Bumberger v. Insurance Co. of North America

• Decision Date: 31 December 1991
• Docket Number: No. 91-1044,91-1044
• Parties: Jeannette BUMBERGER, Individually and on behalf of Kevin Bumberger, a Minor v. INSURANCE COMPANY OF NORTH AMERICA and ADT Company, Inc., Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 764

952 F.2d 764

Jeannette BUMBERGER, Individually and on behalf of Kevin Bumberger, a Minor v. INSURANCE COMPANY OF NORTH AMERICA and ADT Company, Inc., Appellant.

No. 91-1044.

United States Court of Appeals Third Circuit.

Argued July 8, 1991.

Decided Dec. 31, 1991.

Richard K. Masterson, Andrew L. Braunfeld, (argued), Andrea M. Gennetti, Masterson, Braunfeld, Himsworth & Maguire, Norristown, Pa., for appellant.

Edwin P. Smith, (argued), Smith, McEldrew & Levenberg, Philadelphia, Pa., for appellee Jeannette Bumberger, Individually and on behalf of Kevin Bumberger, a Minor.

Before STAPLETON, HUTCHINSON and ROSENN, Circuit Judges.

OPINION OF THE COURT

HUTCHINSON, Circuit Judge.

ADT Company, Incorporated (ADT) appeals an order of the United States District Court for the Eastern District of Pennsylvania which dismissed ADT's insurance company and co-defendant, Insurance Company of North America (ADT's Insurer), from the case and an award of judgment to the plaintiff, Jeannette Bumberger (Bumberger). Bumberger had sued ADT claiming she was entitled, under New Jersey law, to recover medical expenses her son had incurred as a result of injuries he suffered when a truck owned by ADT collided with his bicycle.

Bumberger is a citizen of Pennsylvania for purposes of diversity jurisdiction, and ADT is not. ADT's Insurer is a citizen of Pennsylvania. Accordingly, ADT's Insurer's inclusion as a party destroyed diversity. In dismissing ADT's Insurer, the district court held that it was merely a nominal party to the action. The district court based this conclusion on the fact that ADT's Insurer provided coverage only after the exhaustion of ADT's $500,000.00 deductible. By stipulation, the parties limited Bumberger's recovery in this case to slightly less than $350,000.00. However, the district court failed to consider other expenses that could deplete ADT's deductible. These other expenses could include damages, costs and fees ADT might incur as a defendant in various other cases filed on behalf of Bumberger's son for damages in tort she says he allegedly suffered in the same accident. Therefore, we will vacate the district court's order and judgment and remand this case for reexamination of whether ADT's Insurer is merely a nominal party whose presence does not affect diversity and thereafter for further proceedings consistent with this opinion.

I.

Kevin Bumberger (Kevin) was riding his bicycle on June 1, 1989 in Bristol, Pennsylvania when he was struck by a pickup truck owned by ADT and driven by Harry Duff (Duff), an ADT employee. At the time of the accident, Kevin was residing in Bristol with his grandmother, Alice Hems. She was insured under an automobile liability policy issued in Pennsylvania. Under Pennsylvania law, Kevin is entitled to $10,000.00 of first-party coverage under his grandmother's policy. ¹

ADT's Insurer had issued ADT a liability policy covering the vehicle Duff was driving when Kevin was injured. This policy had a number of endorsements providing coverage in accord with the laws of various states in which ADT might transact business, including New Jersey. The New Jersey endorsement extends coverage to pedestrians, including bicyclists.

Bumberger filed this action against ADT, on behalf of herself and her son, Kevin, for the medical expenses incurred in connection with the personal injuries Kevin sustained when he was struck by the ADT truck. ² Bumberger and her son are both citizens of Pennsylvania. ADT is not a citizen of Pennsylvania. When Bumberger discovered that ADT was insured, she amended her complaint to add ADT's Insurer as a defendant. ADT's Insurer is incorporated in Pennsylvania.

Bumberger sought partial summary judgment on the issue of her right to insurance benefits under the Personal Injury Protection provisions of ADT's insurance policy. ADT and ADT's Insurer, represented by the same counsel, responded to the partial summary judgment motion. ADT's Insurer also filed a motion seeking its dismissal from the case because, like Bumberger, ADT's Insurer was a citizen of Pennsylvania and its inclusion in the suit as a defendant would deprive the district court of diversity jurisdiction. ³ The record shows no other basis for the district court's subject-matter jurisdiction over this case.

The district court granted Bumberger's motion for partial summary judgment, holding that the Personal Injury Protection provisions of ADT's insurance policy covered Bumberger and then ruled that ADT's Insurer was a nominal party and dismissed it from the suit. On December 21, 1990, the district court entered judgment, in accordance with Bumberger and ADT's stipulation, against ADT in the amount of $343,033.76 plus interest from August 2, 1990, the date partial summary judgment for Bumberger was granted. At the same time, the court denied Bumberger's request for counsel fees. ADT filed a timely notice of appeal on January 16, 1991.

II.

The subject-matter jurisdiction of the district court, based on diversity of citizenship under 28 U.S.C.A. § 1332(a)(1) (West Supp.1991), is a threshold issue in this case. We have appellate jurisdiction based on the final order of the district court entering judgment for Bumberger against ADT following the dismissal of ADT's Insurer. See 28 U.S.C.A. § 1291 (West Supp.1991).

We exercise plenary review in deciding whether the district court had subject-matter jurisdiction. See Pennsylvania, Dep't of Pub. Welfare v. Markiewicz, 930 F.2d 262, 265 (3d Cir.1991). Here, the district court's subject-matter jurisdiction is dependent partly on general principles of diversity jurisdiction and partly on a construction of the terms of the New Jersey endorsement to ADT's insurance policy. We also exercise plenary review over the construction of the applicable terms of ADT's insurance contract. See STV Eng'rs, Inc. v. Greiner Eng'g, Inc., 861 F.2d 784, 787 (3d Cir.1988); Pacific Indem. Co. v. Linn, 766 F.2d 754, 760 (3d Cir.1985).

III.

A.

ADT argues the district court erred in holding that ADT's Insurer was a nominal party and so dismissing it from the litigation. The continuing presence of ADT's Insurer in this litigation would destroy diversity. According to ADT, its Insurer may have to pay part of the medical expenses Bumberger seeks in this case. Bumberger says ADT waived this issue by failing to raise it in the district court. ADT contends the fact that it did not raise the question in the district court is of no moment since classification of ADT's Insurer as a nominal party goes to the heart of the district court's jurisdiction.

We have an independent duty to ascertain not only our own appellate jurisdiction but also the subject-matter jurisdiction of the district court. See Pomper v. Thompson, 836 F.2d 131, 132 (3d Cir.1987) (per curiam). Such questions are not subject to waiver. ⁴ See Shendock v. Director, OWCP, 893 F.2d 1458, 1461 n. 7 (3d Cir.) (in banc), cert. denied, --- U.S. ----, 111 S.Ct. 81, 112 L.Ed.2d 53 (1990). Thus, we reject Bumberger's waiver argument and go on to consider the effect ADT's Insurer's status as a defendant has on the district court's jurisdiction.

"[D]iversity jurisdiction does not exist unless each defendant is a citizen of a different State from each plaintiff." Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 373, 98 S.Ct. 2396, 2402, 57 L.Ed.2d 274 (1978) (emphasis in original). Still, "a federal court must disregard nominal or formal parties and rest jurisdiction only upon the citizenship of real parties to the controversy." Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461, 100 S.Ct. 1779, 1782, 64 L.Ed.2d 425 (1980). Nominal parties are generally those without a real interest in the litigation. Wolff v. Wolff, 768 F.2d 642, 645 (5th Cir.1985).

Bumberger claims somewhat less than $350,000.00 from ADT for medical expenses incurred due to Kevin's injuries. However, ADT says it is entitled to apply against the policy's $500,000.00 deductible the aggregate of all sums that may be paid under each of its policy's various coverages as a result of any single accident, including expenses, costs and interest. Thus, ADT says the court erred in classifying its Insurer as a nominal party because, given the pending state cases against ADT and the medical bills the parties stipulated to, the $500,000.00 deductible is likely to be exhausted. This means that ADT's Insurer will be, or may already be, liable under the policy. If ADT's construction of the policy is correct, any tort recoveries by Bumberger against ADT and any legal expenses and costs of defense that ADT incurs will be applied against the deductible. ADT goes on to argue that the likelihood the amount of damages covered by the policy will exceed $500,000.00 is so great that ADT's Insurer cannot be a nominal party. Thus, since its Insurer and Bumberger are both citizens of Pennsylvania for diversity purposes, ADT says that the district court lacked jurisdiction.

ADT's policy provides for a "Deductible Per Accident of $500,000.00 in damages under all coverages provided by this Policy arising out of any one 'accident.' " App. at 131 (emphasis in original). It covers "all sums the insured legally must pay as damages because of bodily injury or property damage to which this insurance applies, caused by an accident and resulting from the ownership, maintenance or use of a covered auto." Id. at 51 (emphasis in original). Any damages for which ADT may be liable as a result of the accident involving Kevin and Duff will be credited against the $156,966.24 of the deductible that ADT remains responsible for after payment of the stipulated medical expenses of $343,033.76. ADT's Deductible Endorsement defines "deductible" to cover the expenses of defending any suit arising out of an accident. It reads, in material part:

[T]he amount of damages under this Policy which you [ADT] have a duty to pay and which arise from any one accident to which insurance applies under this Policy,...