WILLIAM B. SHUBB, District Judge.
Plaintiffs Christopher M. Huber and Marian Huber brought this action against defendants Tower Group, Inc. ("Tower Group"), Tower Insurance Company of New York ("Tower Insurance"), a subsidiary of Tower Group, Inc., doing business in California as Tower Select Insurance Company ("Tower Select"), and Donald K. Sams and Associates, Inc. ("Sams & Associates"), stating claims arising out a homeowners' insurance dispute. Presently before the court is plaintiffs' motion to remand to state court on the basis that removal was improper because Sams & Associates is not a sham defendant. (Docket No. 18.) Also before the court are Sams & Associates' and Tower Group's motions to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). (Docket Nos. 9, 11.)
Plaintiffs own real property in Grass Valley, California. Plaintiffs' property was insured through a homeowners' insurance policy purchased from Tower Select. (Compl. ¶ 14, Ex. 1.) In early September 2010, plaintiffs' property was damaged during severe weather. (Id. ¶ 18.) Plaintiffs made a claim for damages on October 25, 2010, at the office of their insurance broker. (Id. ¶ 19.)
Plaintiffs allege that after they filed their claim, Tower Select retained Sams & Associates as a "captive private insurance adjuster" to view and assess the damages to the property. (Id. ¶ 20.) On November 23, 2010, Sams & Associates retained Cecil Construction Company ("Cecil") to begin emergency repairs to the property. (Id. ¶ 20.) Plaintiffs allege that the emergency repairs left the property in a state of disrepair and made their house uninhabitable after the property was penetrated by toxic mold, rats, and other vermin. (Id. ¶¶ 20, 22.)
Plaintiffs estimate that repairs on all of the damaged structures on the property will cost approximately $115,690.05 and that the complete eradication of the mold problem will cost approximately $27,321.68. (Id. ¶¶ 22, 24.)
"[A]ny 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 district ... where such action is pending." 28 U.S.C. § 1441(a). The Ninth Circuit strictly construes the removal statute against removal jurisdiction, and the party seeking removal bears the burden of establishing federal jurisdiction. Geographic Expeditions, Inc. v. Estate of Lhotka, 599 F.3d 1102, 1107 (9th Cir.2010) (citing Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir.1992)). Any questions regarding the propriety of removal are resolved in favor of the party moving for remand. Matheson v. Progressive Speciality Ins. Co., 319 F.3d 1089, 1090 (9th Cir.2003). If removal was improper, "the district court lack[s] subject matter jurisdiction, and the action should [be] remanded to the state court." Toumajian v. Frailey, 135 F.3d 648, 653 (9th Cir.1998) (citing 28 U.S.C. § 1447(c)).
Federal courts have original jurisdiction over cases where all parties are citizens of different states and the amount in controversy exceeds $75,000. 28 U.S.C. § 1332. Here, plaintiffs allege that they have been damaged in excess of $200,000, therefore the amount in controversy exceeds $75,000.
On the face of the Complaint, it seems clear that complete diversity does not exist between all parties as Sams & Associates and plaintiffs are California citizens and that, therefore, removal was improper. Defendants argue, however, that Sams & Associates is a fraudulently joined defendant and that the court should disregard its citizenship for purposes of determining diversity jurisdiction. (Notice of Removal at 3:6-5:6.)
A non-diverse defendant may be disregarded for purposes of determining complete diversity if that defendant was fraudulently joined. Hamilton Materials Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir.2007). A plaintiff has fraudulently joined a defendant when the "plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the
Plaintiffs raise one cause of action against Sams & Associates alleging negligent adjustment of loss.
The Moradi-Shalal court further held that, although private claims under section 790.03 are barred, plaintiffs are nevertheless permitted to bring common law claims against insurers for the same conduct. Id. at 304-05, 250 Cal.Rptr. 116, 758 P.2d 58. The Moradi-Shalal decision, however, does not grant plaintiffs the right to bring negligence-based claims that simply mimic a section 790.03 claim because such an action is necessarily indistinguishable from the barred statutory action under section 790.03. Adelman v. Assoc. Int'l Ins. Co., 90 Cal.App.4th 352, 370 n. 11, 108 Cal.Rptr.2d 788 (2d Dist.2001); see also Doyle v. Safeco Ins. Co., No. CV F 08-1587, 2008 WL 5070055, at *6 (E.D.Cal. Nov. 26, 2008). California courts have accordingly held that there exists no separate cause of action for negligent handling of an insurance claim. See Everett Assocs., Inc. v. Transcon. Ins. Co., 35 Fed. Appx. 450, 452 (9th Cir.2002); Caso v. Hartford Cas. Ins. Co., No. CIV S-07-101, 2008 WL 1970024, at *7 (E.D.Cal. May 2, 2008); Benavides v. State Farm Gen. Ins. Co., 136 Cal.App.4th 1241, 1252, 39 Cal.Rptr.3d 650 (2006) (finding that a claim for negligent claims handling cannot be sustained independent of a claim for breach of contract).
Because plaintiffs are unable to state a claim against Sams & Associates under section 790.03 or for negligent adjustment of loss, the court will interpret plaintiffs' claim as a simple negligence claim.
To prove a cause of action for negligence, plaintiffs must show "(1) a legal duty to use reasonable care, (2) breach of that duty, and (3) proximate cause between the breach and (4) the plaintiff's injury." Mendoza v. City of L.A., 66 Cal.App.4th 1333, 1339, 78 Cal.Rptr.2d 525 (2d Dist.1998). "The existence of a legal duty to use reasonable care in a particular factual situation is a question of law for the
The Ninth Circuit has noted that "under California law, negligence claims do not generally lie against insurers." Conestoga Servs. Corp. v. Exec. Risk Indem., Inc., 312 F.3d 976, 980 (9th Cir.2002); see also Everett Assocs., 35 Fed.Appx. at 452; Sanchez v. Lindsey Morden Claims Servs., Inc., 72 Cal.App.4th 249, 254-55, 84 Cal.Rptr.2d 799 (2d Dist.1999) ("[N]egligence is not among the theories or recovery generally available against insurers."). "Despite the open-ended language of California courts that negligence actions generally do not lie against insurers, there is no case law that provides a guide for when such exceptions are appropriate." Diamond v. State Farm Mut. Auto. Ins. Co., No. CIV S-09-1110, 2011 WL 1807331, at *18 (E.D.Cal. May 11, 2011).
California courts have developed a body of caselaw specifically addressing the duties of insurance adjusters to insureds. These cases hold that no such duty exists where the adjuster is acting on behalf of the insurer.
The California Court of Appeals decision in Sanchez is the leading case evaluating the duty of independent insurance adjusters and presents circumstances very similar to those present in this case. In Sanchez, an independent insurance adjustor
The court relied on several factors in reaching this determination. First, the court noted that the adjuster is subject to the control of its principal, the insurer, and that it is the principal that ultimately decides coverage issues, and thus any injury to the insured is primarily attributable to the principal's actions. Id. at 253, 84 Cal.Rptr.2d 799. Second, the insurer may limit its exposure to the insured, but the adjuster does not have any contractual ability to do so. Imposing a duty on the adjuster would therefore expose it to greater liability than the principal. Id. Third, the adjuster owes a duty of loyalty to its principal and imposing an additional duty to the insured would create conflicting obligations that would interfere with the adjuster's faithful performance of its duty toward the principal. Id. Finally, the court found that the goal of deterring negligent conduct would not be significantly advanced by imposing a duty because adjusters are already deterred by the fact that the principal who hired them can seek indemnity from the adjuster for negligent conduct. Id. at 253-54, 84 Cal.Rptr.2d 799.
Although factually similar, the case at hand can be distinguished from Sanchez in one important respect — plaintiffs do not merely allege that they should have received a higher monetary payout under their insurance policy, they allege that Sams & Associates' authorization and oversight of emergency repairs resulted in damage to their property. Plaintiffs' claim is therefore more expansive than a claim that merely disputes the size of an insurance policy payment because they argue that Sams & Associates' actions extended to include a tort against their physical property. The Sanchez court narrowed its holding to find that an "adjuster is not liable in tort to the insured for alleged negligent claims handling which causes only economic loss." Id. at 250-51, 84 Cal.Rptr.2d 799 (emphasis added). In noting that its holding "is also consistent with the general law of agency," the court stated that "[a]n agent's mere failure to perform a duty owed to his principal may render him liable to third persons who rely on his undertaking where there is physical damage to person or property." Id. at 255, 84 Cal.Rptr.2d 799.
Caselaw stating that insurance adjusters do not owe a duty to an insured uniformly address claims that the adjuster's actions contributed to the insurance company's
During oral arguments, defendants suggested that because the physical property damage at issue occurred as part of Sams & Associates' claims investigation process, it is not an independent tort action that lies outside of the agency relationship. Damage caused by an insurance company's agent during the course of its investigation, however, is not automatically exempt from individual tort liability. In Miletich v. Travelers Property Casualty Insurance Co., No. D046869, 2006 WL 2497895 (4th Dist. Aug. 30, 2006), the California Court of Appeals held that a roofer hired by an insurance company to inspect the insured's roof for covered damage could be held individually liable for damage to the insured's roof caused by his negligence during the inspection. Id. at *6. The court found that Sanchez "did not purport to alter" established law that "torts committed in the course and scope of [defendant's] agency" remained a basis for the agent's individual liability. Id.
There is no clear California precedent addressing the question of an insurance adjuster's liability to an insured for property damage. Courts determining the economic loss limitation in Sanchez in other contexts have held that agents of insurance companies can be held liable for damage to person or property. See, e.g., Mintz v. Blue Cross of Cal., 172 Cal.App.4th 1594, 1615, 92 Cal.Rptr.3d 422 (2d Dist.2009) ("[C]onsiderations identified in Sanchez must necessarily be weighed differently when the result of a lack of due care is physical injury from the withholding of medical treatments."); Miletich, 2006 WL 2497895, at *6 (upholding negligence claim against insurance company's roofing inspector for damage caused during inspection). Although these cases are not on all fours with the present case, and a court considering an insurance adjuster's liability may choose to extend the rule established in Sanchez to actions causing damage to the insured's property, a court may also conclude otherwise.
The court must remand if there is a "non-fanciful possibility that the plaintiffs can state a claim against the non-diverse defendant." Vu, 602 F.Supp.2d at 1154. Without clear precedent establishing that no claim may be stated against Sams & Associates, the court is unable to conclude that plaintiffs' "failure is obvious according to the settled rules of the state." McCabe, 811 F.2d at 1339. Defendants have therefore not shown that plaintiffs will be unable state a viable claim against Sams & Associates. Accordingly, it has not proven by clear and convincing evidence that joinder as to Sams & Associates was fraudulent. Sams & Associates is therefore a legitimately named defendant and is a citizen of the same state as plaintiffs. Accordingly, complete diversity does not exist and there was no federal jurisdiction to support removal.
Because the joinder of Sams & Associates was not fraudulent, the court will grant plaintiffs' motion to remand and will deny Sams & Associates' and Tower Group's motion to dismiss as moot. Nonetheless,
IT IS THEREFORE ORDERED that plaintiffs' motion to remand be, and the same hereby is, GRANTED.
IT IS FURTHER ORDERED that Sam & Associates' and Tower Group's motions to dismiss be, and the same hereby are, DENIED as moot.
IT IS FURTHER ORDERED that plaintiffs' motion for attorney's fees be, and the same hereby is, DENIED.
