Lumberman's Underwriting Alliance v. Hills

Decision Date03 May 1976
Docket NumberCiv. A. No. 20234-3.
PartiesLUMBERMAN'S UNDERWRITING ALLIANCE, Acting By Its Attorney-In-Fact, U. S. Epperson Underwriting Company, Plaintiff, v. Carla A. HILLS, Secretary of Housing and Urban Development, Defendant.
CourtU.S. District Court — Western District of Missouri

William H. Sanders, Blackwell, Sanders, Matheny, Weary & Lombardi, Kansas City, Mo., for plaintiff.

Irving Jaffe, Acting Asst. Atty. Gen., Washington, D. C., C. J. Poirier, Mary A. Schneider, Asst. U. S. Attys., Kansas City, Mo., for defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND FINAL JUDGMENT DENYING ALL RELIEF PRAYED FOR IN THE COMPLAINT

WILLIAM H. BECKER, Chief Judge.

This is an action under the Urban Property Protection and Reinsurance Act of 1968,1 as amended,2 Section 1749bbb, et seq., Title 12, United States Code (hereinafter "Reinsurance Act"). Plaintiff, Lumberman's Underwriting Alliance, contends that the decision of the defendant Secretary of Housing and Urban Development to reinsure plaintiff and Universal Underwriters Insurance Company (hereinafter "Universal") as a single aggregate entity under one Standard Reinsurance Contract for 1972-1973 and subsequent years violated the Reinsurance Act. Plaintiff seeks a declaratory judgment3 that (1) defendant may only require a single contract for two or more companies under common ownership; (2) plaintiff is not under common ownership with Universal; and (3) defendant is required to issue a separate reinsurance contract to plaintiff for 1972-73 and subsequent years. Defendant has moved for summary judgment. Plaintiff filed a memorandum in opposition to the motion. Defendant filed a supplemental memorandum, and both parties have filed reply memoranda.

Before reaching the merits, two preliminary issues must be considered.4

I. Plaintiff's Capacity to Sue.

Plaintiff is a reciprocal interinsurance exchange organized under the laws of Missouri, Section 379.650, et seq., V.A.M.S. It brings this action by its attorney-in-fact, U. S. Epperson Underwriting Company. Defendant contends that plaintiff is an unincorporated association which lacks capacity to sue under Missouri law. However, it is concluded that a reciprocal interinsurance exchange acting by its attorney-in-fact has such capacity.

Rule 17(b) of the Federal Rules of Civil Procedure provides in pertinent part that with the exception of individuals and corporations, ". . . the capacity to sue or be sued shall be determined by the law of the state in which the district court is held . . .."

Defendant has cited several cases which hold that an unincorporated association lacks capacity to sue under Missouri law.5 However, none of these cases involved a reciprocal interinsurance exchange. No reported cases have been found in which the question of the capacity of a reciprocal to sue under Missouri law was considered. Therefore, resolution of this issue requires analysis of the nature of a reciprocal and its attorney-in-fact.

The nature of a reciprocal and the reciprocal's relationship to its attorney-in-fact are discussed in In re International Underwriters, 157 F.Supp. 367 (W.D.Mo.1957); In re Manufacturing Lumbermen's Underwriters, 18 F.Supp. 114 (W.D.Mo.1936); and Yeats v. Dodson, 345 Mo. 196, 127 S.W.2d 652 (1939), modified, 345 Mo. 196, 138 S.W.2d 1020 (1939). A reciprocal is composed of subscribers who agree to insure each other against specified risks. The activities of a reciprocal are carried on through an attorney-in-fact whose powers are set out in a written power of attorney executed by each subscriber.

A reciprocal has no legal existence separate from its subscribers, and is therefore considered an unincorporated association. In re International Underwriters, supra; In re Manufacturing Lumbermen's Underwriters, supra; Yeats v. Dodson, supra. Although an unincorporated corporation lacks capacity to sue under Missouri law,6 an action on behalf of the association may be maintained by one or more of its members. Edgmond v. Brixey, 450 S.W.2d 166 (Mo. 1970); Harger v. Barrett, 319 Mo. 633, 5 S.W.2d 1100 (1928).

Each of plaintiff's subscribers have granted to U. S. Epperson Underwriting Company, the attorney-in-fact, a power of attorney ". . . to appear in behalf of Subscriber in any suit, action or proceeding, and bring, prosecute, defend or otherwise settle any suit, action or proceeding. . . ." (P.Ex. 8). Because this action is brought by plaintiff's attorney-in-fact, and because plaintiff's attorney-in-fact has been specifically authorized by each of the subscribers to bring the action, plaintiff by its attorney-in-fact has capacity to sue. Compare: In re Manufacturing Lumbermen's Underwriters, supra.7

II. Jurisdiction.

In the complaint, plaintiff alleged that this court has subject matter jurisdiction under the "federal question" statute, Section 1331, Title 28, United States Code. Defendant contends that the $10,000 amount in controversy requirement under Section 1331 has not been satisfied in this action. However, the facts plead in the complaint show not only that the $10,000 jurisdictional requirement of Section 1331 has been met, but also that jurisdiction exists regardless of the amount in controversy under Section 1337, Title 28, United States Code.

A. Section 1331, Title 28, United States Code.

The longstanding general federal rule is that the amount in controversy is to be determined from the complaint, unless it appears or is in some way shown that the amount stated in the complaint is not claimed "in good faith." In deciding the question of good faith, it ". . . must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal." Horton v. Liberty Mutual Ins. Co., 367 U.S. 348, 353, 81 S.Ct. 1570, 1573, 6 L.Ed.2d 890, 894 (1961); St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288, 58 S.Ct. 586, 82 L.Ed. 845, 848 (1938); Buffington v. Amchem Products, Inc., 489 F.2d 1053 (8th Cir. 1974); Crenshaw v. Great Central Ins. Co., 482 F.2d 1255 (8th Cir. 1973).

The following facts are uncontroverted. Under the Standard Reinsurance Contract, a company which is reinsured may recover for its losses in any one state an amount equal to its aggregate losses in that state in excess of the company's "net retention" or deductible for that state, Section 1906.21, et seq., Title 24, Code of Federal Regulations. The net retention is the greater of $1,000.00 or 2½ percent of the premium income earned in the state for those lines reinsured. Defendant's combination of plaintiff and Universal in a single reinsurance contract means that the losses incurred by plaintiff in each state must exceed the combined net retentions of both companies, assuming that Universal has no losses, before plaintiff can recover reinsurance benefits. Thus plaintiff's exposure to liability is greatly increased. In at least four states in 1972, the combined net retention of plaintiff and Universal was more than $10,000.00 in excess of plaintiff's net retention alone. In all states in which plaintiff and Universal both do business, in 1972 plaintiff's overall exposure to liability was increased by $159,150.00 as a result of the single reinsurance contract.

Defendant's contention is that the mere exposure to liability in excess of $10,000.00 is insufficient to meet the jurisdictional requirement in the absence of a showing of probability that such liability will be incurred. If that were the proper test, plaintiff would be compelled to prove the probability of civil disorders causing great amounts of damages either in one of the four states mentioned above, or in several states combined, which would subject plaintiff to liability greater than $10,000.00 in excess of its liability under a single contract. Plaintiff has shown that such losses are not impossible by presenting evidence of a loss in California which, although disqualified for reinsurance benefits by defendant, subjected plaintiff to a possible excess liability of $16,560.00 under the 1972-73 contract.

However, it is concluded that the determination of the amount in controversy does not depend on the probability of actual excess liability, but on the exposure to excess liability without regard to the probability that such liability will be incurred. This case is analogous to those in which the validity of an insurance policy is in question. In such cases, the jurisdictional amount is measured by the face amount of the policy rather than by actual liability already incurred, without requiring a showing of the probability that the total face amount will be recovered. Bankers Life & Casualty Co. v. Namie, 341 F.2d 187 (5th Cir. 1965); Guardian Life Ins. Co. of America v. Kortz, 151 F.2d 582 (10th Cir. 1945); Stephenson v. Equitable Life Assurance Society, 92 F.2d 406 (4th Cir. 1937). See generally: Annotation: "Determination of Requisite Amount In Controversy In Diversity Action In Federal District Court Involving Liability Under, Or Validity Of, Disability Insurance," 11 A.L.R.Fed. 120, 128 et seq. (1972).

B. Section 1337, Title 28, United States Code.

Regardless of the amount in controversy, jurisdiction exists under Section 1337, Title 28, United States Code, which has no jurisdictional amount requirement. Felter v. Southern Pacific Co., 359 U.S. 326, 79 S.Ct. 847, 3 L.Ed.2d 854 (1959); Hales v. Winn-Dixie Stores, Inc., 500 F.2d 836 (4th Cir. 1974). Jurisdiction under Section 1337 may be properly invoked even though plaintiff did not plead that provision in the complaint. May v. Supreme Court of State of Colorado, 508 F.2d 136 (10th Cir. 1974); Wright v. Arkansas Activities Ass'n, 501 F.2d 25 (8th Cir. 1974); State Highway Commission of Missouri v. Volpe, 479 F.2d 1099 (8th Cir. 1973).

Section 1337, Title 28, United States Code, provides:

"The district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating
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