The federal district court refused to remand the case for lack of subject matter jurisdiction despite the insurer's argument that plaintiffs fraudulently joined their insurance agent as a defendant. Goostree v. Liberty Nat'l Life Ins. Co., 2019 LEXIS U.S. Dis. LEXIS 100604 (N.D. Ala. June 17, 2019).
Plaintiffs filed a putative class action consisting of people in Alabama who purchased or owned life insurance policies through Liberty National for which their premiums paid exceeded their death benefits payable. Liberty National's agent, Robert D. Brice, was also a defendant. Bice had been the insurance agent for Mr. and Mrs. Padgett since 1985. According to the complaint, Bice knew the Padgetts were in their 80's and that Mr. Bic was retired and receiving social security. Nevertheless, Bice recommend that the Padgetts buy multiple insurance policies, for which the premiums collectively exceeded $14,000 per year. Bice continuously represented to the Padgetts that such additional insurance was beneficial to them despite his knowing that each successive policy would cost more in premiums than the death benefit payable under the policy.
Liberty National removed the case to federal court, alleging that the court had diversity of citizenship jurisdiction and that the court should disregard the citizenship of Mr. Bice because plaintiffs fraudulently joined him as a defendant. Liberty National also alleged the court had jurisdiction under the Class Action Fairness Act. Liberty National and Bice each filed a motion to dismiss.
The case considered subject matter jurisdiction. Bice was not a party to any of the insurance contracts. Bic did not sign the contract on behalf of Liberty National. The only parties were the Padgetts and Liberty National. The Padgetts did not allege that Bice acted in any capacity other than that of Liberty National's agent.
Holding an insurance agent liable for breach of contract for failing to procure insurance differed from holding an insurance agent liable for the alleged excessive premiums charged by the insurer. The Padgetts did not argue that Bic failed to procure an insurance policy. Instead, they alleged that Bice procured policies unsuitable for the Padgetts' needs. Because Alabama law prevented any agent from being held liable for his principal's alleged breach of contract, the Padgetts had no possibility of asserting a valid breach of contract cause of action against Bice.
The Padgetts also alleged that Bice breached the covenant of good faith and fair dealing. Because the court was considering whether the Padgetts fraudulently joined Bice and not whether the Padgetts failed to state a claim against Bice under F.R.C.P. 12 (b) (6), the court only had to determine whether a possibility existed that the Padgetts stated a claim against Bice. The court could not say with certainty that no Alabama state court would find that a special relationship existed between Bice and the Padgetts. Because the possibility of a claim against Bice for breach of the duty of fair dealing existed due to an alleged special relationship with Bice, the court determined that the Padgetts did not fraudulently join Bice.
Therefore, the court did not have diversity jurisdiction. The court would provide the parties an opportunity to brief whether it had subject matter jurisdiction under the Class Action Fairness Act.