Federal Judge Cautions State Farm Against Gambling With Courts

A federal judge in Alabama has likened State Farm to a gambler and warned that the insurer’s apparent strategy of trying to move claims litigation from state to federal court is a risky bet that might not be worth taking.

“The Court cautions State Farm that this practice of risky removal, if continuing, is undertaken at its own peril,” U.S. District Judge Emily C. Marks wrote in denying the insurer’s bid to remove a case brought by 53 homeowners out of Houston County Circuit Court and into her federal court.

The judge remanded the case back to the county court, declaring that there was no “objectively reasonable basis for seeking removal.”

The 53 Alabama citizens insured by State Farm filed a 73-count complaint for alleged negligent procurement, fraudulent misrepresentation, and breach of contract against State Farm and 18 insurance agencies and agents. The insureds complained about their wind-hail damage claims being either denied or underpaid.

In seeking removal of the case to federal court, State Farm alleged that the plaintiffs had improperly included negligent procurement claims against Alabama agents in their complaint purely to keep the case in state court. The insurer argued the homeowners had no possibility of proving the claims against the agents, meaning the Illinois-based insurer was the only real defendant facing the Alabama plaintiffs. Thus, the case belonged in federal court under diversity rules, according to State Farm.

But the judge reminded the insurer that “Alabama pleading standards are relatively low and the burden for improper joinder is relatively high.” State Farm removed on the theory that there was no possibility at all that a state court would find that the plaintiffs could show some set of facts alleging negligent procurement. However, the judge found that the plaintiffs did in fact have a plausible basis that the local agents had been negligent.

The court further noted that State Farm had recently and unsuccessfully submitted a “substantially similar removal argument to the court under substantially similar circumstances.” That reference led the judge to caution the insurer about what she called a “practice of risky removal” and liken the insurer to a gambler:

“Every gambler occasionally loses. Before he rolls the dice, he knows that he might come up ‘snake eyes.’ Some gamblers, such as the removing defendant in this case, are better at assessing risk than others. A defendant’s risk assessment must be intelligent as well as honest. There is no place for playing a hunch or for simply betting on which judge the case will be assigned to.”

The judge further reminded State Farm that that in “every removal there is risk of having to pay the plaintiff’s reasonable attorney fees.” However, this time she let State Farm off the hook for covering its gambling bet. She decided against ordering State Farm to pay for the homeowners’ attorneys’ fees.

Topics Legislation State Farm