the
pleader’s intendment and the pleading will be upheld even
if some element of a cause of action has not been
specifically alleged, and every fact will be supplied
that can reasonably be inferred from what is specifically
stated) . . . .
See also 58 Tex. Jur. 3d Pleading § 102 (Database updated October
2010)(“In the absence of a special exception, a pleading will be
construed liberally in the pleader’s favor, and every reasonable
intendment will be indulged in favor of the pleading.

The court

will seek to discover the intendment of the pleader; and the
pleading may be upheld even if some element of the cause of action
or defense has not been specifically alleged.

Every fact will be

supplied that may reasonably be inferred or regarded as being
implied

by

what

is

specifically

-21-

stated.”)(footnote

citations

omitted).11
Unlike for analysis of improper joinder, which must be based
on

the

petition

at

the

time

of

removal,

when

a

plaintiff’s

complaint fails to state a claim under the federal rules, a federal
district court should generally give the plaintiff at least one
chance to amend the complaint under Rule 15(a) before dismissing
the action with prejudice. Great Plains Trust Co v. Morgan Stanley
Dean Witter & Co., 313 F.3d 305, 329 (5th Cir. 2002)(“District
courts often afford plaintiffs at least one opportunity to cure
pleading deficiencies before dismissing a case, unless it is clear
that the defects are incurable or the plaintiffs advise the court
that they are unwilling or unable to amend in a manner that will
avoid dismissal.”); United States ex rel. Adrian v. Regents of the
Univ. of Cal., 363 F.3d 398, 403 (5th Cir. 2004)(“Leave to amend
should be freely given, and outright refusal to grant leave to
11

Texas Rules of Civil Procedure 45 and 47 embody such
liberal construction.
Rule 45 in relevant part states that
pleadings shall
(b) consist of a statement in plain and concise language
of the plaintiff’s cause of action or the defendant’s
grounds of defense. That an allegation be evidentiary or
be of legal conclusion shall not be grounds for objection
when fair notice to the opponent is given by the
allegations as a whole . . .
All pleadings shall be construed so as to do substantial
justice.
Rule 47(a) requires “A short statement of the cause of action
sufficient to give fair notice of the claim involved.”
-22-

amend without a justification . . . is considered an abuse of
discretion. [citations omitted]”).
Relevant Substantive Law
To state a claim for breach of contract a plaintiff must show
(1) the existence of a valid contract, (2) that plaintiff performed
or tendered performance, 93) that the defendant breached the
contract, and (4) that the plaintiff was damaged as a result of the
breach.

Harris v. Transamerica Life Ins. Co., 533 F. Supp. 2d 696,

705-06 (W.D. Tex. 2007), citing Pegram v. Honeywell, 361 F.3d 272,
288 (5th Cir. 2004)(citing Runge v. Raytheon E-Systems, Inc., 57
S.W. 3d 562, 565 (Tex. App.--Waco 2001,no pet.)). “A breach occurs
when a party fails or refuses to perform an act that it has
expressly promised to perform.”

Kondos v. Allstate Texas Lloyds,

2005 WL 1004720, *6 (E.D. Tex. 2005).

To state a claim for breach

of an insurance contract, the insured must allege facts showing
coverage, breach of the contract, damage caused by the breach to
the insured, and the amount of damages caused by the breach.

Id.,

citing Block v. Employers Cas. Co., 723 S.W. 2d 173, 178 (Tex.
App.--San Antonio 1986), aff’d, 744 S.W. 2d 940 (Tex. 1988).
As a general rule, Texas law requires an insured to show that
she has suffered damages beyond the damages claims for or resulting
from the breach of the insurance policy contract in order to state
a claim under the Texas Insurance Code or common-law good faith and
fair dealing.

Tracy, 2012 WL 2477706 at *5-6 (and cases cited
-23-

therein).
To

state

a

claim

for

delay

of

payment

under

the

Texas

Insurance Code,12 a plaintiff must allege facts showing that a claim
exists under the insurance policy, that the insurer is liable for
the claim, and the insurer failed to comply with the Insurance
Code.

Allstate Ins. Co. v. Bonner, 51 S.W. 3d 289, 291 (Tex.

2001).
A breach of contract does not, by itself, constitute an unfair

12

Currently Article 542.058 through reference to 542.060.
Section 542.058 provides in relevant part,
(a) Except as otherwise provided, if an insurer, after
receiving all items, statements, and forms reasonably
requested and required under Section 542.055, delays
payment of the claim for a period exceeding the period
specified by other applicable statutes, or, if other
statutes do not specify a period, for more than 60 days,
the insurer shall pay damages and other items as provided
by Section 542.060.
(b) Subsection (a) does not apply in a case in which it
is found as a result of arbitration or litigation that a
claim received by an insurer is invalid and should not be
paid by the insurer.
Section 542.060 provides,
(a) If an insurer that is liable for a claim under an
insurance policy is not in compliance with this
subchapter, the insurer is liable to pay the holder of
the policy or the beneficiary making the claim under the
policy, in addition to the amount of the claim, interest
on the amount of the claim at the rate of 18 percent a
year as damages, together with reasonable attorney’s
fees.
(b) If a suit is filed, the attorney’s fees shall be
taxed as part of the costs in the case.
-24-

or deceptive trade practice under Texas law. Crawford v. Ace Sign,
Inc.,

917

S.W.

2d

12,

14

(Tex.

19996)(discussing

Deceptive Trade practices Act (“DTPA”);

the

Texas

Bailey v. State Farm

Lloyds, No. Civ. A. H-00-3638, 2001 WL 34106907, *6 (S.D. Tex. Apr.
12, 2001)(“Because the Texas Insurance Code and the DTPA are
largely codifications of extant common law requirements, mere
breach of an insurance contract does not automatically create
liability under the Code or the DTPA.

Under Texas law, extra-

contractual tort claims brought under the Texas Insurance Code and
the DTPA require the same predicate for recovery as a common law
claim for bad faith.

Mentioning defendants and then failing to

state specific actionable conduct against them does not suffice to
state a claim against them. [citations omitted]”).13
Texas recognizes a duty of good faith and fair dealing in the
insurance context that arises from the special relationship between
the insurer and the insured, not from the terms of the insurance
contract but from an obligation imposed by law as a result of the
special relationship. Arnold v. Nat’l County Mutual Fire Ins. Co.,
725 S.W. 2d 165, 167 (Tex. 1987); Viles v. Security National Ins.
Co., 788 S.W. 2d 566, 567 (Tex. 1999).

The duty of good faith and

fair dealing is breached only when the breach of contract is
13

The DTPA and Texas Insurance Code provisions involved here,
which both grant relief for unfair or deceptive acts or practices
in the business of insurance, are “analogous” and inform each
other’s interpretation.
Johnson & Higgins of Texas, Inc. v.
Kenneco Energy, Inc., 962 S.W. 2d 507, 518 (Tex. 1998).
-25-

accompanied by an independent tort.
879 S.W. 2d 10, 17 (Tex. 1994).

Transp. Ins. Co. v. Moriel,

See also Travelers Personal Sec.

Ins. Co. V. McClelland, 189 S.W. 3d 846, 852 (Tex. Civ. App.-Houston [1st Dist.] 2006, no pet.)(opining that under Sections
541.060(a)(2) and 541.060(a)(7) of the Texas Insurance Code, an
“insurer violates its duty of good faith and fair dealing by
denying or delaying payment of a claim when the insurer knew or
should have known that it was reasonably clear that the claim was
covered” and that “an insurer

cannot shield itself from bad faith

liability by investigating a claim in a manner calculated to
construct a pretextual basis for denying a claim.”)14; Lundstrom v.
United Serv. Auto. Ass’n-CIC, 192 S.W. 3d 78, 96 (Tex. App.-Houston [14th Dist.] 2006, pet. denied)(“The common law duty of good
faith and fair dealing is breached when an insurer denies or delays
payment of a claim after its liability has become reasonably
clear.”).15

An insurer may also be liable for damages for breach

14

The standard for common law breach of the duty of good faith
and fair dealing is the same as that for the statutory claim.
Progressive County Mutual Insurance Co. v. Boyd, 177 S.W. 3d 919,
922 (Tex. 2005). Thus because she has provided no facts to support
her statutory claims, it is logical that she also fails on the
common law claim.
15

The
standards
for
liability
under
Sections
541.060(a)(2)(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) and
541.060(a)(7)(refusing to pay a claim without conducting a
reasonable investigation) are similar to those of a common law
claim for breach of an insurer’s duty of good faith and fair
dealing and are often examined together. United Servs. Auto Ass’n
-26-

of its duty of good faith and fair dealing when the insurer fails
to attempt to effectuate a settlement where its liability has
become reasonably clear or where it fails to reasonably investigate
a claim in order to determine whether its liability is reasonably
clear.

Universe Life Ins. V. Giles, 950 S.W. 2d 48, 50-51, 55, 56

n.5 (Tex. 1997)(“[A]n insurer will be liable if the insurer knew or
should have known that it was reasonably clear the [insured’s]
claim was covered.”).

As noted, an insurer also breaches its duty

of good faith and fair dealing when “the insurer has no reasonable
basis for denying or delaying payment of [a] claim, and [the
insurer] knew or should have known that fact.”

Arnold, 950 S.W. 2d

at 56, citing Aranda v. Ins. Co. of North America, 748 S.W. 2d 210,
213 (Tex. 1988).16

Whether there is a reasonable basis for denying

a claim must be evaluated by the facts before the insurer at the
time it denied the claim.

Viles, 788 S.W. 2d at 567.

“[W]hether

an insurer acted in bad faith because it denied or delayed payment

v. Croft, 175 S.W. 3d 457, 471-72 (Tex. Civ. App.--Dallas 2005, no
pet.).
16

At the same time, an insurer does not act in bad faith where
a reasonable investigation shows the claim is questionable, and an
insurer maintains the right to deny such a claim without being
subject to liability for an erroneous denial of the claim. United
Services Auto Ass’n v. Croft, 175 S.W. 3d 457, 471 (Tex. App.-Dallas 2005). A bona fide dispute about the insurer’s liability on
the insurance contract does not rise to the level of bad faith.
Transp. Ins. Co. V. Moriel, 879 S.W. 2d 10, 17 (Tex. 1994). If a
claim is not covered by the contract and the insurer has not
otherwise breached the contract, the insurer is not liable for
breach of bad faith and fair dealing where it denies the claim.
Lundstrom, 193 S.W. 3d at 96.
-27-

of a claim after its liability became reasonably clear is a
question for the fact-finder.”

Giles, 950 S.W. 2d at 56.

an

involving

‘objective

determination’

whether

‘a

“It is

reasonable

insurer under similar circumstances would have delayed or denied
the claimant’s benefits.’ So long as a reasonable basis for denial
of the claim exists the insurer will not be subject to liability
for an erroneous denial of a claim.”

Thompson v. Zurich American

Ins. Co., No. A-09-CA-493-SS, 2010 WL 3784204, *4 (W.D. Tex. Sept.
21, 2010), citing Republic Ins. Co. V. Stoker, 903 S.W. 2d 338, 340
(Tex. 1995).
Court’s Decision
Here it is obvious from the discussion above that Plaintiff’s
bare-bones pleading of claims against State Farm is insufficient to
satisfy federal pleading standards.

Moreover, because claims

against State Farm in the First Amended Petition were pleaded in
Texas state court in accordance with the Texas pleading standard,
it would be unfair to hold it to the more stringent standard in
federal court without an opportunity to cure its deficiencies.
Accordingly, for reasons stated above, the Court
ORDERS that the adjuster Brown is DISMISSED for improper
joinder and Plaintiff’s motion to remand (#4) is DENIED. The Court
further
ORDERS that State Farm’s motion to dismiss is GRANTED without
prejudice, but that Plaintiff is GRANTED leave to file an amended
-28-

complaint against State Farm within twenty days of entry of this
order that satisfies the federal pleading standards.

Failure to

comply will result in dismissal of this action.
SIGNED at Houston, Texas, this

19th

day of

June , 2013.

___________________________
MELINDA HARMON
UNITED STATES DISTRICT JUDGE

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