Beckham v. Safeco Ins. Co. of America

• Citation: 691 F.2d 898
• Decision Date: 03 November 1982
• Docket Number: No. 81-5169,81-5169
• Parties: Joanne BECKHAM, Plaintiff-Appellant, v. SAFECO INSURANCE COMPANY OF AMERICA, a corporation, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 898

691 F.2d 898

Joanne BECKHAM, Plaintiff-Appellant, v. SAFECO INSURANCE COMPANY OF AMERICA, a corporation Defendant-Appellee.

No. 81-5169.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 2, 1982.

Decided Nov. 3, 1982.

William E. Lloyd, Jr., Mix & Hodges, Redondo Beach, Cal., for plaintiff-appellant.

Henry LaTorraca, Perona & Langer, Long Beach, Cal., for defendant-appellee.

Appeal from the United States District Court for the Central District of California.

Before POOLE and BOOCHEVER, Circuit Judges, and SOLOMON, ^* District Judge.

POOLE, Circuit Judge:

Joanne Beckham (Beckham) appeals from the district court's grant of summary judgment in favor of appellee Safeco Insurance Company (Safeco) on her California statutory and common law claims for unfair insurance practices. She also appeals from the district court's denial of her motion to remand the action to state court and her demand for a jury trial. We affirm in part and reverse and remand in part.

FACTS

In January, 1976, Beckham was seriously injured in an automobile accident in Los Angeles, California. Both Beckham and the other driver, Nellie Mankin, were citizens of California. Beckham subsequently sued Mankin in California state court to recover for her personal injuries sustained in the accident. Mankin's defense was first assumed by her primary insurer, American Reserve Insurance Company (American Reserve). When it became apparent that the probable liability of Beckham's claim would exceed the $100,000 limit of her policy with American Reserve, her defense was assumed by Safeco, the excess liability insurer. American Reserve made its $100,000 policy limit available to Safeco, making the total liability coverage for Mankin $1,000,000.

Prior to trial, Safeco made a settlement offer of $225,000 plus an annuity of $1,000 a month for five years, increasing to $1,250 a month for the next five years and finally to $1,500 a month for the remainder of Beckham's life. Beckham rejected this offer and refused to settle for less than the full policy limit of $1,000,000. Safeco would not settle for this amount, and the case proceeded to trial in August, 1979. A jury returned a verdict for Beckham of $1,500,000, which Safeco promptly paid.

In December, 1979, Beckham brought the present action in state court, alleging that Safeco had engaged in unfair settlement practices in connection with her suit against Mankin in violation of California Insurance Code § 790.03(h)(2), (3), (5) and (13). ¹ She Safeco removed the action on January 30, 1980, to the United States District Court for the Central District of California on the basis of diversity jurisdiction. No motion to remand the action to state court was made at that time. The court denied Beckham's request for a jury trial as untimely because it was not made within 10 days of Safeco's last responsive pleading, as required by Fed.R.Civ.P. 38(b). The district court then granted Safeco's motion for summary judgment on all of Beckham's claims. After entry of summary judgment, Beckham moved to remand the action to state court on the ground that there was no diversity of citizenship between the parties. The court denied this motion. Beckham filed a timely notice of appeal, and we note jurisdiction under 28 U.S.C. § 1291.

also asserted common law claims for intentional and negligent infliction of emotion distress based on the same conduct underlying her statutory claims.

DISCUSSION

Beckham argues on appeal that the district court lacked subject matter jurisdiction over her action, that the court erred in granting summary judgment, and that the court abused its discretion in denying her request for a jury trial. We affirm the district court in all respects except as to the grant of summary judgment on Beckham's claim under § 790.03(h)(5).

A. Diversity Jurisdiction

Safeco is incorporated and has its principal place of business in the state of Washington, and thus is deemed a citizen of that state for purposes of determining diversity. See 28 U.S.C. § 1332(c). Since Beckham is a citizen of California, diversity jurisdiction is established. Beckham contends, however, that her suit against Safeco is a "direct action" within the meaning of § 1332(c) to which Mankin, Safeco's insured, has not been joined as a defendant. Since Safeco must therefore be considered a citizen of California, the state of which Mankin is a citizen, diversity is lacking. We disagree.

Section 1332(c) provides in pertinent part that

in any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of the State of which the insured is a citizen ....

This portion of § 1332(c) was enacted in 1964 specifically to eliminate from diversity jurisdiction tort claims in which both the injured party and the tortfeasor are local residents, but which, under state "direct action" statutes, are brought against the tortfeasor's foreign insurance carrier without joining the tortfeasor as a defendant. Velez v. Crown Life Insurance Co., 599 F.2d 471, 473 (1st Cir. 1979); Hernandez v. Travelers Insurance Co., 489 F.2d 721, 723 (5th Cir. 1974); White v. United States Fidelity and Guaranty Co., 356 F.2d 746, 747 (1st Cir. 1966). Courts have uniformly defined the term "direct action" as used in this section as those cases in which a party suffering injuries or damage for which another is legally responsible is entitled to The present suit is clearly not a direct action since Beckham is not seeking to impose liability on Safeco for the negligence of Safeco's insured, Mankin. Rather, she is seeking to impose liability on Safeco for its own tortious conduct, i.e., Safeco's bad faith refusal to settle her claim against Mankin. Such liability could not be imposed against Mankin, nor could Mankin even be joined as a defendant in this suit. See Royal Globe Insurance Co. v. Superior Court, 23 Cal.3d 880, 891-92, 153 Cal.Rptr. 842, 849-50, 592 P.2d 329 (1979). The district court thus did not err in concluding that diversity jurisdiction existed in this case.

bring suit against the other's liability insurer without joining the insured or first obtaining a judgment against him. See Velez v. Crown Life, supra, 599 F.2d at 473; Hernandez v. Travelers Insurance, supra, 489 F.2d at 724; Irvin v. Allstate Insurance Co., 436 F.Supp. 575, 576 (W.D.Okl.1977); Bourget v. Government Employees Insurance Co., 313 F.Supp. 367, 371 (D.Conn.1970); Walker v. Firemans Fund Insurance Co., 260 F.Supp. 95, 96 (D.Mont.1966). Thus, "unless the cause of action urged against the insurance company is of such a nature that the liability sought to be imposed could be imposed against the insured, the action is not a direct action." Walker v. Firemans Fund, supra, 260 F.Supp. at 96.

B. Summary Judgment

Summary judgment may be granted only if there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Clipper Exxpress v. Rocky Mountain Motor Tariff, 674 F.2d 1252, 1261 (9th Cir. 1982); United States v. First National Bank of Circle, 652 F.2d 882, 887 (9th Cir. 1981). The evidence and the inferences to be drawn therefrom must be construed in the light most favorable to the party opposing summary judgment. Clipper Exxpress, supra, 674 F.2d at 1261; Gaines v. Haughton, 645 F.2d 761, 769 (9th Cir. 1981).

1. Section 790.03(h)(5)

Under § 790.03(h)(5), an insurer owes a duty to third-party claimants such as Beckham to attempt in good faith to effectuate a prompt, fair and equitable settlement of claims against the insured in which liability has become "reasonably clear." Royal Globe Insurance Co. v. Superior Court, 23 Cal.3d 880, 153 Cal.Rptr. 842, 592 P.2d 329 (1979). Safeco moved for summary judgment on Beckham's claim under this subsection on the sole ground that Mankin's liability for the accident had not been reasonably clear, and thus the statutory duty never arose. The district court agreed, concluding that there had been a "substantial bona fide dispute as to liability." This conclusion was based on the court's finding that the attorney retained by Safeco to defend Mankin had evaluated the case as one in which liability was uncertain and there existed substantial evidence to support a verdict for either Beckham or Mankin.

Mankin's liability for the accident turned on whether she had entered the intersection where the accident occurred with the green or against the red light. Mankin claimed to have had the green light. A witness to the accident, however, stated that Beckham had entered with the green light. Beckham suffered from amnesia as a result of her injuries and remembered nothing about the accident.

On summary judgment, Safeco submitted the affidavits of the attorney who represented Mankin at trial and of the Safeco claims adjuster assigned to the case. Both stated that because the only two witnesses to the accident gave conflicting versions as to which party had entered the intersection with the green light, they considered the evidence of liability to be fairly evenly divided. The attorney stated that, in his judgment, Mankin had a good chance of winning at trial since Beckham had the burden of proof and Mankin appeared to be a "good and believable" witness. ²

Beckham submitted evidence in opposition to summary judgment, however, indicating that Safeco was aware that Mankin had in fact most likely entered the intersection against the red light. For example, Safeco was aware that two accident reconstruction experts, one of whom had been retained by the defense, had concluded that Mankin had entered the intersection several seconds into a red light. In a letter submitted by Beckham, the attorney retained by American Reserve to defend Mankin discussed the question of liability as follows:

We took the position at the (settlement)...