MAY 2011 BAD FAITH CASES COURT REMANDS CASE TO STATE COURT WHEN DIVERSITY JURISDICTION IS DESTROYED THROUGH JOINDER OF INDIVIDUAL CLAIMS REP FOUND NOT FRAUDULENT (Western District)

In Ozanne v. State Farm Mutual Automobile Insurance Company, the insured was injured in a motor vehicle collision with another car, and the driver of that car was responsible for the accident.  The insured recovered the full $15,000 available from the other driver’s insurer under her third-party liability claims, but she felt that amount was not adequate to compensate her for the injuries she suffered in the collision.  She therefore pursued underinsured motorist (“UIM”) coverage from her insurer for the remainder of her claims.

The insured’s policy with the insurer provided for up to $250,000 of UIM coverage.  After evaluating the claim, the insurer made an offer of $80,000.  The insured rejected this, and the insurer increased its offer to $100,000 but said that if the insured rejected that offer, its final offer would revert back to $80,000.  The insured again rejected the offer, and the insurer subsequently paid her $80,000 in UIM benefits.

The insured filed a Complaint against for the insurer in state court asking for more UIM benefits, and a jury awarded her the full $250,000 available under the policy.  The insured was not satisfied, as she then filed a Complaint in state court containing one count against the insurer for bad faith and one count against an individual representative of the insurer for violating the Pennsylvania Unfair Trade Practices Act and Consumer Protection Law (“UTPCPL”).  The insurer removed this action to federal court, and the insured then filed a motion to remand the case to state court, which was before the court in this opinion.

The insurer alleged that the insured fraudulently joined the individual defendant, a resident of Pennsylvania, with the sole intention of destroying diversity jurisdiction.

In its analysis, the court noted that if the allegation against the individual was simply that he failed to pay the insured, then it would not be proper to add him as a defendant.  In this case, however, the insured alleged affirmative conduct on the part of the representative that made the addition of him as a defendant valid.  For example, the insured alleged that the representative chose the treat his UIM claim as a “test case,” consideration of which overcame the proper evaluation of the claim.  He also alleged that the representative “failed to perform a reasonable and prompt investigation” and had falsely implied that the insured had committed arson. 

Because adding the representative was a valid action by the insured, the court determined that the count against that representative in the Complaint was not wholly insubstantial and frivolous.  The claim was not dismissed, and diversity jurisdiction was therefore destroyed.  The court granted the insured’s motion to remand and sent the case back to state court.

Date of Decision:  May 5, 2011

Ozanne v. State Farm Mut. Auto. Ins. Co., 2:11-cv-00327-TFM, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 48611, (May 5, 2011) (McVerry, J.)