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UTPCPL Claim Against Insurance Agent Found “Colorable”

Judge Horan of the United States District Court for the Western District of Pennsylvania recently granted an insureds’ motion to remand after finding that an insurance agency was not fraudulently joined because the UTPCPL claim against it was “colorable.”  See Starkey v. Nationwide Prop. & Cas. Ins. Co., 2021 WL 3080146 (W.D. Pa. Jul. 21, 2021).

In Starkey, the insured was involved in an automobile accident and pursued a claim for underinsured motorist (UIM) coverage pursuant to a policy issued by the insurer and sold to her by an insurance agency.  Following her claim for coverage, the insured and her husband sued the insurer for statutory bad faith and both the insurer and insurance agency for violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL).  The insured alleged that, in the course of selling the Policy, the agent violated the UTPCPL by i) misrepresenting that UIM claims would be paid fairly, timely, and completely when there was no intention of providing such benefits,  ii) misrepresenting that the Policy would provide UIM coverage in the amount of $100,000.00 when there was no intention to do so, iii) advertising and selling an insurance policy with a promise that UIM benefits would be paid when owed when there was no intention of providing such benefits, the benefits would be unfairly discounted, the benefits would be falsely denied, and/or payment would be delayed, and iv) refusing to provide payment of claims for the promises benefits that were sold and paid for.

The Defendants removed the case to federal court on the basis that the UTPCPL claim against the insurance agency was fraudulently joined for the purpose of avoiding federal diversity jurisdiction.  The Defendants contended that if the UTPCPL claim against the insurance agency, the sole Pennsylvania defendant, were dismissed, then the insurer, an Ohio defendant, could maintain diversity jurisdiction.  The insureds moved for remand on the basis that their claim against the insurance agency was viable and that federal diversity jurisdiction was improper.

In granting the insureds’ motion to remand, the Court held that Defendants did not meet their “heavy burden” regarding fraudulent joinder.  The Court first noted that the Defendants had not shown that the insureds have “no real intention in good faith to prosecute the action against [the insureds].”  The Court then analyzed whether the insured had alleged a “colorable” UTPCPL claim against the insurance agency.  In finding that the insureds’ UTPCPL claim was colorable, the Court pointed to other Pennsylvania federal court decisions, which held that individuals may maintain UTPCPL claims against an insurance agent.  The Court additionally cited opinions from Pennsylvania district courts that have denied fraudulent joinder challenges for UTPCPL claims against insurance agents or claims representatives.

After finding that UTPCPL claims against insurance agents are colorable, the Court concluded that the insurance agent was not fraudulently joined and granted the insureds’ motion to remand.