Ellsworth v. Progressive Nw. Ins. Co.

• Decision Date: 31 October 2013
• Docket Number: No. CIV 12-1279 JB/ACT,CIV 12-1279 JB/ACT
• Court: U.S. District Court — District of New Mexico
• Parties: KATHLEEN ELLSWORTH and LOU SCHMIDT, CO-PERSONAL REPRESENTATIVES OF THE WRONGFUL DEATH ESTATE OF BRANDI LYNN SCHMIDT, Deceased, Plaintiffs, v. PROGRESSIVE NORTHWESTERN INSURANCE COMPANY, a for-profit Wisconsin Insurance Corporation, UNITED FINANCIAL CASUALTY COMPANY, a for-profit Ohio Insurance Corporation, and LETCHER, GOLDEN & ASSOCIATES, INC., a for-profit New Mexico Corporation, Defendants.

KATHLEEN ELLSWORTH and LOU SCHMIDT, CO-PERSONALREPRESENTATIVES OF THE WRONGFUL DEATH ESTATEOF BRANDI LYNN SCHMIDT, Deceased, Plaintiffs, v. PROGRESSIVE NORTHWESTERN INSURANCE COMPANY,a for-profit Wisconsin Insurance Corporation, UNITED FINANCIALCASUALTY COMPANY, a for-profit Ohio Insurance Corporation, and LETCHER,GOLDEN & ASSOCIATES, INC., a for-profit New Mexico Corporation, Defendants.

No. CIV 12-1279 JB/ACT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

Dated: October 31, 2013

MEMORANDUM OPINION¹

THIS MATTER comes before the Court on the Plaintiffs' Motion to Remand the Case to State Court, filed January 29, 2013 (Doc. 18)("Motion to Remand"). The Court held a hearing on June 26, 2013. The primary issues are: (i) whether the Plaintiffs fraudulently joined Defendant Letcher, Golden, & Associates, Inc. to destroy diversity jurisdiction; and (ii) whether the Court should remand the case to the First Judicial District, County of Rio Arriba, State of New Mexico for lack of subject-matter jurisdiction. The Court concludes that the Plaintiffs did not fraudulently join Letcher, Golden and remands this case to the First Judicial District for lack of subject-matter jurisdiction.

FACTUAL BACKGROUND

The case arises from an automobile accident that occurred on or about August 29, 2010. See Complaint for Damages, Breach of Contract, Insurance Bad Faith, Violation of New Mexico Insurance Code, Negligence and Intentional Torts ¶ 7, at 2, filed in First Judicial District, State of New Mexico, on October 26, 2012, filed in federal court December 10, 2012 (Doc. 1-2)("Complaint"). Mary L. Keith, the driver, and Brandi Schmidt, the front-seat passenger, both died in an accident when Keith rear-ended an "eighteen wheeler." Complaint ¶¶ 13-14, at 3. Tammie Vanmarter, Keith's mother, owned the car Keith was driving. See Complaint ¶ 13, at 3. B. Schmidt's father, Lou Schmidt, was appointed the personal representative of the Wrongful Death Estate of Brandi Lynn Schmidt. See Complaint ¶ 18, at 4. He demanded the policy limit of $25,000.00 under Vanmarter's policy, which the insurance company paid. See Complaint ¶ 18, at 4.

At the time of the accident, B. Schmidt, a seventeen-year old, was ten to eleven weeks pregnant. See ¶ 15, at 3. She was living in Lovington, New Mexico, in Jerry Walker's² home: Walker "provided for and cared for" her, and "provided food, clothing and a bedroom in his home without charging any rent." Complaint ¶ 16, at 3. He also "provided a vehicle for her to drive, and intended to have her covered on his automobile policy." Complaint ¶ 16, at 3. "Even when she briefly left to Oklahoma, Mr. Walker continued to provide Ms. Schmidt with a cell phone, and had obtained an automobile for her to use." Complaint ¶ 16, at 3.

The claims in this case relate to two insurance policies issued to Walker, one to him personally and one to an entity under his name. See Complaint ¶¶ 21, 23, at 4. DefendantUnited Financial Casualty Company issued a commercial policy to Jerry Walker J&W Pilot/Escort Services with a combined single limit (CSL) of $1,000,000.00 in liability coverage. See Complaint ¶ 21, at 4. Defendant Progressive Northern Insurance Company³ issued a New Mexico personal automobile policy to Walker with a policy limit of $50,000.00/$100,0000.00 per vehicle. See Complaint ¶ 23, at 4-5. Although the uninsured/underinsured ("UM/UIM") limits under both policies were originally less than the liability limits, both companies reformed the UM/UIM coverage to match the liability limits.⁴ See Complaint ¶¶ 21-24, at 4-5.

At some point before B. Schmidt's death, Defendant Letcher, Golden -- Walker's local insurance agent -- removed B. Schmidt from Walker's insurance policy, "contrary to [his] intent," and as a result, Progressive Northern and United Financial (collectively, the "Progressive Defendants") denied coverage when L. Schmidt demanded the underinsured policy limits of $1,075,000.00. See Complaint ¶¶ 19-20, at 4. The policies provided UM/UIM motorist coverage for "'relatives' who were residents of Mr. Walker's home," Complaint ¶ 27, at 5, but the Progressive Defendants alleged that B. Schmidt was not Walker's "relative," and, specifically, "was not Jerry Walker's 'ward' or 'foster child'" under the policies, "even though those terms were not defined in the policies," Complaint ¶ 20, at 4.

On June 29, 2012, counsel for the Progressive Defendants and counsel for B. Schmidt's estate took Walker's examination under oath ("EUO").⁵ Because Letcher, Golden removed B. Schmidt from Walker's policy and never re-named her as an insured, the Progressive Defendants sued her estate in federal court on August 10, 2012, "seeking a declaration of non-coverage." Complaint ¶ 30, at 5. See Notice of Removal at 4, filed December 10, 2012 (Doc. 1)(stating the date that the Progressive Defendants filed the declaratory judgment action). They have "since indicated that they concede there is coverage," but "have denied payment of policy limits, indicating a disagreement on damage amounts. They have made no offers to settle." Complaint ¶ 31, at 6. After the Progressive Defendants requested to take L. Schmidt's EUO, they tried to amend their Complaint to "seek a declaration of non-coverage against Lou Schmidt for non-cooperation, even though Lou Schmidt never refused to submit to an EUO, which is, in fact, currently scheduled." Complaint ¶ 44, at 8. The Plaintiffs filed a Motion for Summary Judgment in that case, which was pending at the time they filed the Complaint in this case. See Complaint ¶¶ 43-44, at 8.

PROCEDURAL BACKGROUND

The Plaintiffs filed suit in the First Judicial District Court, County of Rio Arriba, State of New Mexico, on October 26, 2012, asserting damages for breach of contract, insurance bad faith,violation of the New Mexico Insurance Code, NMSA 1978 §§ 59A-16-1 - 59A-16-30, negligence, and intentional tort claims. See Complaint at 1, 8, 9, 10, 11, 14. The Plaintiffs are L. Schmidt and Kathleen Ellsworth⁶, suing as co-personal representatives of B. Schmidt's wrongful death estate. See Complaint ¶ 1-3, at 1-2. L. Schmidt is an Ohio resident, and Ellsworth is a resident of Española, County of Rio Arriba, New Mexico. See Complaint ¶¶ 2-3, at 2. At the time B. Schmidt died, she was a New Mexico resident. See id. ¶ 16, at 3. Progressive Northern is organized under Wisconsin laws and has its principal place of business in Ohio. See Complaint ¶ 4, at 2. United Financial is organized under Ohio laws and has its principal place of business in Ohio. See Complaint ¶ 5, at 2. Letcher, Golden is a New Mexico corporation, with its principal place of business in Artesia, New Mexico. See Complaint ¶ 9, at 2.

On December 10, 2012, the Progressive Defendants removed the case to federal court, asserting that the Court has diversity jurisdiction: the personal representatives assume the citizenship of B. Schmidt, who was a New Mexico resident, see 28 U.S.C. § 1332(c)(2) ("[T]he legal representative of the estate of a decedent shall be deemed to be a citizen only of the same State as the decedent . . . ."), and the Progressive Defendants are foreign corporations. See Notice of Removal ¶¶ 5-6, 12, at 2-3, 8. They allege that the Plaintiffs fraudulently joined Letcher, Golden to "prevent Progressive from removing this matter to federal court." Notice of Removal ¶ 6, at 2. The Progressive Defendants contend that L. Schmidt named Ellsworth as a co-personal representative in Rio Arriba County "even though there is no connection whatsoever as to this case and Rio Arriba county," Notice of Removal ¶ 8, at 6-7, and joined Letcher, Golden to defeat removal and "drag Progressive and United Financial, two foreign insurers, before a jury in Rio Arriba county, a jurisdiction that they anticipate will be more favorable than either thejurisdiction where Brandi Schmidt resided and where the events giving rise to this cause of action occurred or this Court," Notice of Removal ¶ 6, at 2-3.

The Progressive Defendants explain that they filed the declaratory judgment action to establish that B. Schmidt was not related to Walker "by virtue of 'blood, marriage or adoption' or 'ward', 'step child' or 'foster child' under the subject policies," because neither the policies nor New Mexico case law define "ward" and "foster child." Notice of Removal ¶ 8, at 4-5. The Progressive Defendants state that dictionaries inconsistently define those terms, and other jurisdictions have split on how to interpret the terms. See Notice of Removal ¶ 8, at 5. While the declaratory judgment action was pending, the New Mexico Supreme Court issued United Nuclear Corporation v. Allstate Insurance Company, 2012-NMSC-032, 285 P.3d 644, an opinion turning on the construction of the word "sudden" in an insurance policy. Notice of Removal ¶ 8, at 5.

"[In t]he absence of a definition of the term in the Policies, taken together with diverging definitions in standard dictionaries and the lack of any consensus among courts nationwide, we hold that the meaning of the term 'sudden' as used in the Policies is ambiguous. In recognizing the inherent imbalance of the two parties to an insurance contract -- that often times 'language in standard policies does not involve mutual negotiations between the insurers and the insureds' -- we must resolve such ambiguities against the insurer. 'Where exceptions to or limitations upon coverage are concerned, this principle applies with added force.'"

Notice of Removal ¶ 8, at 5 (quoting United Nuclear Corporation v. Allstate Insurance Company, 2012-NMSC-032, ¶ 38). After learning about this opinion, the Progressive Defendants "contacted Mr. Schmidt's counsel and offered to withdraw this declaratory judgment action without prejudice." Notice of Removal ¶ 8, at 6. When L. Schmidt's counsel opposed the motion to dismiss and L. Schmidt "failed to cooperate under the policies of insurance which prejudiced Progressive in its investigation of the claim and in...