Pennsylvania Court Rejects Fraudulent Joinder Theory, Keeping Insurance Agent in Case

The U.S. District Court for the Western District of Pennsylvania rejected the defendants’— an insurance company and an insurance agent—argument that removal was appropriate based on diversity of citizenship, destroyed only by the Pennsylvania insurance agent’s fraudulent misjoinder. 

While the amount in controversy requirement for removal was met, the court determined the plaintiff had pled a plausible cause of action against the insurance agent, thus, the insurance agent was a proper party to the litigation. Indeed, the defendants argued, the only cause of action against the insurance agent for negligence was supported by scant factual allegations (i.e., no allegations of failure to procure insurance, failure to follow instructions, or responsibility for the insurance policy being void or materially defective, which would have resulted in a different coverage determination). 

The plaintiff countered the insurance agent’s actions or inactions may have contributed to the claim denial and that the plaintiff could amend and bolster the complaint. The court determined there was “reasonable basis in fact and some colorable legal ground” to support the plaintiff’s negligence claim against the insurance broker, including averments regarding advice about types and amounts of coverage and duties owed. 

In rejecting the defendants’ fraudulent misjoinder argument and remanding the case, the court did not evaluate the merits of the plaintiff’s arguments, but it reiterated that Pennsylvania recognizes a negligence cause of action against insurance agents and the plaintiff’s complaint was sufficient to overcome the defendants’ misjoinder claims. 

The issue of fraudulent joinder of insurance agents is not novel; many insurance companies are domiciled outside of the state in which an incident occurs, diversity of citizenship absent the naming of the insurance agent is common. However, federal courts have taken a discerning approach to efforts to dismiss the insurance agent at case inception through claims of fraudulent misjoinder where sufficient facts are pled to establish a potentially viable cause of action. 

_{Case Law Alerts, 1st Quarter, January 2025 is prepared by Marshall Dennehey to provide information on recent developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. Copyright © 2024 Marshall Dennehey, all rights reserved. This article may not be reprinted without the express written permission of our firm.}