Montano v. Allstate Indemnity ( 2000 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
APR 14 2000
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
JOHN MONTANO; RUTHIE
MONTANO, Individually and as
Parents and Guardians of Zackary
Kyle Montano, a minor, and Hannah
Joy Montano, a minor; ZACKARY
KYLE MONTANO; HANNAH JOY
MONTANO,
Plaintiffs-Appellants,
v. No. 99-2225
(D.C. No. CIV-99-344 RLP/WWD)
ALLSTATE INDEMNITY; (D. N.M.)
BILLIE JO MARSH,
Defendants-Appellees.
ORDER AND JUDGMENT *
Before KELLY , HENRY , and MURPHY , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
argument. See Fed. R. App. P. 34(f); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument.
John Montano suffered severe injuries in an automobile accident with an
uninsured motorist, and sought $400,000 in stacked UM coverage under four
policies issued by Allstate Indemnity Company. Allstate insisted coverage was
limited to $100,000 by UM endorsements on the four policies. Mr. Montano and
his family brought suit in New Mexico state court against Allstate and its agent,
Billie Jo Marsh, whom they allege was responsible for any failure to increase UM
coverage to $100,000 per policy before the accident. Allstate removed the case to
federal court based on diversity jurisdiction, arguing plaintiffs had fraudulently
joined Ms. Marsh to defeat diversity. Plaintiffs moved to remand. The district
court upheld removal on the basis of fraudulent joinder, denied the motion to
remand, and dismissed Ms. Marsh from the action. The court denied plaintiffs’
motion for reconsideration, but certified its decision under Fed. R. Civ. P. 54(b)
to allow appeal. See B., Inc. v. Miller Brewing Co. , 663 F.2d 545, 548 (5th Cir.
1981) (acknowledging general rule that denial of remand is not appealable, but
holding concomitant dismissal of non-diverse defendants, certified as final under
Rule 54(b), permitted review); Sell v. Volkswagen of Am., Inc. , 505 F.2d 953, 955
(6th Cir. 1974) (same).
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For the reasons expressed below, we conclude that plaintiffs did not
fraudulently join Ms. Marsh as a defendant pursuant to state law governing the
personal liability of insurance agents. We therefore reverse the district court’s
denial of plaintiffs’ motion to remand and its dismissal of Ms. Marsh, and remand
with directions to remand the case to state court.
Federal Fraudulent Joinder Standards
We review the propriety of removal on the basis of fraudulent joinder
de novo. See Mayes v. Rapoport , 198 F.3d 457, 460 (4th Cir. 1999); Griggs v.
State Farm Lloyds , 181 F.3d 694, 699 (5th Cir. 1999). Further, in assessing state
claims asserted against non-diverse parties for such purposes, we review the
interpretation of controlling state law de novo as well. See Hart v. Bayer Corp. ,
199 F.3d 239, 243 (5th Cir. 2000). See generally Salve Regina College v. Russell ,
499 U.S. 225, 231 (1991).
The case law places a heavy burden on the party asserting fraudulent
joinder. A representative example states:
To prove their allegation of fraudulent joinder [the removing parties]
must demonstrate that there is no possibility that [plaintiff] would be
able to establish a cause of action against [the joined party] in state
court. In evaluating fraudulent joinder claims, we must initially
resolve all disputed questions of fact and all ambiguities in the
controlling law in favor of the non-removing party. We are then to
determine whether that party has any possibility of recovery against
the party whose joinder is questioned.
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Hart , 199 F.3d at 246 (quotation omitted); see Pampillonia v. RJR Nabisco, Inc. ,
138 F.3d 459, 461 n.3 (2d Cir. 1998) (citing cases); cf. Smoot v. Chicago, Rock
Island & Pac. R.R. Co. , 378 F.2d 879, 882 (10th Cir. 1967) (finding fraudulent
joinder where non-liability of joined party was “established with complete
certainty upon undisputed evidence.”). This standard is more exacting than that
for dismissing a claim under Fed. R. Civ. P. 12(b)(6); indeed, the latter entails the
kind of merits determination that, absent fraudulent joinder, should be left to the
state court where the action was commenced. See Batoff v. State Farm Ins. Co. ,
977 F.2d 848, 851-53 (3d Cir. 1992) (“A claim which can be dismissed only after
an intricate analysis of state law is not so wholly insubstantial and frivolous that
it may be disregarded for purposes of diversity jurisdiction.”). Finally, as the
reference to “ a cause of action” in the quoted passage reflects, remand is required
if any one of the claims against the non-diverse defendant, here Ms. Marsh, is
possibly viable. See Green v. Amerada Hess Corp. , 707 F.2d 201, 207 (5th Cir.
1983) (“Even if [plaintiff] were [precluded] from pursuing all his claims save one
in state court, a remand would be necessary.”).
State Law of Liability
Plaintiffs allege that, a month prior to Mr. Montano’s accident, they
contacted Ms. Marsh’s office and directed that their liability and UM limits be
increased to $100,000/$300,000 per person/accident. They were provided with an
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endorsement for coverage in those amounts, but because it referred only to
“bodily injury” and did not expressly indicate that the increase was for both
liability and UM coverage, Allstate refused to recognize the higher UM limits
after Mr. Montano’s accident. Accordingly, plaintiffs allege that, if Allstate
properly deemed the endorsement ineffective to raise UM limits (an issue they do
not concede), Ms. Marsh is liable for malpractice and breach of fiduciary duty in
failing to procure the requested insurance on their behalf.
In New Mexico, “[a]n insurance agent or broker who undertakes to procure
insurance for others and, through his fault or neglect, fails to do so, may be held
liable for any damage resulting therefrom.” Sanchez v. Martinez , 653 P.2d 897,
900 (N.M. Ct. App. 1982). In such instances, “[t]he defendant may be sued
for breach of contract or negligent default in the performance of a duty imposed
by contract or both.” Id. at 901. This has been the controlling law of the state
for some fifty years. See also, e.g. , Brown v. Cooley , 247 P.2d 868, 871-72
(N.M. 1952); Corbin v. State Farm Ins. Co. , 788 P.2d 345, 347 (N.M. 1990);
Topmiller v. Cain , 657 P.2d 638, 639-40 (N.M. Ct. App. 1983).
Defendants contend this authority is inapplicable, because Ms. Marsh was
an agent for a disclosed principal (Allstate), not an independent agent or broker
acting on plaintiffs’ behalf. In this connection, defendants invoke the general
rule that “[i]n the absence of special circumstances, an agent of the insurer is
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clearly not the agent of the insured.” Thompson v. Occidental Life Ins. Co. , 567
P.2d 62, 64 (N.M. 1977) (holding agent for insurance company did not have duty
to provide insured with policy advice). Thus, they argue, Ms. Marsh cannot be
liable even if she negligently failed to obtain the desired UM coverage from
Allstate at plaintiffs’ request.
Not one New Mexico case applies the quoted principle from Thompson to
bar the liability of an agent for negligent procurement of insurance. On the
contrary, the state supreme court expressly rejected such an argument in Jernigan
v. New Amsterdam Casualty Company , 390 P.2d 278 (N.M. 1964). In that case,
an agent and his firm were sued for failing to obtain insurance requested by the
plaintiff. The supreme court flatly dismissed the agent’s attempt to insulate
himself from liability based on his status as an agent for the insurer:
Werntz contends further that since he was acting as agent for
New Amsterdam, the disclosed principal, there can be no agency
liability [to the plaintiff]. Admittedly, Werntz Agency generally was
New Amsterdam’s authorized agent, but . . . Werntz Agency was not
acting for or in its behalf respecting matters of which plaintiff here
complains.
Id. at 281 (affirming judgment for plaintiff against agent). Other New Mexico
cases reflect straightforward application of negligent-procurement principles to
defendants who were agents of the insurer. See, e.g. , Corbin , 788 P.2d at 346,
347 (identifying defendant as “its [State Farm’s] agent”); Cooley , 247 P.2d at 869
(identifying defendant as “the agent for several insurance companies”); see also
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Topmiller , 657 P.2d at 640 (noting defendant agent dealt exclusively with insurer
whom he had authority to bind). Several other jurisdictions are in accord. See
generally Liability of Insurance Agent or Broker to Insured for Failure
to Procure Insurance , 64 A.L.R. 3d 398, § 11(b) (1976 & 1999 Supp.).
This body of case law is not at odds with Thompson , which acknowledged
“[t]here are circumstances where an insurance agent will be considered the agent
of the insured.” 567 P.2d at 64. The long line of cases from Cooley to Corbin
simply illustrates that an agent’s undertaking to procure coverage for an insured is
one of those circumstances where the agent acts on the insured’s behalf. See
generally 7 Appleman on Insurance 2d, § 47.16 at 400 (1998) (“Where the agent
for an insurance company acts on behalf of the insured, as to such acts he is to be
regarded as the agent of the insured and not of the company.”) (emphasis added).
Further, Thompson ’s specific holding, that an insurance agent owes no duty to
offer the insured policy advice, does not conflict with the quite different principle
that, having undertaken to procure coverage for the insured, the agent must do so
with professional care. Indeed, given “the realities of the insurance industry that
insurance agents are often placed in the position of being dual agents at least with
respect to certain elements of the transaction of business,” it is not surprising that
“the agent may have the duty to exercise reasonable care in obtaining ordered
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coverage but does not have the duty to give advice on available coverages.” Id. , §
47.17, at 402.
Further, and as a more general matter, “an agent may be held individually
liable for his own tortious acts, whether or not he was acting for a disclosed
principal.” Kreischer v. Armijo , 884 P.2d 827, 829 (N.M. Ct. App. 1994); see
Stinson v. Berry , 943 P.2d 129, 134 (N.M. Ct. App. 1997) (same, citing
Restatement (Second) of Agency §§ 343-351 (1958)). In New Mexico, the
insurance agent or broker who fails to procure requested insurance may be sued
for negligence. See Sanchez , 653 P.2d at 900-01. Again, this is in accord with
case law elsewhere:
In most jurisdictions, the cause of action for an insurance
agent’s failure to procure insurance may be either in contract or in
tort. That is so because the relationship between an insurance agent
and his or her client is both contractual and fiduciary; it is unaffected
by fact that insurance agent represents both insurer and insured; and
failure to provide requested coverage may support an action either
for breach of contract or for negligence.
8 Appleman on Insurance § 52.2, at 514. Thus, in suing Ms. Marsh for breach
of fiduciary duty and malpractice, plaintiffs are merely seeking to hold her
“individually liable for [her] own tortious acts,” which they may do “whether or
not she was acting for a disclosed principal.” Kreischer , 884 P.2d at 829.
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Conclusion
In light of the foregoing analysis, we cannot say that plaintiffs have no
possibility of recovery against Ms. Marsh. Thus, her inclusion as a defendant did
not constitute a fraudulent joinder and, consequently, her non-diverse status
should have barred removal to federal court. Further, once “the district court
improperly denied plaintiffs’ motion to remand, the district court thereafter had
no jurisdiction to . . . dismiss[] plaintiffs’ claims with prejudice. Such [action]
. . . would be up to the New Mexico state courts.” Smith v. Blockbuster
Entertainment Corp. , 100 F.3d 878, 881 (10th Cir. 1996).
The order of the district court denying remand and dismissing defendant
Marsh is REVERSED. The cause is REMANDED to the district court with
directions to remand, in turn, to state court. Appellants’ motion to supplement the
appendix is granted, though we note that the added materials, relating to
amendment of the remaining pleadings against Allstate in district court, do not
impact our analysis of the issues on this appeal.
Entered for the Court
Robert H. Henry
Circuit Judge
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