NORTHBROOK NAT'L INS. CO. V. BREWER

• Citation: 493 U. S. 6
• Decision Date: 07 November 1989
• Court: United States Supreme Court

Northbrook National Insurance Co. v. Brewer

No. 88-995

Argued October 4, 1989

Decided November 7, 1989

493 U.S. 6

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE FIFTH CIRCUIT

Syllabus

Texas law provides that any party dissatisfied with a State Industrial Accident Board workers' compensation ruling may bring a civil suit to set the decision aside. The court determines such cases de novo, and the party seeking compensation bears the burden of proof regardless of which party prevailed before the board. Pursuant to Texas law, respondent Brewer, a Texas citizen employed by a Texas corporation, filed a workers' compensation claim with the board against the employer's insurer, petitioner here, an Illinois corporation with its principal place of business in that State. After the board awarded Brewer compensation, petitioner filed an action in Federal District Court, invoking the court's diversity jurisdiction under 28 U.S.C. § 1332. The court dismissed for lack of subject matter jurisdiction. Holding that Fifth Circuit precedent, Campbell v. Insurance Co. of North America, 552 F.2d 604, required it to apply the direct action proviso of § 1332(c) -- which states that,

"in any direct action against the insurer of a policy . . . of liability insurance . . such insurer shall be deemed a citizen of the State of which the insured is a citizen. . . ."

-- the court attributed the employer's Texas citizenship to petitioner, thus eliminating diversity between petitioner and Brewer. The Court of Appeals affirmed.

Held: The direct action proviso does not apply to actions brought in federal court by an insurer. The proviso's language unambiguously applies only to actions against insurers and does not mention actions by insurers. This reading is reinforced by the proviso's legislative history. Campbell's analysis -- that an action such as petitioner's is an action against an insurer, since the entire process is initiated by an employee's claim to the board, since the employee has the burden of proof at the trial, and since the insurer's action is merely an "appeal" of the board's ruling -- is rejected. Although the employee retains some of the characteristics of a plaintiff at trial, the action is commenced when the insurer files the complaint in court, not when the employee files his claim with the board. Moreover, the board's award is vacated once the court acquires jurisdiction over the suit. The seeming incongruity Congress created by retaining diversity jurisdiction over actions brought by out-of-state insurers while withdrawing removal jurisdiction when it eliminated diversity

Page 493 U. S. 7

jurisdiction in actions brought against them is insufficient to persuade this Court to extend the scope of the proviso's precise wording. Cf. Horton v. Liberty Mutual Ins. Co., 367 U. S. 348, 351-352. P P. 9-13.

854 F.2d 742, reversed and remanded.

MARSHALL, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, WHITE, BLACKMUN, O'CONNOR, SCALIA, and KENNEDY, JJ., joined. STEVENS, J., filed a dissenting opinion, post, P. 13.

JUSTICE MARSHALL delivered the opinion of the Court.

This case presents the question whether the "direct action" proviso of 28 U.S.C. § 1332(c) (1982 ed.) -- which provides that, in a direct action against a liability insurer, the insurer shall be deemed a citizen of the same State as the insured for purposes of diversity jurisdiction -- applies to a workers' compensation action brought in federal court by an insurer. The Fifth Circuit held that the proviso applied so as to bar a diversity action brought by an Illinois insurer of a Texas corporation against a Texas employee. 854 F.2d 742 (1988). Accordingly, it affirmed the District Court's dismissal for lack of subject matter jurisdiction. Because the language of the proviso is unambiguously limited to actions brought against insurers, we reverse.

I

Respondent Larry Brewer is a Texas citizen and an employee of Whitmire Line Clearance, Inc., a Texas corporation. Petitioner Northbrook National Insurance Company, an Illinois corporation with its principal place of business in that State, was Whitmire's workers' compensation insurer. Under the Texas Workers' Compensation Act, an employee

Page 493 U. S. 8

who suffers an injury in the course of employment "shall have no right of action against [the] employer . . . but . . . shall look for compensation solely to the [employer's insurer]." Tex.Rev.Civ.Stat.Ann., Art. 8306, § 3(a) (Vernon Supp.1989). An employee must file his claim for compensation with the Texas Industrial Accident Board. Art. 8307, § 4a. Brewer filed a workers' compensation claim against Northbrook after he allegedly suffered an injury during the course of his employment. The board processed his claim and awarded him compensation.

Texas' workers' compensation law permits any party dissatisfied with a board ruling to bring a civil suit to set the decision aside. Art. 8307, § 5. The court determines the issues de novo, and the party seeking compensation bears the burden of proof, regardless of which party prevailed before the board. Ibid.

Northbrook filed suit against Brewer in Federal District Court, invoking the court's diversity jurisdiction under 28 U.S.C. § 1332 (1982 ed.). The District Court dismissed for lack of subject matter jurisdiction, holding that Fifth Circuit precedent, Campbell v. Insurance Co. of North America, 552 F.2d 604 (1977) (per curiam), required it to apply the direct action proviso of the diversity statute. App. to Pet. for Cert. A-11. That proviso states:

"[I]n 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."

28 U.S.C. § 1332(c) (1982 ed.) (emphasis added). The District Court therefore attributed Whitmire's Texas citizenship to Northbrook, eliminating diversity between

Page 493 U. S. 9

Northbrook and Brewer. The Court of Appeals affirmed on the basis of Campbell. It noted, however, that Campbell stood on "weak jurisprudential legs." 854 F.2d at 745.

II

We hold that the direct action proviso is not applicable in this case, because Northbrook's suit was an action by, not against, an insurer. [^{Footnote 1}]

"[W]e must take the intent of Congress with regard to the filing of diversity cases in Federal District Courts to be that which its language clearly sets forth."

Horton v. Liberty Mutual Ins. Co., 367 U. S. 348, 352 (1961) (holding that Congress' elimination of removal jurisdiction over workers' compensation suits did not withdraw original diversity jurisdiction over such suits). The language of the proviso could not be more clear. It applies only to actions against insurers; it does not mention actions by insurers.

The proviso's legislative history reinforces our reading of Congress' pellucid language. Congress added the proviso to § 1332(c) in 1964 in response to a sharp increase in the caseload of Federal District Courts in Louisiana resulting largely from that State's adoption of a direct action statute, La.Rev.Stat.Ann.

Page 493 U. S. 10

§ 22.655 (West 1959). See S.Rep. No. 1308, 88th Cong., 2d Sess., 4 (1964); H.R.Rep. No. 1229, 88th Cong., 2d Sess., 4 (1964). The Louisiana statute permitted an injured party to sue the tortfeasor's insurer directly without joining the tortfeasor as a defendant. Its effect was to create diversity jurisdiction in cases in which both the tortfeasor and the injured party were residents of Louisiana, but the tortfeasor's insurer was considered a resident of another State. Believing that such suits did "not come within the spirit or the intent of the basic purpose of the diversity jurisdiction of the Federal judicial system," S.Rep. No. 1308, supra, at 7, Congress enacted the proviso

"to eliminate under the diversity jurisdiction of the U.S. district courts, suits on certain tort claims in which both parties are local residents, but which, under a State 'direct action' statute, may be brought directly against a foreign insurance carrier without joining the local tortfeasor as a defendant,"

id. at 1 (emphasis added). See also H.R.Rep. No. 1229, supra, at 1. Nowhere in the legislative history did Congress express any concern about diversity actions filed by insurance carriers.

The Fifth Circuit in Campbell reasoned that a suit such as Northbrook's is, in context, actually an action against the insurer. The court noted that the entire process is initiated by the employee's filing a claim with the board, and that the employee retains the burden of proof at trial. It also considered the insurer's action in court merely an "appeal" of the board award. 552 F.2d at 605.

We reject this analysis. Although the employee in an action brought by the insurer retains some characteristics of a plaintiff at trial, such an action is still inescapably one by, not against, the insurer. The action is commenced when the insurer files a complaint in federal court, not when the employee files his claim before the board. See Fed.Rule Civ.Proc. 3 ("A civil action is commenced by filing a complaint with the court"). Moreover, once the court acquires jurisdiction

Page 493 U. S. 11

over the suit, the board's award is vacated and no longer has any force or significance. Latham v. Security Ins. Co. of Hartford, 491 S.W.2d 100, 104 (Tex.1972). See also Horton, supra, at 367 U. S. 355, n. 15 ("This makes it all the more clear that the matter in controversy between the parties to the suit is not merely whether the award will be set aside, since the suit automatically sets it aside for determination of liability de novo"). Thus, this Court concluded in Horton that such actions are not considered appeals under Texas law. 367 U.S. at 354 (citing ...