Farris v. State Farm Ins. Co.

Decision Date14 April 2008
Docket NumberCase No. 1:07 CV 2477.
Citation617 F.Supp.2d 654
PartiesCarol FARRIS, Plaintiff, v. STATE FARM INSURANCE COMPANY, Defendant.
CourtU.S. District Court — Northern District of Ohio

David I. Pomerantz, Pomerantz & Crosby, Maple Heights, OH, for Plaintiff.

Gregory H. Collins, Davis & Young, Akron, OH, for Defendant.


WILLIAM H. BAUGHMAN, JR., United States Magistrate Judge.

I. Introduction

Before me1 in this case involving a dispute over insurance coverage2 are a motion for summary judgment filed by plaintiff Carol Farris3 and a cross-motion for summary judgment filed by defendant State Farm Mutual Automobile Insurance Co., Inc.4 The parties have also each filed responsive briefs to the motion and cross-motion,5 as well as briefs requested by me6 addressing the applicability of various factors that must be considered by a district court before exercising jurisdiction in a declaratory judgment interpreting an insurance contract.7

For the reasons that follow, I find that the exercise of jurisdiction here is proper and further grant State Farm's cross-motion for summary judgment.

II. Facts
A. The underlying action

The underlying facts are straightforward and undisputed. Plaintiff Carol Farris, who was insured by defendant State Farm, was involved in an automobile accident in Cleveland on February 1, 2005, in which Farris' vehicle was struck by a vehicle driven by another State Farm policyholder.8 Farris suffered injuries as a result of this accident and incurred medical expenses.9

The State Farm policy covering Farris at the time10 provided her with so-called "med-pay" benefits for any medical expenses incurred as a result of an accident.11 Simply put, the policy states that if Farris, after being injured and receiving payment for the injury from State Farm, also subsequently receives payment for that injury "from any liable party," then Farris "shall hold in trust for [State Farm] the proceeds of the recovery [from the other liable party], and reimburse [State Farm] to the extent of [State Farm's prior] payments, costs incurred, and fees of collection."12

Here, Farris made a claim under her policy for her injuries and, in October 2006, received a check from State Farm for $2,681.34.13 Farris also sued the driver of the other vehicle, alleging negligence, and, in June 2007, settled that case for $7,000 and dismissed her suit.14 As it happens, State Farm insured the other driver, and so State Farm funded that driver's 2007 settlement with Farris.15

On June 28, 2007, in paying this $7,000 settlement, State Farm sent Farris three separate settlement checks.16 One check was for $2,681.34, the amount of State Farm's previous payment to Farris under the policy for her injuries.17 State Farm was listed as one of the payees on that check,18 thus making it impossible for Farris or her attorneys to cash the check without paying State Farm $2,681.34. Consequently, Farris brought this action.

B. The present case

On July 11, 2007, Farris initiated the current suit against State Farm in the Cuyahoga County (Ohio) Court of Common Pleas.19 In the suit, Farris alleged that State Farm breached the terms of the settlement agreement by not issuing a check to her in the full amount of $7,000.00 and further had shown bad faith in claiming a right of subrogation from itself.20 Farris sought a declaratory judgment setting forth her rights under the insurance policy and specifically sought a judgment that State Farm has "no right to any of the $7,000.00 it agreed to pay [her]," whether by right of subrogation or right to reimbursement.21 Farris also demanded punitive damages of $500,000.00 and attorney fees.22

State Farm removed the matter to this Court pursuant to 28 U.S.C. §§ 1441 and 1446, inasmuch as there is diversity of citizenship between the parties, and the amount in controversy exceeds $75,000.00.23

After removal, State Farm filed its answer,24 contending that it is not asserting a right of subrogation here,25 but, pursuant to the policy language as interpreted by Ohio courts,26 it has asserted its right to be reimbursed by Farris for amounts previously paid to her for her injuries.

Farris responded by filing a motion for summary judgment, arguing that, under Ohio law, State Farm is not entitled to "be subrogated to itself on the payment previously made" to Farris.27 In that regard, she contended that, notwithstanding State Farm's contention that it is pursuing a right to reimbursement, not a right of subrogation, the facts here show, according to Farris, that since she never actually took possession of the disputed $2,681.34, State Farm cannot now be seeking to have her reimburse it for that sum.28 Farris also argued that she is entitled to post-settlement interest on the entire $7,000.00 settlement because State Farm has not fully paid the entire settlement amount.29

In its cross-motion for summary judgment, State Farm contends that Farris, by this suit, is impermissibly claiming "that she is entitled to a double recovery, and that she is not obligated to reimburse State Farm for medical expenses paid to Farris which Farris subsequently also recovered from [the other driver]."30 State Farm further asserts that Farris "fails to distinguish between subrogation and reimbursement," noting that an Ohio appeals court in Craven v. Nationwide Mutual Insurance Company31 specifically rejected Farris' interpretation of that portion of the policy.32

State Farm then contends that additional Ohio appellate authority directly rejects Farris' notion that reimbursement in these circumstances requires that the party in Farris' position actually take possession of an award payment rather than allowing an administrative offset by the insurer, if, as here, the same insurer paid the first settlement as the injured's insurer and the second as the insurer of the tortfeasor.33 In view of the case authority, State Farm further maintains that Farris can show no valid reason for post-settlement interest nor support a claim of bad faith against State Farm.34

In response, Farris, without citing any contrary Ohio cases, argues that State Farm's contention that it is pursuing a right of reimbursement under the policy is a "legal tap dance," since, she maintains, "the policy does not create a right of reimbursement, but only a right of subrogation."35 She argues that any purported right of reimbursement in the policy language, as asserted by State Farm, is either ambiguous or procedural, and further contends that, as an adhesion contract, any ambiguous terms or phrasing in the policy must be construed against State Farm, its author.36

State Farm, in reply, observes again that Farris' precise argument about this exact language has been rejected by Ohio courts in Craven and Gerak.37 After quoting from the Gerak court's own quotation of State Farm's policy language,38 State Farm here expressly notes that Gerak found "the insurance policy contains both a reimbursement provision and a subrogation provision," and thus, "the terms of the insurance policy specifically provide for reimbursement."39 Finally, State Farm states that Gerak explicitly held that an insurer in this circumstance has the right to offset the amount it previously paid to an insured under the medical payment provision of the policy from the amount of any judgment received by the insured from the tortfeasor and funded by the same insurer.40

III. Discussion
A. Jurisdiction

As noted, this matter was removed from Ohio courts to federal court by State Farm pursuant to 28 U.S.C. §§ 1441 and 1446 because it involves parties of different states and an amount in controversy over $75,000. As such, jurisdiction would be proper here.

However, because Farris' complaint styled this action as one for a declaratory judgment, the parties were instructed41 to brief42 the issue of whether this matter meets the criteria set forth by the Sixth Circuit in Travelers Indemnity Co. v. Bowling Green Professional Associates43 for the exercise of diversity jurisdiction in a case for declaratory judgment.

Essentially, Farris declined to take a position as to whether jurisdiction is properly exercised here under the Travelers Indemnity factors.44 State Farm, however, does argue for the exercise of jurisdiction.45

It notes initially that, since Farris' suit seeks monetary damages for an alleged breach by State Farm of Farris' settlement agreement with the other driver, as well as punitive damages for States Farm's purported bad faith in regards to the breach, this matter is not exclusively a declaratory judgment action.46 Accordingly, State Farm contends that where a federal court must properly exercise mandatory diversity jurisdiction over breach of contract claims, it may not decline to resolve a declaratory judgment issue present in the same case.47

I find the analysis of the Knowlton Construction opinion sound and persuasive. That court, in considering whether it was required under the Travelers Indemnity factors to decline jurisdiction over declaratory judgment claims in a diversity action and so remand the entire matter back to state court, found remand improper, when those declaratory judgment claims were present in a case also asserting claims for monetary damages, over which the federal court was required to exercise diversity jurisdiction.48 Although not here confronting a motion for remand, as in Knowlton Construction, the relevant analysis is similar. Here, Farris' claims for monetary damages arising out of State Farm's alleged breach of her settlement agreement with the other driver, over which this Court must exercise jurisdiction,49 cannot be adjudicated without considering the issues raised in the declaratory judgment claim, which form the basis for determining whether State Farm's alleged breach was actually a breach or not. Thus, there is no basis for bifurcating Farris' claims and sending only the declaratory judgment portion back to state court....

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