Morgan v. Chubb Lloyds Insurance Company of Texas, 541 F.Supp.3d 754

Background

Plaintiffs sued insurer Chubb (diverse) and its local adjuster Sean Smith (non‑diverse) in Texas state court after an alleged improper claim denial for storm damage.
After suit was filed, Chubb invoked Texas Ins. Code § 542A.006(c) and elected to accept whatever liability Smith might have, prompting the state court to dismiss Smith with prejudice.
Chubb then removed the case to federal court based on diversity jurisdiction, asserting Smith’s citizenship should be disregarded as improperly joined.
Plaintiffs moved to remand, arguing Smith was properly joined and his dismissal was involuntary (not a voluntary act by the plaintiff), so diversity never existed.
The district court analyzed the conflict between the voluntary‑involuntary rule (plaintiff controls removability) and the improper‑joinder doctrine (defendant can show a non‑diverse defendant was never properly joined).
Court held that Smith’s citizenship must be considered, remanded the case to state court, and rejected the view that a post‑filing § 542A.006 election retroactively makes a properly joined non‑diverse defendant improperly joined.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Smith’s citizenship counts for diversity after Chubb’s post‑filing § 542A.006 election	Smith’s citizenship counts because dismissal was involuntary; plaintiff did not create diversity	Chubb: election eliminates any possibility of recovery against Smith, so Smith is improperly joined and his citizenship is disregarded	Court: Smith’s citizenship must be considered; diversity not created; remand granted
Whether a post‑filing § 542A.006 election renders a properly joined non‑diverse defendant improperly joined	Election cannot retroactively make a properly joined defendant improperly joined	Election precludes recovery and thus satisfies improper‑joinder test	Court: Post‑filing § 542A.006 election does not make the defendant improperly joined
Whether the improper‑joinder doctrine overrides the voluntary‑involuntary rule	Voluntary‑involuntary rule controls; plaintiff remains master of the complaint and removal cannot be created by defendant’s unilateral act	Relying on Hoyt and Ramirez, defendant says improper‑joinder can defeat voluntary‑involuntary rule when dismissal makes recovery impossible	Court: Improper‑joinder does not operate as an exception here; it cannot nullify the voluntary‑involuntary rule in these facts
Whether federal court has subject‑matter jurisdiction and removal was proper	No federal jurisdiction because plaintiff’s voluntary acts did not create diversity and joinder was proper at filing	Yes—removal proper because no possibility of recovery against the adjuster at removal	Court: No jurisdiction; removal improper; case remanded to state court

Key Cases Cited

Powers v. Chesapeake & O. Ry., 169 U.S. 92 (1898) (early rule allowing removal after plaintiff voluntarily dismisses non‑diverse defendant)
Whitcomb v. Smithson, 175 U.S. 635 (1900) (only plaintiff’s voluntary acts can convert a nonremovable case into a removable one)
Great N. Ry. Co. v. Alexander, 246 U.S. 276 (1918) (articulating the voluntary‑involuntary rule and plaintiff’s control over removability)
Weems v. Louis Dreyfus Corp., 380 F.2d 545 (5th Cir. 1967) (discussing preservation of the voluntary‑involuntary rule in § 1446 context)
Smallwood v. Ill. Cent. R. Co., 385 F.3d 568 (5th Cir. 2004) (formulating improper‑joinder analysis to test whether plaintiff has any reasonable basis of recovery)
Hoyt v. Lane Const. Corp., 927 F.3d 287 (5th Cir. 2019) (Fifth Circuit decision central to recent conflict between V‑I and improper‑joinder doctrines)
Ramirez v. Allstate Vehicle & Prop. Ins. Co., 490 F. Supp. 3d 1092 (S.D. Tex. 2020) (district‑court decision holding post‑filing § 542A.006 election renders adjuster improperly joined)
Gasch v. Hartford Acc. & Indem. Co., 491 F.3d 278 (5th Cir. 2007) (removal statutes are strictly construed; doubts resolved in favor of remand)