The Southern District Court of Florida recently addressed the issue of whether a condominium association fraudulently sought to join parties in a lawsuit to destroy diversity jurisdiction in the federal Court. If there was no diversity jurisdiction, the case would have been remanded to the Florida state court, where it was originally filed.
Generally speaking, insurance cases can be removed or filed in federal court when the insurer and policyholder are residents of different states and the amount in controversy exceeds $75,000, exclusive of interest and costs. If there is not complete diversity of citizenship, meaning that if any of the parties are residents of the state where the case was originally filed, then the case can be remanded back to the state court upon request of the parties. In Fontainebleau Gardens Condo. Assoc., Inc. v. Pacific Ins. Co., Ltd., No. 11–20552 (S.D. Fla. April 27, 2011) the condominium association filed a lawsuit in state court against Pacific Insurance for breach of contract for refusing to extend coverage for the association’s Hurricane Wilma claim.
Shortly after the association filed the lawsuit, the insurer removed the case to the Southern District Court of Florida under diversity jurisdiction. The parties are citizens of different states and the amount in dispute exceeded $75,000, exclusive of interest and costs. Thereafter, the association filed a motion seeking joinder of non-diverse party defendants and asking that the lawsuit be remanded to state court. The association sought to join the following non-diverse party defendants: the underwriters of the policy, Delta Insurance Underwriters, Inc.; Pacific surplus lines agent, Janet Monko; Pacific producing agent, Jean Frandsen; Pacific executive general adjuster, Tracy Mednick; and Pacific field adjuster, John Doe. All but one of the additional party defendants are citizens of Florida, so joining them would destroy complete diversity between the parties and would divest the Southern District Court of jurisdiction.
To establish the fraudulent joinder of a party, Pacific Insurance needed to show either (1) there is no possibility the association can establish a cause of action against the party sought to be joined; or (2) the association has fraudulently pled jurisdictional facts to bring the non-diverse party into state court. Pacific asserted that Fontainebleau’s Amended Complaint did not state valid claims against any of the non-diverse party defendants. In the analysis, the Court construed the factual allegations in the light most favorable to the association and resolved uncertainties about state law in its favor.
Regarding Fontainebleau’s negligence claims against the independent adjusters for Pacific, Mednick and Doe, the Court noted that while the claims against them correctly stated the elements of a cause of action for negligence, Florida law does not recognize a cause of action by an insured against an independent insurance adjuster in simple negligence. There was no possibility that Fontainebleau could assert a valid state-law claim for negligence against Mednick and Doe, so the Court ruled that Mednick and Doe were fraudulently joined and refused to remand the case to state court on the basis of their joinder. Fountainebleau also asserted negligent failure to procure insurance coverage against the Pacific agents assigned to its claim and sale of the policy. While it was essentially a valid claim, the Court noted that under Florida law, an insured’s cause of action against an agent for negligence does not accrue until the proceedings against the insurer are final. Accordingly, the Southern District Court denied the association’s motion to join parties and denied the motion to remand the case to state court.