Field v. Liberty Mut. Ins. Co., Civ. No. 91-00320 DAE.

• Court: U.S. District Court — District of Hawaii
• Writing for the Court: DAVID A. EZRA
• Citation: 769 F. Supp. 1135
• Parties: David M. FIELD, Plaintiff, v. LIBERTY MUTUAL INSURANCE COMPANY, a Massachusetts corporation; John Does 1-10; Doe Corporations 1-10; Doe Partnerships 1-10; and Doe Entities 1-10, Defendants.
• Docket Number: Civ. No. 91-00320 DAE.
• Decision Date: 23 July 1991

769 F. Supp. 1135

David M. FIELD, Plaintiff,
v.
LIBERTY MUTUAL INSURANCE COMPANY, a Massachusetts corporation; John Does 1-10; Doe Corporations 1-10; Doe Partnerships 1-10; and Doe Entities 1-10, Defendants.

Civ. No. 91-00320 DAE.

United States District Court, D. Hawaii.

July 23, 1991.

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James T. Leavitt, Jr., John D. Yamane, Woodruff K. Soldner, Honolulu, Hawaii, for David M. Field.

Rush Moore Craven Sutton Morry & Beh, David A. Nakashima, Kathy K. Higham, Honolulu, Hawaii, for Liberty Mut. Ins. Co.

ORDER DENYING PLAINTIFF'S MOTION TO REMAND, GRANTING DEFENDANT'S MOTION TO STAY PROCEEDINGS PENDING ARBITRATION OF THE PARTIES' UNINSURED MOTORIST LIABILITY AND DAMAGE DISPUTE, AND DENYING PLAINTIFF'S REQUEST TO COMPEL ARBITRATION OF THE PARTIES' UNDERINSURED MOTORIST COVERAGE DISPUTE

DAVID A. EZRA, District Judge.

On June 7, 1991, defendant Liberty Mutual Insurance Company ("Liberty") filed a

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motion to stay proceedings pending arbitration. On June 12, 1991, plaintiff David M. Field ("Field") filed a motion to remand this matter to state court. Pursuant to an order entered July 19, 1991, the court took both motions under submission without oral argument. Appearing on the papers are James T. Leavitt, Jr., Esq. for Field and Kathy K. Higham, Esq. for Liberty. The court having reviewed the motions and the memoranda and exhibits submitted, having taken the matter under advisement and thoroughly considered the relevant law, DENIES Field's motion to remand, GRANTS Liberty's motion to stay proceedings pending arbitration of the parties' uninsured motorist liability and damage dispute, and DENIES Field's request to compel arbitration of the parties' underinsured motorist coverage dispute

BACKGROUND

On September 8, 1989, Field was struck by a car and injured severely after he pulled off the side of the road to assist a disabled vehicle. A third vehicle that contributed to the accident fled the scene and was never identified. On March 6, 1991, with the goal of recovering on the liability of the car that fled the scene and supplementing the recovery he had already received from the driver of the disabled vehicle and the driver of the car that struck him, Field filed a claim for uninsured and underinsured¹ motorist benefits with Liberty, his insurer under a policy purchased November 18, 1988. Liberty denied the claim on March 21, 1991.

On April 29, 1991, Field sued Liberty in the Circuit Court of the First Circuit, State of Hawaii. His complaint demands: (1) reformation of his insurance policy to provide him underinsured motorist benefits, see footnote 1 supra; (2) underinsured motorist benefits up to $105,000 under the reformed policy; (3) uninsured motorist benefits of $105,000; (4) damages for Liberty's alleged tortious breach of the insurance contract; (5) punitive damages for Liberty's denial of uninsured motorist coverage; (6) treble damages for Liberty's alleged unfair and deceptive trade practices; and (7) attorneys' fees and costs.

Alleging diversity jurisdiction, Liberty removed the suit to this court on June 3, 1991. Field is a citizen of Hawaii, and Liberty is a company incorporated and having its principal place of business in Massachusetts. Field now moves to remand the case to state court on the ground that 28 U.S.C. § 1332(c)(1) defeats diversity jurisdiction. Liberty opposes the motion to remand and seeks a stay of these proceedings pending arbitration of the dispute over Field's claim for uninsured motorist benefits. Field opposes the stay but requests, in the alternative, that if the court does stay proceedings on the parties' uninsured motorist dispute it also compel arbitration of the parties' underinsured motorist dispute.

DISCUSSION

I. Field's Motion to Remand

Unless this court has subject matter jurisdiction, it cannot grant the stay Liberty seeks. Accordingly, the court addresses the jurisdictional issue first.

Field argues that under 28 U.S.C. § 1332(c)(1), the court lacks diversity jurisdiction over this action. Section 1332(c)(1) provides:

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, ... 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....

(Italics added). Field suggests his action against Liberty constitutes a "direct action"

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within the meaning of section 1332(c)(1). He also argues he is an "insured not joined as a party-defendant" and that the court should therefore deem Liberty a citizen of Hawaii, thereby destroying diversity jurisdiction

Congress enacted section 1332(c)(1) "specifically to eliminate from diversity jurisdiction tort claims in which both the injured party and the tortfeasor are local residents, but which, under `direct action' statutes, are brought against the tortfeasor's foreign insurance carrier without joining the tortfeasor as a defendant." Beckham v. Safeco Ins. Co. of America, 691 F.2d 898, 901 (9th Cir.1982); see also, Northbrook Nat. Ins. Co. v. Brewer, 493 U.S. 6, 110 S.Ct. 297, 299, 107 L.Ed.2d 223 (1989). Section 1332(c) applies in third-party tort liability cases, where the "insured" is the defendant-tortfeasor, not the plaintiff-victim who is suing his own insurer on a contract theory. Smith v. State Farm Ins. Co., 615 F.Supp. 453, 455 (D.Haw.1985).

In Smith, as in this case, the plaintiff-victim sued the insurer on the plaintiff's own insurance policy. This court refused to find in Smith that section 1332(c)(1) destroyed diversity jurisdiction, noting the statute was not meant to cover cases in which the "insured" is the plaintiff. Id. Under Smith, Field's claims for benefits under his policy do not constitute a "direct action" within the meaning of section 1332(c)(1). Under Beckham, his claims for damages arising from Liberty's alleged bad faith refusal to pay those benefits also fall outside the "direct action" proviso. See 691 F.2d at 902 (suit against an insurer for bad faith refusal to settle a claim is not a direct action under section 1332(c)(1)).²

Accordingly, the court finds section 1332(c)(1) does not destroy this court's diversity jurisdiction, and the court denies Field's motion to remand.

II. Liberty's Motion to Stay Proceedings Pending Arbitration of the Parties' Uninsured Motorist Liability and Damage Dispute

Liberty's policy provides that if Liberty and Field cannot agree either as to Field's entitlement to damages or as to the amount of those damages, then the dispute will be submitted to a panel of three arbitrators upon the written demand of either Field or Liberty. See Liberty's Memorandum in Support of Motion to Stay, Exhibit "A" at 7. Liberty has made a written demand for arbitration, and it argues that under Haw. Rev.Stat. § 658-5 (1985), this court must stay the instant judicial proceedings pending its completion.

Because this court sits in diversity, it applies state substantive law, including state choice of law rules. See Gee v. Tenneco, Inc., 615 F.2d 857, 861 (9th Cir.1980). Under Hawaii's choice of law rules, the law of the state where an insurance contract is made governs this court's determination of the parties' rights. Smith, 615 F.Supp. at 455; accord, Insurance Co. of Pennsylvania v. Associated Int'l Ins. Co., 922 F.2d 516, 520 (9th Cir.1990). Accordingly, this court applies Hawaii law to the parties' insurance dispute in this case.

Section 658-5 requires that:

if any action or proceeding is brought upon any issue referable to arbitration under an agreement in writing, the trial

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court ... shall stay the trial of the action or proceeding until the arbitration has been had in accordance with the terms of the agreement, provided the applicant for the stay is not in default in proceeding with the arbitration.

See also Association of Owners of Kukui Plaza v. Swinerton & Walberg Co., 68 Haw. 98, 107, 705 P.2d 28, 35 (1985) (stay of proceedings mandatory where claim referable to arbitration under an agreement in writing and a party invokes his contractual right to have the dispute settled by arbitration). Thus,...