United States District Court, E.D. Kentucky, Southern Division, Pikeville
MEMORANDUM OPINION AND ORDER
AMUL R. THAPAR, District Judge.
The parties in this case seem to grasp the stratagems of Chinese General Wang Jingze: Choose the field of battle and seize the advantage. The plaintiff in this case, a citizen of Kentucky, chose Pike Circuit Court. The defendants, one of whom is also a citizen of Kentucky, removed the case to federal court, arguing that the plaintiff fraudulently joined the Kentucky defendant simply to defeat diversity jurisdiction. Because the defendants fail to carry the heavy burden required to prove fraudulent joinder, the Court will grant plaintiff's motion to remand. Here, as in war, some fields are not available for battle.
On March 27, 2010, 13-year-old R.H. was riding in a car driven by her mother, Brittany Gunter. R. 1-1 at ¶ 5. The car crashed. Id. R.H. suffered various injuries. Id. at ¶ 30. Gunter filed an insurance claim with Shelter Mutual Insurance Co. ("Shelter"), noting that R.H. suffered from "pain in [her] right shoulder, head, [and] back." R. 4-4. When Gunter reported "a lot of pain" and continuing "sore[ness] from the accident, " Shelter's claims adjuster, Rachel Buffin, offered Gunter a $1, 600 settlement. R. 4-5 at 1. Gunter initially refused, explaining to Buffin that R.H. was "really injured and in pain." Id. Once Buffin told Gunter that the settlement was only for R.H.'s bodily injury claim and not for R.H.'s personal injury claim, Gunter accepted Buffin's offer. Id. That same day, Buffin mailed the settlement check and a form called "Indemnifying Release (Minors)." Id.; R. 1-1 at 3-4. But contrary to what Buffin told Gunter, the release purported to "fully settle and discharge all claims against [Shelter], " not just the bodily injury claim. R. 1-1 at 4. The release further stated that the claimant agrees to "reimburse any loss, damage, or costs that [Shelter] pays if any litigation arises from these injuries." Id. When, eleven days later, Buffin noted that the check cleared and no new medical bills had arrived, she "closed [the] claim." R. 4-5 at 1.
Shortly after, R.H. filed this suit in state court. See R. 1-1. Of the ten claims R.H. filed against Shelter, only five also named Buffin as a defendant: Negligence/Gross Negligence, Fraud in the Inducement, Fraud by Omission, Intentional Infliction of Emotional Distress, and Negligent Misrepresentation. Id. In particular, R.H. claims that Buffin committed fraud and made false representations in the terms and description of the release form. R. 1-1 at ¶ 58. R.H. also asserts that Buffin and Shelter committed fraud by omission by settling a claim of less than $10, 000 with a minor without a court order, in violation of KRS § 387.280. R. 1-1 at ¶ 56.
The defendants filed a notice of removal, invoking federal diversity jurisdiction. R. 1. They acknowledge that both Plaintiff R.H. and Defendant Buffin are citizens of Kentucky. Id. They contend, however, that the Court should ignore Buffin's citizenship for diversity purposes because R.H. fraudulently joined her to this suit. Id. at 2-3. Among their arguments, the defendants maintain that Kentucky law permits claims against insurance companies-and, presumably, against insurance adjusters-only for bad faith. R. 9 at 10. Because the claims against Buffin do not include a claim for bad faith, the defendants argue that "there is no colorable basis" for bringing an action against Buffin. R. 1 at 2; see also R. 9 at 13. R.H. filed a motion to remand this case for lack of jurisdiction and for attorney's fees. R. 4-1.
Four times before, the Court has considered allegations of fraudulent joinder based on bad-faith claims against insurance adjusters. See Stacy v. Jerry Potter Trucking, Inc. et al., No. 14-133-ART (E.D. Ky. Dec. 4, 2014); Cantrell v. Owners Ins. Co., No. 13-143-ART, 2014 WL 1168807 (E.D. Ky. Mar. 21, 2014); Collins v. Montpelier U.S. Ins. Co., No. 11-166-ART, 2011 WL 6150583 (E.D. Ky. Dec. 12, 2011); Gibson v. Am. Mining Ins. Co., No. 08-118-ART, 2008 WL 4602747 (E.D. Ky. Oct. 16, 2008). In each of the previous cases, the Court surveyed Kentucky law, found the law ambiguous as to whether bad-faith claims may lie against insurance adjusters, and remanded the case back to state court. But this case is different. R.H. filed her claim of bad faith against Shelter alone; so her claims against Buffin raise a slightly different question: Can a plaintiff sue an insurance adjuster for torts other than a claim of bad faith? Though the question is different, the result is the same.
I. Fraudulent Joinder
The doctrine of fraudulent joinder is designed to prevent plaintiffs from manipulating the rules of joinder to avoid removal. See Saginaw Hous. Comm'n v. Bannum, Inc., 576 F.3d 620, 624 (6th Cir. 2009). But the burden to prove fraudulent joinder rests on the removing party-and the burden is heavy. Kent State Univ. Bd. of Trustees v. Lexington Ins. Co., 512 F.Appx. 485, 489 (6th Cir. 2013). The removing defendants must show that there is not even a "colorable basis" to predict that the plaintiff "may recover" against the nondiverse defendant. Casias v. Wal-Mart Stores, Inc., 695 F.3d 428, 433 (6th Cir. 2012) (internal quotation marks omitted). If "there is arguably a reasonable basis for predicting that the state law might impose liability on the facts involved, " then the claim is colorable. Alexander v. Elec. Data Sys. Corp., 13 F.3d 940, 949 (6th Cir. 1994) (internal quotation marks omitted). Courts resolve any ambiguities of state law against fraudulent joinder-that is, in favor of remand. Coyne v. Am. Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999). So "[t]o establish fraudulent joinder" Shelter and Buffin must demonstrate "the absence of any possibility" that R.H. stated a claim under state law. See 16 James Wm. Moore, Moore's Federal Practice § 107.14[c][iv][A] (3d ed.2011).
The defendants argue that Kentucky law bars all but bad-faith claims against insurance companies. R. 9 at 11. Though the defendants do not directly confront the distinction, they seem to assume that the same prohibition applies to insurance adjusters as well. So, because R.H.'s claims against Buffin are for torts other than bad faith, the defendants argue, those claims have no colorable basis. Id. In support, the defendants trace Kentucky's long common law history of bad-faith claims against insurance companies. See, e.g., Georgia Cas. Co. v. Mann, 46 S.W.2d 777, 780 (1932) ("[W]e agree... that, if an insurer in refusing to settle acts in bad faith, it may become liable in excess of the policy limit.").
But the defendants' authorities do not go as far as they would like. In Mann, for example, the court never explicitly bars all other torts against insurance companies. Id. The numerous cases the defendants cite for the same proposition fall similarly short of definitive. Indeed, much of the language the defendants paint as comprehensive is actually limited to the context of bad-faith claims. See, e.g., United Servs. Auto. Ass'n v. Bult, 183 S.W.3d 181, 186 (Ky. Ct. App. 2003) ("Evidence of mere negligence or failure to pay a claim in timely fashion will not suffice to support a claim for bad faith. " (emphasis added)); Motorists Mut. Ins. Co. v. Glass, 996 S.W.2d 437, 451 (Ky. 1997) ("Mere negligent failure to settle within the policy limits or errors of judgment are insufficient to constitute bad faith. " (emphasis added)); Harvin v. U.S. Fid. & Guar. Co., 428 S.W.2d 213, 215 (Ky. 1968) (declining to recognize a cause of action for "negligent failure to settle within the policy limits" because, " in cases of this type ... there must be a showing of bad faith.'" (emphasis added)).
Neither can the defendants show that the Unfair Claims Settlement Practices Act ("UCSPA") bars common-law causes of action against insurance adjusters. See R. 9 at 11 (citing State Farm Mut. Auto. Ins. Co. v. Reeder, 763 S.W.2d 116, 118 (Ky. 1988); KRS § 304.12-230). As another court of the Eastern District of Kentucky has already held, "the UCSPA is a single statute, rather than a comprehensive code of law." Adkins v. Shelter Mut. Ins. Co. ( Adkins I ), No. 5:12-173-KKC, 2014 WL 4231230, at *7 (E.D. Ky. Aug. 26, 2014) (applying Kentucky law and declining to dismiss a claim for Negligence/Gross Negligence against an insurance company). So there is no reason to think that the UCSPA preempts common law causes of action. Id. (citing Mark D. Dean, P.S.C. v. Commonwealth Bank & Trust Co., 434 S.W.3d 489, 505 (Ky. 2014) (noting that the UCC is thought to preempt common law causes of action because it is "a comprehensive code of law rather than a single statute or series of related statutes" (internal brackets omitted))). The defendants have provided no authority demonstrating statutory preemption.
Contrary to the defendants' assertions, some Kentucky courts have entertained fraud and misrepresentation claims against insurance companies and adjusters without relying on the bad-faith standard. See Abney v. Kentucky Farm Bureau Mut. Ins. Co., No. 2009-CA-000600-MR, 2010 WL 668749, at *3 (Ky. Ct. App. Feb. 26, 2010). In Abney, as here, the plaintiff sued his insurance company and the insurance adjuster for negligent misrepresentation and fraud. Id. at *2. The plaintiff alleged that the adjuster advised him- wrongly-that the insurance company's release would not bar future claims against other parties. Id. at *1. The court did not dismiss the suit for failure to state a claim. Id. The court did not even apply a bad-faith standard. Id. Instead, the Court granted summary judgment because it concluded that the plaintiff "could not produce any evidence at trial" to show that the insurance adjuster "should have known" that the release would apply to all parties. Id . ...