Daugherty v. Chubb Grp. of Ins. Cos.

• Decision Date: 17 October 2011
• Docket Number: Case No. 3:08–CV–00048–R.
• Citation: 823 F.Supp.2d 656
• Court: U.S. District Court — Western District of Kentucky
• Parties: John DAUGHERTY, Plaintiff v. CHUBB GROUP OF INSURANCE COMPANIES, et al., Defendants.

823 F.Supp.2d 656

John DAUGHERTY, Plaintiff

v.CHUBB GROUP OF INSURANCE COMPANIES, et al., Defendants.

Case No. 3:08–CV–00048–R.

United States District Court, W.D. Kentucky,Louisville Division.

Oct. 17, 2011.

Benjamin J. Humphries, Whitlow & Scott, Elizabethtown, KY, Jonathan M. Feigenbaum, Boston, MA, Michael D. Grabhorn, Grabhorn Law Office, PLLC, Louisville, KY, for Plaintiff.

Patrick Shane O'Bryan, Lisa D. Hughes, Mindy G. Barfield, Lee A. Rosenthal, Dinsmore & Shohl LLP, Louisville, KY, Linsey Walker West, Phillip A. Sammons, Dinsmore & Shohl LLP, Lexington, KY, for Defendants.

MEMORANDUM OPINION AND ORDER

THOMAS B. RUSSELL, Chief Judge.

This matter is before the Court upon Plaintiff's Motion to Remand to the Circuit Court of Hardin County, Kentucky. DN 169. Defendants have responded. DN 173. Plaintiff has replied. DN 183. This matter is now ripe for adjudication. For the following reasons, Plaintiff's motion is DENIED.

BACKGROUND

Plaintiff John Daugherty filed his original complaint in the Circuit Court of Hardin County, Kentucky on December 27, 2007. The Defendants subsequently removed the case to this Court on January 17, 2008. Defendants' removal was based on 28 U.S.C. §§ 1332, 1441, and 1446. More particularly, the Defendants claimed removal was proper based on the Court's diversity jurisdiction and that the amount in controversy exceeded $75,000. See 28 U.S.C. § 1332(a). On June 16, 2008, Daugherty filed an amended complaint with this Court. The heart of Daugherty's claim is that he was wrongfully denied a $1.5 million payment under a disability insurance policy provided by the Defendants. Daugherty also asserts various other common law and statutory claims.

On September 2, 2011, more than three years and a half years after filing his original complaint with the Hardin County Circuit Court, and more than three years after filing his amended complaint with this Court, Daugherty filed the present motion to remand. In his motion the Plaintiff claims that this Court lacks jurisdiction to hear his claims and must remand because the parties are not completely diverse. Reading 28 U.S.C § 1332(c)(1) in conjunction with the Sixth Circuit's opinion in Lee–Lipstreu v. Chubb Group of Ins. Cos., 329 F.3d 898 (6th Cir.2003), Daugherty argues that the unique facts of his case fall within the “certain situations” exception envisioned by the Lee–Lipstreu Court. If Daugherty is covered by this exception, which is explained in more detail below, the Defendants would, for the purposes of § 1332(c)(1), be considered to have the same citizenship as Daugherty and diversity would be destroyed, divesting this Court of jurisdiction.

STANDARD

Federal courts are courts of limited jurisdiction, meaning they may only hear cases if granted jurisdiction over the subject matter by the Constitution or U.S. law. The two most common forms of subject matter jurisdiction are federal question and diversity jurisdiction. See 28 U.S.C. §§ 1331–32. It is a fundamental principle of the U.S. legal system that a federal court must have subject matter jurisdiction before it has any power over the parties or the issue. A party may challenge a court's jurisdiction to hear a case “ ‘any time in the same civil action, even initially at the highest appellate instance.’ ” Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 552 (6th Cir.2008) (quoting Kontrick v. Ryan, 540 U.S. 443, 455, 124 S.Ct. 906, 157 L.Ed.2d 867 (2004)). “A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made 30 days after the filing of the notice of removal under section 1446(a). If at any time before final judgment it appears that the district court lacks subject matter jurisdiction [e.g., lacks federal question or diversity jurisdiction], the case shall be remanded.” 28 U.S.C. § 1447(c) (emphasis added). Finally, parties cannot waive or “consent to subject matter jurisdiction and courts must constantly examine subject matter jurisdiction ‘on their own initiative.’ ” Sprowls v. Oakwood Mobile Homes, Inc., 119 F.Supp.2d 694, 695 (W.D.Ky.2000) (quoting Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999)).

DISCUSSION

Plaintiff John Daugherty has filed a motion to remand, claiming that removal was improper and that the Court has no jurisdiction to hear the case because the parties are not completely diverse. Since there is no federal question involved, this Court would be required to remand, pursuant to the mandate of 28 U.S.C. § 1447(c), if it finds that the parties are, in fact, not diverse.

I. The Background of 28 U.S.C § 1332(c)(1).

Daugherty bases his motion on 28 U.S.C. § 1332(c)(1). In relevant part that section states:

For the purposes of this section and section 1441 [the removal statute]—in any direct action against the insurer of a policy or contract of liability insurance ... 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....

28 U.S.C. § 1332(c)(1). Congress amended this portion of § 1332 in 1964 in direct response to changes in state law enacted by Louisiana and Wisconsin. See Aetna Cas. Ins. Co. v. Greene, 606 F.2d 123, 125 (6th Cir.1979). These state statutes, generally called “direct action” statutes, “allow[ed] an injured party to pursue a right of action against an out-of-state insurance company, without joining the in-state insured.” Id. As a result, these statutes greatly expanded the diversity jurisdiction of the federal district courts “by doing away with an injured party's obligation to join an insured who is a resident of the same state.” Id. These laws opened the proverbial “floodgates,” and the dockets of the federal district courts in Louisiana and Wisconsin were quickly inundated. Id. To remedy these docket problems, Congress enacted the above stated portion of § 1332(c)(1). After enactment, when an injured party sued an insurer and failed to join the insured as a party-defendant, the insurer was cloaked with the citizenship of the nonparty insured and, in many circumstances, diversity was destroyed, eliminating the jurisdiction of the federal courts.

II. Mechanics of 28 U.S.C. § 1332(c)(1).

The relevant portion of § 1332(c)(1) contains two operative components. In order to cloak the insurer in the citizenship of the insured, the plaintiff's must pursue a “direct action” against an insurer, and the claim must be for “a policy or contract of liability insurance.” See 28 U.S.C. § 1332(c)(1). These two components will be considered by the Court in turn. Because Daugherty's claims are not a “direct action” and are not for a “policy or contract of liability insurance,” as that terms has been interpreted by courts in this circuit, Daugherty's motion to remand must be denied.

A. Daugherty is not pursuing a “direct action” against an insurer.

As used in § 1332(c)(1), “direct action” is a term of art. As described above, the typical direct action is one in which an injured party sues the insurer of a tortfeasor without joining the tortfeasor to the case. It is known as a “direct action” because the plaintiff, who is not the insured, directly sues the party who will ultimately pay, the insurer, without joining the insured as a party-defendant. Section 1332(c)(1) is clear that before the insurer can be cloaked in the citizenship of the insured, the plaintiff must bring a direct action against the insurer.

In the present case, Plaintiff Daugherty is not bringing a direct action against the insurer of a non-party insured. Instead, Daugherty, himself, is the insured bringing a first-party claim against his insurer. Daugherty has sued to recover a $1.5 million lump sum payment from a disability insurance policy. Daugherty allegedly paid premiums for the policy to American Express, which in turn paid a portion of the premiums to Federal Insurance Company (“Federal”), the party that ultimately issued and provided the disability policy to Daugherty. In order for this to be a direct action within the meaning of § 1332(c)(1), American Express would have to be insured, Federal the insurer, and Daugherty a third-party seeking to recover from Federal for insurance that it provided to American Express. These simply are not the facts of the case presented. Daugherty is seeking to recover payment under a disability insurance policy that he claims is owed to him by Federal. Daugherty admits as much in his reply brief. “Mr. Daugherty's claim against Federal ... is technically an insured suing an insurer....” DN 183, p. 4. Because Daugherty is an insured suing his insurer, § 1332(c)(1) is inapplicable to the present case and will not divest the Court of jurisdiction.

1. Daugherty does not fall within the “certain situations” exception of Lee-Lipstreau.

In a second attempt to destroying diversity under § 1332(c)(1), Daugherty claims that the unique facts of his case fit within the “certain situations” exception contemplated by the Sixth Circuit in Lee–Lipstreu v. Chubb Group of Ins. Cos., 329 F.3d 898 (6th Cir.2003).

In Lee–Lipstreu, the plaintiffs claimed that the defendant insurance company “was obligated to pay them underinsured motorist benefits pursuant to a commercial general liability policy issued by the defendant to Edith Lee–Lipstreau's employer, National City Corporation.” Id. at 899. Before the court ultimately concluded that the policy did not provide automobile liability insurance coverage, it addressed the jurisdictional reach of § 1332(c)(1). See id. at 899–900. The court found that the plaintiff was an “insured” under her employer's policy and that § 1332(c)(1) was not applicable because “when an injured party sues her own uninsured motorist carrier, it is not a direct action.” Id. at 900. In coming to this conclusion the court recognized that “the direct action provision [of § 1332(c)(1) ] applies in certain situations involving insureds and insurers, but...