Bourget v. Government Employees Insurance Company, Civ. No. 12532.

• Decision Date: 04 May 1970
• Docket Number: Civ. No. 12532.
• Citation: 313 F. Supp. 367
• Court: U.S. District Court — District of Connecticut
• Parties: Gerald E. BOURGET and Security Insurance Company of Hartford, Plaintiffs, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, Defendant.

313 F. Supp. 367

Gerald E. BOURGET and Security Insurance Company of Hartford, Plaintiffs, v. GOVERNMENT EMPLOYEES INSURANCE COMPANY, Defendant.

Civ. No. 12532.

United States District Court, D. Connecticut.

May 4, 1970.

Stephen I. Traub, of Lynch & Traub, New Haven, Conn., for plaintiff Gerald E. Bourget.

Peter C. Dorsey, of Flanagan, Dorsey & Flanagan, New Haven, Conn., for plaintiff Security Ins. Co. of Hartford.

Curtiss K. Thompson, of Thompson, Weir & Barclay, New Haven, Conn., for defendant.

TIMBERS, Chief Judge.

In this diversity action, Gerald E. Bourget ("Bourget"), the judgment creditor of defendant's insured ("Thompson"), and Security Insurance Company of Hartford ("Security"), the compensation carrier of Bourget's employer, seek to recover against Government Employees Insurance Company ("GEICO") for its alleged bad faith failure to settle Bourget's claim against Thompson. Plaintiffs assert their rights under Conn. Gen.Stat. § 38-175. In a previous opinion, this Court held that such claim may be maintained.¹ For the reasons stated below, the Court grants the instant motions of plaintiffs, Rule 12(f), Fed.R. Civ.P., to strike the special defenses asserted against them; and denies defendant's motions for production and a protective order, Rules 34 and 30(b), Fed.R. Civ.P.

I.

As to both plaintiffs, defendant contends that the lack of assets in the Thompson estate² at the time of Bourget's action against it resulted in the absence of any basis for damage to Thompson; consequently defendant argues that Thompson had no claim against it to which plaintiffs could be subrogated under Conn.Gen.Stat. § 38-175.

Defendant asserts the insolvency of Thompson by reference to an affidavit of defendant's former counsel wherein he states that he was informed by Bourget's counsel that the latter's investigation had disclosed that Thompson had no assets. The Court assumes, for purposes of this motion, that Thompson at all relevant periods did not have sufficient assets to satisfy the excess judgment rendered against him.

Conn.Gen.Stat. § 38-175 provides, in pertinent part, as follows:

"An insurance company . . . shall, whenever a loss occurs under its policy, become absolutely liable, and the payment of such loss shall not depend upon the satisfaction by the assured of a final judgment against him. . . . Upon the recovery of a final judgment . . . if the defendant in such action was insured . . . such judgment creditor shall be subrogated to all the rights of the defendant and shall have a right of action against the insurer to the same extent that the defendant in such action could have enforced his claim against such insurer had such defendant paid such judgment."

In other words, plaintiffs' rights as judgment creditors of Thompson are those which Thompson would have had if he personally had paid the excess judgment. That he was insolvent and thus unable to pay the excess judgment is wholly irrelevant so far as plaintiffs' rights of subrogation are concerned.

Defendant's reliance upon Harris v. Standard Accident & Ins. Co., 297 F.2d 627 (2 Cir. 1961), cert. denied, 369 U.S. 843 (1962), is misplaced. Harris held that "where the insured was insolvent before the rendition of the excess judgment, had not paid any part of it, and subsequently had been discharged from any future obligation to pay it, he was not actually harmed by the bad faith refusal of his insurer to settle." See Young v. American Casualty Co., 416 F.2d 906, 911 (2 Cir. 1969), petition for cert. dismissed pursuant to Rule 60, 396 U.S. 997 (1970). See also Brockstein v. Nationwide Mutual Ins. Co., 417 F.2d 703 (2d Cir. 1969). Young held, as Harris had recognized, that where the insured was not insolvent, his bankruptcy trustee was entitled to the full amount of the excess judgment. But both Harris and Young involved a construction of uncodified New York law which is less liberal than the statutory law of Connecticut in requiring "proof of actual loss to support recovery by the insured or his estate for the insurer's bad faith in failure to settle." Young, supra, 416 F.2d at 911. To dispose of the instant motion, the Court need not decide, therefore, whether Thompson was insolvent, as in Harris, or had some small assets, as in Young; nor is it necessary to decide whether the other prerequisites for recovery under New York law have been met. Connecticut law, which is controlling here, requires in this judgment creditor's action that we assume payment by the insured of the excess judgment. While this results in the judgment creditor having greater rights than the insured would have had, the legislature has chosen to confer such rights. Surely the injured party may be placed in a more favorable position than the insured tortfeasor. While the insolvency of the insured may be a relevant consideration on the issue of defendant's alleged bad faith in failing to settle Bourget's claim, its existence, as a matter of law, does not provide a defense to plaintiffs' claims in the instant action.

II.

Defendant asserts that this action must be dismissed because of the absence of requisite diversity between it and Security. Defendant, a District of Columbia corporation, claims that it must be deemed to have the Connecticut citizenship of Thompson under the provisions of 28 U.S.C. § 1332(c).³ Since Security is a Connecticut corporation, complete diversity is alleged to be absent.

The purpose of § 1332(c) is made manifest in its legislative history.⁴ It was intended to eliminate from federal diversity jurisdiction actions brought pursuant to the Louisiana and Wisconsin direct action statutes. Under such statutes an injured resident of the same state as the tortfeasor could sue the latter's foreign insurer directly without joining the tortfeasor, thereby obtaining access to a federal forum based on diversity which would not exist had the tortfeasor been sued. Section 1332 (c) removed the federal diversity jurisdiction basis for such "direct actions" by deeming the insurer to have the citizenship of the non-party insured. But, as the legislative history and subsequent cases make clear, § 1332(c) applies only to these limited "direct actions" and not to "all actions" brought against an insurer in which its insured is not joined as a defendant.

Thus, this provision has been held inapplicable in diversity actions to determine the liability of insurers.⁵ It likewise has been held inapplicable in diversity actions by the insured (a) for a declaration of the validity of his policy⁶; (b) for the benefit of his judgment creditors⁷; and (c) against his own carrier under an uninsured motorist provision.⁸ Finally, in an action somewhat similar to the instant one, where plaintiff first successfully sued the tortfeasor, and then instituted a subsequent action against the tortfeasor's insurer, § 1332(c) was held inapplicable.⁹

In all of these cases, the respective courts stressed the limited Congressional purpose behind the statute as made manifest by the use of the phrase "direct action" and not "any action" in the statute itself. As noted in Walker, supra note 5, at 96:

"Congress evidently intended the word `direct' to limit the word `action'. There would be therefore some classes of actions involving insurance companies in which the company would not be deemed to be a citizen of the state of the insured for diversity purposes. The court concludes that 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, that the action is not a direct action. Here plaintiff seeks to impose duties upon the insurer because of a contractual liability assumed by it. This liability could not be asserted against the tortfeasor and hence the action is not a `direct action.'"

To the same effect is Carvin, supra note 7, at 234:

"It is quite clear . . . that it was intended by the Congress that this amendment apply to a limited class of actions, that is, those in which an injured party is permitted to sue, directly and without joinder of the tortfeasor, the tortfeasor's liability insurer without first obtaining a judgment against the tortfeasor himself. This Court must hold that Congress has effectuated this intent by the use of the words `any direct action . . .' Had the legislative intent been of broader scope, it would have been sufficient to say 'any action . . .', and such language would have encompassed the present action. The word `direct' must not be judicially stricken from the statute, but rather must be attributed a reasonable meaning in the light of the expressed intention of Congress."

Since an action under Conn. Gen. Stat. § 38-175 is in no way analogous to a direct action such as that to which § 1332 (c) applies,¹⁰ GEICO is not clothed with the citizenship of Thompson, this action should not be dismissed for lack of diversity jurisdiction, and defendant's special defenses asserting such propositions must be stricken.

III.

Defendant seeks to preclude recovery by plaintiffs for their failure jointly to prosecute the initial action against Thompson, and for their alleged attempt to avoid the joinder of Security as a party herein. This asserted preclusion rests on an alleged agreement between Bourget and Security to have Bourget prosecute the action in his own name so as not to destroy diversity.¹¹ Since, as the Court has held in Part II above, the joinder of Security in the instant action did not destroy diversity, the defense here under consideration will be viewed as directed to the prior action against Thompson. In that action, defendant's former counsel represented Thompson; and defendant, in light of the scope of its insurance coverage, was the real party defendant. There has been no claim that the existence of Security as a potential plaintiff in the prior action could not have been ascertained by defendant. Defendant might then have moved for its joinder; having...