Opinion
CAUSE NO. NA 01-247-C-H/H
February 23, 2004
ENTRY ON MOTION TO REMAND TO STATE COURT
For the reasons explained below, the court grants plaintiffs' motion to remand this action to state court. Because the court does not have subject matter jurisdiction over the case, the court does not reach the merits of defendants' motions for summary judgment or any other motions pending before this court.
Procedural Background
On October 12, 2001, plaintiffs Milford and Timna Murphy filed their complaint against defendants Guideone Mutual Insurance Company and Thomas Insurance Services, Inc. ("TIS") in the Circuit Court for Lawrence County, Indiana. The Murphys' home was destroyed by fire in March of that year. The plaintiffs had a homeowner's insurance policy with Guideone which they purchased through TIS. Plaintiffs reported the loss to TIS, which reported the loss to Guideone. Plaintiffs allege that Guideone wrongfully denied their claim for the loss.
Plaintiffs' complaint originally alleged six counts. Both defendants were named in each count. The counts were titled Breach of Contract, Negligence, Tortious Conduct, Bad Faith, RICO, and Crime Victim's Relief Act, all arising under only state law. Plaintiffs were and are citizens of Indiana. Defendant Guideone was and is a citizen of Iowa. TIS was and is a citizen of Indiana for purposes of diversity jurisdiction under 28 U.S.C. § 1332. Guideone and TIS timely removed the case to this court, alleging that it was appropriate to do so pursuant to 28 U.S.C. § 1441 because TIS had been fraudulently joined as a defendant. At the time, plaintiffs did not attempt to fight the removal. Since then, the parties have engaged in written discovery and taken depositions. Both defendants have filed summary judgment motions, and plaintiffs have shifted the focus of their negligence claim against TIS. Most important, plaintiffs responded to the motions for summary judgment with a challenge to the court's subject matter jurisdiction.
Why plaintiffs waited so long to challenge the removal is not explained. Nor is it apparent why TIS did not seek immediate dismissal upon removal. Once a case is removed based upon fraudulent joinder of a party defendant, it makes no sense for that defendant to remain a part of the case. Along these lines, despite the parties' failure to address the issue, the court itself should have raised the jurisdictional issue much earlier. Because the underlying issue of fraudulent joinder goes to subject matter jurisdiction, however, there is no time limit on this court's examination of the propriety of the removal. 28 U.S.C. § 1447(c). Cf. Harmon v. OKI Systems, 115 F.3d 477, 479-80 (7th Cir. 1997) (by failing to seek remand within 30 days after removal, plaintiffs had waived challenges to procedural errors in removal notice, though jurisdictional issues could be raised at any time).
Analysis
Removal of this case was proper only if TIS was fraudulently joined as a defendant. The doctrine of "fraudulent joinder" is not particularly well-named, for it requires neither fraud nor joinder. Mayes v. Rapoport, 198 F.3d 457, 461 n. 8 (4th Cir. 1999). "Fraudulent joinder occurs either when there is no possibility that a plaintiff can state a cause of action against nondiverse defendants in state court, or there has been an outright fraud in plaintiff's pleading of jurisdictional facts." Hoosier Energy Rural Elec. Corp., Inc. v. Amoco. Tax Leasing IV Corp., 34 F.3d 1310, 1315 (7th Cir. 1994), quoting Gottlieb v. Westin Hotel Co., 990 F.2d 323, 327 (7th Cir. 1993). Defendants make no suggestion of "outright fraud" in pleading facts relating to jurisdiction. Instead, defendants contend that plaintiffs failed to allege a viable cause of action against TIS.The applicable standard is one of the most generous under the law. The issue is not whether the plaintiffs are likely to prevail on the merits, or even whether the state courts are likely to adopt the plaintiffs' view of the applicable law. The question is whether there is any reasonable possibility that a state court might rule against Leonard when all fairly disputable issues of both fact and law are resolved in Conk's favor. See Poulos v. Naas Foods, Inc., 959 F.2d 69, 73 (7th Cir. 1992). Thus, even if a state court might ultimately find that plaintiffs failed to state aclaim against TIS, joinder of TIS was not "fraudulent" for purposes of this court's jurisdiction so long as the issue of state law is subject to reasonable argument on both sides. See Batoff v. State Farm Insurance Co., 977 F.2d 848, 853 (3d Cir. 1992) (if "intricate analysis of state law" is needed to dismiss claim, the claim may not be disregarded for purposes of diversity jurisdiction).
In this case the defendants claim that plaintiffs could never recover against TIS on the grounds alleged in the complaint. Because of the federal courts' limited jurisdiction and the presumption that a plaintiff is entitled to be the "master of his own ship" in the selection of a forum for his claims to be heard, the burden placed upon a defendant asserting fraudulent joinder is "heavy." Poulos, 959 F.2d at 73.
In their notice of removal, Guideone and TIS alleged: "Although some of the Plaintiffs' allegations are sounded in tort, they are all, including Bad Faith, rooted in the contractual relationship that exists between an insured and an insurer." Defendants argue that the contractual relationship was between the plaintiffs and Guideone, and that any good faith obligations or duties associated with that relationship did not extend to any person or entity other than the insurance company. Defendants have relied on Thiele v. State Farm Mutual Auto Ins. Co., 973 F. Supp. 1091 (N.D. Ind. 1997), and Erie Ins. Co. v. Hickman, 622 N.E.2d 515 (Ind. 1993), as authority for their argument that TIS could not possibly be saddled with any of the obligations or corresponding duties arising from the contractual relationship between plaintiffs and Guideone.
Hickman holds under Indiana law that the contractual relationship between the insured and insurer brings with it an obligation on the part of the insurer to act in good faith when dealing with the insured. Hickman also teaches that although an alleged breach of that obligation may sound in tort, it is clearly rooted in the contract. 622 N.E.2d at 518-19.
In Thiele a couple tried to sue both an insurance company and one of its employees for breach of that good faith obligation. The defendants removed the case from state court under the theory that the employee had no such obligation and therefore was fraudulently joined. Thiele, 973 F. Supp. at 1093. Judge Lozano found that although the Indiana courts had not squarely addressed whether an insured could sue an employee of the insurer directly for an alleged breach of the duty of good faith, the overwhelming authority showed that such an action would not be recognized and therefore removal was appropriate. Id. The plaintiffs had argued that at least a "possibility" existed that such an action would be recognized and therefore removal should not be allowed. Judge Lozano responded by interpreting previous references to "possibility" in appellate court decisions as meaning "reasonable possibility. " Id. at 1094, citing Poulos, 959 F.2d at 73. The Seventh Circuit came to the same conclusion with regard to the fraudulent joinder of insurance company employees in bad faith cases under Indiana law in Schwartz v. State Farm Mutual Automobile Ins. Co., 174 F.3d 875, 878-79 (7th Cir. 1999).
Plaintiffs alleged in their complaint that TIS owed them a duty as "their agent," as opposed to any duty as an employee of the insurer. In opposing remand, plaintiffs have described the fruits of discovery tending to show that TIS inaccurately completed a blank insurance application form signed by the Murphys. That application was critical to Guideone's decision to deny their claim. According to plaintiffs, either the complaint as originally filed is sufficient to allege a colorable negligence claim against TIS, or the court should recognize an amendment by consent with regard to the negligence claim alleged in the complaint. In responding to the motion to remand, defendants took a cue from plaintiffs and spent the majority of their briefing efforts on whether or not this court should allow an amendment to the complaint.
At the root of this effort to amend is the difference between the nature of the negligence alleged in the complaint as originally filed and the nature of the negligence plaintiffs now wish to assert after going through discovery. Initially, plaintiffs alleged that both TIS and Guideone negligently failed to adjust their claim. Now plaintiffs seek to pursue TIS for negligence associated with the application process. This court's decision regarding remand must be premised on the complaint as it existed at the time of removal. Pullman Co. v. Jenkins, 305 U.S. 534, 537 (1939) (reversing remand ordered by court of appeals on basis of post-removal amendment to complaint); Griggs v. State Farm Lloyds, 181 F.3d 694, 700 (5th Cir. 1999) (affirming denial of remand despite post-removal efforts to add and modify claims). The question is simply whether the Murphys made sufficient allegations to establish a reasonable possibility of prevailing on a cause of action against TIS, again giving them the benefit of the doubt on all fairly debatable questions of both fact and law.
The court must focus on the difference between insurance agents and employees of insurance agents. TIS was not an employee of Guideone, as was the case with the defendants fraudulently joined in Thiele and Schwartz. TIS is an insurance agency that offers insurance from several insurance companies. Indianalaw drawn an important line between independent insurance agents and employees or dedicated agents of an insurance company. An insurance agent representing several companies, sometimes referred to as a broker, is typically an agent of the insured while procuring a policy. The agent then typically becomes an agent of the insurer once the policy is in place. Malone v. Basey, 770 N.E.2d 846, 851 (Ind.App. 2002). A number of factors, however, may lead the courts to find that a broker's duty to an insured is greater than merely procuring insurance. DeHayes Group v. Pretzels, Inc., 786 N.E.2d 779, 782 (Ind.App. 2003) (greater duty may apply where there is close, long-term relationship or other special circumstances; factors include (1) the broker's exercise of broad discretion in servicing the insured's needs; (2) the broker's counseling of the insured concerning specialized insurance coverage; (3) the broker's declaration that he is a highly-skilled insurance expert, coupled with the insured's reliance upon the expertise; and (4) the broker's receipt of compensation, above the customary premium paid, for expert advice provided). On the pleadings, the court could not say that TIS had no independent duty toward the Murphys.
Facts establishing that TIS is an independent insurance agency come from the deposition of Stephen R. Thomas, one of its owners, which was submitted by Guideone in connection with its opposition to the Motion to Remand. Courts can look outside the mere allegations of the complaint in reaching a decision on remand, so long as the testimony clarifies claims actually alleged in the complaint. Griggs v. State Farm Lloyds, 181 F.3d 694, 699-702 (5th Cir. 1999). Here the Murphys have alleged that TIS owed them duties as their agent as opposed to the agent or employee of Guideone.
The question becomes whether the allegations of the complaint at the time of removal were sufficient to raise a possibility of recovery under Indiana law for breach of these agency duties or a possibility for recovery from TIS under any of the other theories asserted. The answer is yes. Except where otherwise provided, Indiana is a notice pleading state. Wee Scots, LLC v. Fleming, 765 N.E.2d 668, 671 (Ind.App. 2002). This court cannot say that there is no "possibility" or even "reasonable possibility" that Indiana courts would find the Murphys' complaint sufficient to assert a viable claim for recovery against TIS. Such a possibility exists at least with respect to two of the counts set forth in the original complaint.
After removal, plaintiffs withdrew the Indiana RICO count in response to an order requiring them to plead the relevant allegations more specifically. They have also filed a motion seeking to dismiss the counts titled Tortious Conduct and Crime Victim's Relief Act as to both defendants. They also seek to dismiss the Negligence count against Guideone, but not TIS.
The negligence count in the Murphys' complaint asserts that TIS owed the plaintiffs a duty as their agent and that it negligently failed to adjust their claim for benefits. Depending on the relationship between the Murphys and TIS, there is a possibility that they could recover for a negligent act related to the adjustment or denial of their claim. In addition, the bad faith count reads in pertinent part as follows: "Defendants breached their duty to act in good faith when dealing with the Murphys." As pled in the complaint, that count was not specific to time and was not limited to the processing of the Murphys' claim. It could also be applied to the application process.
TIS may or may not have owed a duty to the Murphys with respect to the processing of the claim, depending on the nature of their relationship. However, there is certainly a basis in Indiana law for asserting that TIS, as an independent agent or broker, owed the Murphys a duty at the time it procured the insurance policy. TIS was acting as the Murphys' agent in that respect. An agent may be held liable for losses sustained if it does not act in good faith or with due care. Medtech Corp. v. Indiana Ins. Co., 555 N.E.2d 844, 850 (Ind.App. 1990). The Murphys' allegation of breach of the duty of good faith is broad enough to encompass any time period in which TIS was acting as the their agent.
Accordingly, TIS has not been fraudulently joined. This court does not have diversity jurisdiction in this matter. Plaintiffs' Motion to Remand to State Court is GRANTED. This case is hereby REMANDED to the Lawrence Circuit Court.