OAKLAND – A federal judge has sent an insurance fraud lawsuit back to state court.
On May 13, Judge Phyllis Hamilton of the U.S. District Court for the Northern District of California granted the plaintiff's motion to remand the case to the San Francisco County Superior Court on the grounds that one defendant was not fraudulently joined and the case lacks complete diversity.
In January, Glenn and Josselin Pasiliao, along with Security National Insurance Co. (SNIC), filed a lawsuit in San Francisco County Superior Court against Liberty Mutual Insurance Co., JLIS Inc. and Ohio Casualty Insurance Co., alleging breach of contract, breach of the implied covenant of good faith and fair dealing, fraud and concealment, negligent misrepresentation and state insurance code violations.
The complaint also included a conspiracy allegation against JLIS, accusing it of materially assisting the defendant insurance companies in an alleged scheme targeting themselves as assignees of Oak Trucking, as well as Oak owner Gary Lui.
The ruling states the situation stems from a Jan. 15, 2015, incident in which a falling log at a container truck loading facility injured driver Glenn Pasiliao, leaving him with a 94 percent workers’ compensation permanent disability rating. Pasiliao, who was working for Oak contractor Narayan Trucking, was awarded benefits of almost $1.9 million, with interest, as economic harm totaled more than $3.6 million with interest.
Before the accident, Oak hired JLIS to procure insurance, which it did so through Liberty and Ohio Casualty. Liberty denied Pasiliao’s January 2016 policy limit demand, prompting separate 2017 lawsuits against Oak. Arbitration resulted in awards for the Pasiliaos and SNIC. There is pending litigation in San Francisco Superior Court in which Oak alleged JLIS committed broker negligence in procuring the Oak policies, the ruling states.
Hamilton said the question of whether the January 2019 complaint was properly removed to federal court centers on whether the claim against JLIS is barred by statutory limitations and if a rule against claim splitting prevents the Pasiliaos and SNIC from amending their complaint.
“The statute of limitations for a fraud claim, and a civil conspiracy based on fraud, is three years, which accrues upon the discovery of the facts constituting the fraud,” Hamilton wrote.
She said it’s “undoubtedly possible” a state court judge would apply the three-year limit, rather than the two the defendants argued is appropriate. Given the defendants’ position the statutory period opened March 1, 2016, the complaint filed in January 2019 meets any timeliness obligation.
The defendants also said the fact the professional negligence claims are pending in state court should trigger a California provision barring splitting one cause of action into several lawsuits. Specifically, they argue that while that action is pending, the Pasiliaos and SNIC can’t add the professional negligence claim against JLIS.
“Plaintiffs have alleged a claim against JLIS in this action for conspiracy to commit fraud,” Hamilton wrote. “Plaintiffs do not need to assert any additional claims against JLIS to overcome defendants’ fraudulent joinder arguments. So, defendants’ argument that plaintiffs could not amend their complaint to state negligence claims against JLIS under claim-splitting principles — even if true — does not affect this court’s analysis of whether JLIS was fraudulently joined.”
Determining that the plaintiffs added JLIS to their complaint properly, Hamilton said the case lacks complete diversity required for adjudication in a federal court and therefore must be sent back to state court, which retains subject matter jurisdiction.