The United States District Court for the Northern District of Indiana recently held that the insureds’ misrepresentation claim against its insurance agent was a viable claim under Indiana law and was distinct from claims that the insurer adjusted their claim in bad faith. Biernacki v. State Farm Fire and Casualty Company, 2:08-CV-288 (N.D. Ind. Feb. 6, 2009).
The insureds originally brought suit against their homeowner’s insurer and their insurance agent in an Indiana state court after their home was severely damaged by fire. The insureds alleged that the insurer breached the insurance contract, acted in bad faith, and inflicted emotional distress on them in connection with the adjustment of their claim. With respect to their claim against their agent, the insureds maintained that he, among other things, misled them into buying the policy that damaged them by failing to advise them of their right to change insurers at any time and for any reason, and by influencing them to use third-party insurance even though the defendant insurer’s policy terms were more favorable in light of their property damage.
The defendants removed the case to federal court on the basis of diversity jurisdiction, even though the insureds and the agent were citizens of the same state. The defendants maintained that the insureds fraudulently joined the agent in the suit for the sole purpose of destroying diversity of citizenship and, therefore, also moved to dismiss him from the lawsuit entirely. The insureds moved to remand the case to state court.
Under Indiana law, to prove fraudulent joinder, a party must demonstrate either actual fraud in the pleading of jurisdictional facts or that the plaintiff would have no possibility of maintaining a claim against the non-diverse defendant in state court. The defendants argued the latter, relying on Seventh Circuit authority holding that an insurance agent cannot be individually liable for an insurer’s alleged bad faith conduct.
In denying the defendants’ motion and remanding the case, in part, the court held that the insureds claims against the agent, insofar as they related to the agent’s misrepresentations prior to the loss, were distinct from the insureds’ claims against the insurer, which related to its adjustment of their claim. Because Indiana recognizes causes of action against insurance agents by insureds, the defendants were unable to demonstrate that plaintiffs fraudulently joined the agent.