The federal district court agreed remand of the insured's bad faith action to state court was appropriate. Kavanaugh v. Nat'l Union Fire Ins. Co., 2019 U.S. Dist. LEXIS 138465 (C.D. Calif. Aug. 15, 2019).
The insured sued National Union and Great American Insurance Company in state court for failing to defend him in three civil actions. In the alternative, claims were brought against Gallagher Risk Management Services, Inc. and Chelsea Laing for professional negligence in failing to broker and procure adequate insurance for him. Laing acted as an "agent and/or broker and procured at least one of the policies at issue."
Gallagher removed the action based on federal diversity jurisdiction. Although Laing was a citizen of California, Gallagher argued she was fraudulently joined and was a sham defendant, so her citizenship should be disregarded for purposes of diversity jurisdiction. The insured moved to remand because Laing was a proper defendant.
The court noted that where a non-diverse defendant was fraudulently joined, there was no diversity. A non-diverse defendant was fraudulently joined if the plaintiff failed to state a cause of action against a resident defendant, and the failure was obvious according to the settled rules of the state. Courts recognized a strong presumption against fraudulent joinder, which had to be proven by clear and convincing evidence.
Gallagher argued that Laing's status as an employee of Gallagher precluded any personal claims against her. In California, the "dual agency" exception to the general rule for holding agents liable was recognized. Gallagher argued that Laing was authotized to transaction business on behalf of Gallagher and her business address was at the Gallagher offices. This did not address the insured's allegation that Laing was acting as a dual agent for both the insured and Gallagher.
Gallagher failed to meet its burden of demonstrating by clear and convincing evidence that a jury could not possibly find Laing liable under a dual agency principle. Based on the allegations in the complaint, Laing faced potential liability, and her status as an employee of Gallagher did not shield her from such liability. She was not a sham defendant and the court could not discount her citizenship. Accordingly, the court lacked subject matter jurisdiction and the case was remanded.
