Unreported / Non-Citable
Background
Juan and Maria Willingham own a home in Pharr, Texas, that sustained storm damage in April 2023. They submitted a claim to their insurer, Allstate Vehicle and Property Insurance Company, seeking $176,546.67 in repairs. Allstate sent adjuster Dustin Cloud to inspect the property. Cloud concluded that the damage was caused entirely by “an unknown peril” and found no covered storm damage, prompting a coverage dispute.
In November 2025, the Willinghams sued Allstate and Cloud in Texas state court in Hidalgo County, asserting breach of contract, violations of the Texas Insurance Code, breach of the duty of good faith and fair dealing, and Texas Deceptive Trade Practices Act violations. Because Cloud is a Texas citizen — like the Willinghams — his presence as a defendant destroyed complete diversity, making the case non-removable at the outset.
On December 11, 2025, Allstate exercised its right under Texas Insurance Code § 542A.006 to accept whatever liability Cloud might have to the plaintiffs. The state court dismissed Cloud with prejudice on December 15, 2025. Allstate then removed the case to federal court on January 9, 2026. The Willinghams moved to remand, arguing that removal was untimely and that complete diversity was lacking.
The Court’s Holding
The court denied the motion to remand and dismissed Cloud as an improperly joined defendant. Applying the Fifth Circuit’s Smallwood framework, the court conducted a Rule 12(b)(6)-type analysis and concluded that, following Allstate’s § 542A.006 election and the state court’s resulting dismissal of Cloud, there was no reasonable basis to predict the Willinghams could recover against Cloud. Accordingly, Cloud’s citizenship must be disregarded for diversity purposes, and complete diversity exists between the Willinghams (Texas citizens) and Allstate (an Illinois citizen).
The court rejected the plaintiffs’ reliance on the voluntary-involuntary rule, which generally permits removal only when diversity is created by a plaintiff’s voluntary act. The court followed Fifth Circuit precedent holding that the rule is inapplicable where the non-diverse defendant is improperly joined at the time of removal — a status Cloud held regardless of how that joinder became improper.
On timeliness, the court found that the case was not removable when Allstate was originally served on November 10, 2025, because Cloud was then properly joined. The 30-day removal clock did not begin until December 11, 2025 — the date of Allstate’s § 542A.006 election — making Allstate’s January 9, 2026, notice of removal timely.
Key Takeaways
- An insurer’s election under Texas Insurance Code § 542A.006 to accept an adjuster’s liability renders the adjuster an improperly joined defendant, stripping the adjuster’s citizenship from the diversity analysis and opening the door to federal removal.
- The voluntary-involuntary rule does not bar removal when the non-diverse defendant’s presence has become improper at the time of removal, even if the event triggering improper joinder was the defendant insurer’s own act rather than the plaintiff’s.
- The 30-day removal clock under 28 U.S.C. § 1446(b)(3) begins when the case first becomes removable — here, the date of the § 542A.006 election — not from initial service of the original petition, where the case was not then removable.
- A state court’s interlocutory dismissal of a non-diverse defendant does not automatically terminate that defendant’s party status for purposes of federal diversity jurisdiction analysis.
Why It Matters
This decision reinforces the practical power of the § 542A.006 election as a procedural tool in Texas insurance litigation. By accepting an adjuster’s liability, an insurer can simultaneously resolve claims against its agent and create the conditions for federal removal — a significant strategic advantage given the perceived differences between state and federal court in insurance disputes. Defense counsel representing insurers in Texas should be aware that a timely § 542A.006 election can both eliminate a non-diverse defendant and reset the removal clock.
For plaintiffs’ attorneys, the case underscores the risk of naming adjusters as defendants in Texas insurance suits. Once the insurer makes a § 542A.006 election and the adjuster is dismissed, the non-diversity shield disappears, exposing the case to federal removal even if it would otherwise have remained in a plaintiff-friendly state forum.