Dunleavy v. State Farm Fire And Cas. Co.
| Decision Date | 01 February 2011 |
| Docket Number | Case No. 10-13879 |
| Parties | BRIAN DUNLEAVY and PAMELA DUNLEAVY, Plaintiffs, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
Hon. Thomas L. Ludington
On September 16, 2010, Plaintiffs Brian Dunleavy and Pamela Dunleavy ("Plaintiffs") served a summons and complaint on State Farm Fire and Casualty Company ("Defendant" or "State Farm") alleging that State Farm breached its contract of insurance with Plaintiffs and requesting that State Farm be estopped from asserting any contractual or statutory time limit that would preclude Plaintiffs claims. On September 29, 2010, State Farm timely removed the action to this Court on the basis of diversity jurisdiction. Plaintiffs have acknowledged they were citizens of Michigan and that the amount in controversy, exclusive of interest, was in excess of $75,000.00 [Dkt. #1]. The pending motion to remand was filed on October 14, 2010 [Dkt. #6]. Defendant filed a response on October 19, 2010 [Dkt. #8]. Plaintiffs filed a reply on November 12, 2010 [Dkt. # 16].
The Court has reviewed the parties' submissions and finds that the facts and the law have been sufficiently set forth in the motion papers. The Court concludes that oral argument will not aid in the disposition of the motion. Accordingly, it is ORDERED that the motion be decided on thepapers submitted. E.D. Mich. LR 7.1(e)(2). For the reasons stated below, the Court will DENY Plaintiffs' motion to remand.
Plaintiffs filed suit against State Farm in the Clare County Circuit Court, seeking benefits under a homeowner's policy of insurance for the residential property located at 789 Arbor Drive, Lake George, Michigan which was in effect on the date of the incident. Plaintiffs are the named insureds under the homeowner's insurance policy issued to them by State Farm. On July 4, 2007, a water pipe burst at Plaintiffs' home, causing extensive damage to the one-story home and rendering the house, as Plaintiffs explain, a "total loss and tear down" because of the water damage. (Compl. 11-13.) The cause of the pipe burst is unknown. Plaintiffs submitted their claim as a qualifying catastrophic event loss covered by the State Farm insurance policy and filed a claim for the accompanying damage to their house. State Farm issued partial payments on July 20, 2009 and December 22, 2009 for unspecified amounts pursuant to negotiations with Plaintiffs regarding their claim. Although State Farm has not issued a denial letter for Plaintiffs' claim, Plaintiffs have not received full payment on their claim.
Plaintiffs' motion for remand contends that removal to this Court was improper because the Plaintiffs and Defendant are not diverse. Plaintiffs assert that they fall squarely within the language of 28 U.S.C. § 1332(c)(1) because this is a "direct action" against the insurer for benefits under an insurance policy and Plaintiffs have not been joined as a defendant in the action. 28 U.S.C. § 1332(c)(1) provides that: a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business, except 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, as well as of any State by which the insurer has been incorporated and of the State where it has its principal place of business
Plaintiffs contend that under § 1332(c)(1), State Farm is deemed a citizen of the Plaintiffs' state of residency, which is Michigan.
A "direct action" under § 1332(c)(1) is one in which a party who suffered injuries or damage for which another is legally responsible is entitled to bring suit against the tortfeasor's liability insurer directly without joining the insured or first obtaining a judgment against the tortfeasor. See ASW Allstate Painting & Constr. Co. v. Lexington Ins. Co., 188 F.3d 307, 310 (5th Cir. 1999); Rosa v. Allstate Ins. Co., 981 F.2d 669, 677-78 (2d Cir. 1992). In other words, the statute is applicable only if the insurer stands in the shoes of its insured who would traditionally be the defendant. Rosa, 981 F.2d at 677-78. The federal statute thus applies to the limited situations where the insurer's status is that of the payor of a judgment based on the negligence of its insured. See Velez v. Crown Life Ins. Co., 599 F.2d 471, 473 (1st Cir. 1979). In any direct action against an insurer of a policy or contract of liability insurance in which the insured is not joined as a party-defendant, the insurer is deemed to be a citizen of the following states: (1) the state of which the insured is a citizen; and (2) any state by which the insurer has been incorporated; and (3) the state where the insurer has its principal place of business. 28 U.S.C. § 1332(c)(1); see, e.g., Searles v. Cincinnati Ins. Co., 998 F.2d 728-29 (9th Cir. 1993).
Direct actions have been authorized under state law in a variety of circumstances. Many states have adopted statutes that give the injured party the right to sue the tortfeasor's insurerdirectly at some point after the injured party's initiation of proceedings against the tortfeasor. These statutes typically require the injured party to obtain a final judgment against the insured before proceeding directly against the insurer, but some merely require a final judgment even if it is not satisfied. See Ark. Code Ann. § 23-89-101; Ohio Rev. Code Ann. § 3929.05-06. Other states require the injured party to attempt to collect on the judgment, even if unsuccessfully, before they may bring suit directly against the insurer. See, e.g., 215 Ill. Comp. Stat. 5/388; 40 Pa. Stat. § 117. Still other states require that all liability policies include a written provision giving injured parties the right to sue the insurer directly after the satisfaction of prescribed conditions, including receipt of a final judgment against the insured, either with or without the requirement that the injured party must attempt to collect the judgment from the tortfeasor before suing the insurer. See, e.g., Cal. Ins. Code § 11580; Iowa Code § 516.1.
28 U.S.C. § 1332 Subsection (c)(1) was added in 1964 after the Louisiana federal courts experienced a significant caseload increase resulting from the state adopting a direct action statute. S. Rep. No. 88-1308, at 1 (1964), reprinted in 1964 U.S.C.C.A.N. 2778, 2778-79; see Northbrook Nat'lIns. Co. v. Brewer, 493 U.S. 6, 9 (1989). The Louisiana statute permitted Louisiana residents to file tort claims directly against nonresident insurers without joining the Louisiana resident who allegedly committed the tort. See Evanston Ins. Co. v. Jimco, Inc., 844 F.2d 1185, 1188 (5th Cir. 1988). The 1964 amendment to the federal direct action statute made clear that the statute's purpose was not to be used as a vehicle to hail an insurer into federal court where both the plaintiff and the insured are residents of the same state. Newsom v. Zurich Ins. Co., 396 F.2d 280, 281 (5th Cir. 1968).
The Sixth Circuit has addressed numerous cases where the "direct action" provision did notapply. Plaintiffs advance Lee-Lipstreu v. Chubb Group of Ins. Cos, 329 F.3d 898 (6th Cir. 2003) as the leading case on this issue for the Sixth Circuit but seek to distinguish the case because the defendant was the wife's employer's insurer. Plaintiffs do not explain how this factual dissimilarity distinguishes Lee-Lipstreu. The Court in Lee-Lipstreu found that the insurer properly removed the suit to federal court and denied the insured's motion to remand based on 28 U.S.C. § 1332(c)(1). In denying the plaintiff's motion, the Sixth Circuit explained:
applying the direct action provision to a dispute solely between an insured and her own insurance company would result in an absurdity-federal courts would never hear common insurance disputes because the insured and the insurer, the plaintiff and the defendant, would always be considered citizens of the same state.
The Sixth Circuit also addressed a challenge to diversity under § 1332(c)(1) in Estate of Monahan v. Am. States Ins. Co., 75 F. App'x 340 (6th Cir. 2003). The Court explained that
Section 1332(c)(1) refers to situations where the plaintiff is suing the tortfeasor's insurer, rather than suing the tortfeasor directly, on the issue of liability. This makes logical sense, as § 1332(c)(1) evidently was enacted to prevent a plaintiff from end-running the diversity of citizenship requirement (where the tortfeasor hails from plaintiffs state, but the tortfeasor's insurer does not) by suing the tortfeasor's insurer instead of the tortfeasor. See Peterson v. TIG Specialty Ins. Co., 211 F. Supp. 2d 1013, 1015 (S.D. Ohio 2002) ( )
Plaintiffs contend that the Sixth Circuit's language in the Lee-Lipstreu opinion is "troubling." (Pl.s' Mot. for Remand 5.) Plaintiffs emphasize that the Lee-Lipstreu opinion attempts to improperly expand the federal jurisdiction provided under 28 U.S.C. § 1332(c)(1). In their reply, Plaintiffs further assert, somewhat confusingly, that the holding in Lee-Lipstreu should not apply to a "straightforward fire case such as the present case." (Pl.s' Reply Br. 2.) Plaintiffs argue thathomeowners insurance is "local in nature" and subject to Michigan law, which is further evidenced by State Farm's advertisement jingle providing that "like a good neighbor, State Farm is there." (Pl.s' Mot. for Remand 5.) Plaintiffs argue that this results in State Farm being present in the state through local...
To continue reading
Request your trial