Peterson v. Tig Specialty Ins. Co., C-2-02-311.

• Citation: 211 F.Supp.2d 1013
• Decision Date: 26 July 2002
• Docket Number: No. C-2-02-311.,C-2-02-311.
• Parties: Mark PETERSON, et al., Plaintiffs, v. TIG SPECIALTY INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Ohio

Page 1013

211 F.Supp.2d 1013

Mark PETERSON, et al., Plaintiffs, v. TIG SPECIALTY INSURANCE COMPANY, Defendant.

No. C-2-02-311.

United States District Court, S.D. Ohio, Eastern Division.

July 26, 2002.

Gary Edward Fisher, Columbus, OH, for Plaintiffs.

Jill S. Patterson, Harry Sigmier, Therese P. Joyce, Weston, Hurd, Fallon, Paisley & Howley — 2, Cleveland, OH, for Defendant.

ORDER

GRAHAM, District Judge.

Upon de novo review, this court hereby adopts and accepts the Report and Recommendation of Magistrate Judge Mark R. Abel. Plaintiffs' motion to remand id DENIED, and plaintiffs' motion for reconsideration of the Report and Recommendation is likewise DENIED.

It is so ORDERED.

Report and Recommendation

ABEL, United States Magistrate Judge.

Plaintiffs Mark Peterson and his wife and two children brought this action in the Court of Common Pleas for Delaware County, Ohio against defendant TIG Specialty Insurance Company. Peterson sustained injuries in an automobile accident on August 30, 2000. The accident was caused by the negligence of Aaron Hodges. Peterson collected the policy limits from the personal automobile liability insurer of the tortfeasor. He now seeks to collect uninsured/underinsured motorists ("UM/UIM") coverage under the commercial motorists liability policies held by The Ohio State University, Peterson's employer, with TIG. Defendant removed the case to this Court, alleging diversity jurisdiction.

This matter is before the Magistrate Judge for a Report and Recommendation on plaintiffs' April 24, 2002 motion to remand (doc. 6). Although Peterson is a resident of Ohio and TIG is a California corporation with its principal place of business in Texas, plaintiffs maintain that there is not complete diversity between the parties because this is a "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" within the meaning of 28 U.S.C. § 1332(c)(1). In such actions, the "insurer shall be deemed a citizen of the State of which the insured is a citizen...." 28 U.S.C. § 1332(c)(1). Since the insureds (plaintiffs and the employer) are citizens of Ohio, they maintain TIG should be deemed a citizen of Ohio.

This argument fails, as discussed in greater detail below, because this is not a "direct action." As the legislative history makes clear, a "direct action" is a suit brought by a tort victim—not against the tortfeasor—but "directly" against the tortfeasor's insurer.

Peterson is the victim of a tort. He has recovered policy limits against the tortfeasor's insurer. He now sues what he alleges is his own insurer (TIG), seeking to recover under the UM/UIM clause of the policy. Thus, under its literal language, § 1332(c)(1) is inapplicable. While this may arguably be a suit "against an insurer of a policy or contract of liability insurance" (the UM/UIM clause), it is not a suit "to which action the insured is not joined as a party defendant." The insured is the plaintiff. This is not a suit to which the insured could, by any reading of the language of § 1332(c)(1), ever be joined as a party-defendant.

I. Background

Peterson's claim rests on the Ohio Supreme Court's decision in Scott-Pontzer v. Liberty Mut. Fire Ins. Co., 85 Ohio St.3d 660, 710 N.E.2d 1116 (1999). In Scott-Pontzer, the court interpreted Ohio Rev. Code § 3937.18, the insurance statute that sets out UM/UIM coverage requirements in Ohio, to mean that an employee may recover under the UM/UIM coverage of his employer's commercial automobile liability policy. This is true even when the employee was not acting in the scope of employment at the time of the accident. 85 Ohio St.3d at 666, 710 N.E.2d at 1120.

TIG removed the action to this Court on the grounds of diversity jurisdiction. See 28 U.S.C. § 1332. Peterson and his family are residents of Ohio. TIG is a California corporation with its principal place of business in Texas. Peterson's employer, The Ohio State University, is a citizen of Ohio. Peterson has moved to remand on the ground that there is not complete diversity of citizenship. Peterson argues that under § 1332(c)(1), TIG must take the citizenship of The Ohio State University.

II. Discussion

A. Section 1332(c)(1)

Section 1332(c) provides For the purposes of this section and section 1441 of this title—

(1) 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....

28 U.S.C. § 1332(c)(1).

Congress added this proviso to § 1332(c) in response to the sharp increase in the federal court caseload after Louisiana enacted a direct action statute. See Northbrook Nat. Ins. Co. v. Brewer, 493 U.S. 6, 9-10, 110 S.Ct. 297, 107 L.Ed.2d 223 (1989); Ford Motor Co. v. Ins. Co. of N. Am., 669 F.2d 421, 424 (6th Cir.1982). The direct action statute permitted a person claiming injury at the hands of another to sue the tortfeasor's liability insurance carrier rather than the tortfeasor. "By cloaking the nonresident insurer with the citizenship of its insured, Congress removed the basis of diversity jurisdiction." Ford Motor Co., 669 F.2d at 424.

Courts have consistently interpreted "direct action" to include only tort actions brought by third parties against the insurer—as a substitute for the insured tortfeasor. See, e.g., Bowers v. Cont'l Ins. Co., 753 F.2d 1574, 1576 (11th Cir.1985); Kimball Small Props. v. Am. Nat'l Fire Ins., 755 F.Supp. 1465 (N.D.Cal.1991); McGlinchey v. Hartford Accident & Indem. Co., 666 F.Supp. 70, 71 (E.D.Pa. 1987). One court summarized the rule as follows:

[A] "direct action" for purposes of this section [is] one "in which a party suffering injuries or damage for which another is legally responsible is entitled to bring suit against the other's liability insurance without joining the insured or first obtaining a judgment against him." Beckham v. Safeco Ins. Co. of America, 691 F.2d 898, 901-02 (9th Cir.1982). In other words, this direct action exception that destroys diversity exists only where a third-party tort victim forgoes suing the tortfeasor in favor of instead suing the tortfeasor's liability insurer directly. This is the universal rule. See, e.g., Myers v. State Farm Ins. Co., 842 F.2d 705, 707 (3d Cir.1988); Fortson v. St. Paul Fire & Marine Ins. Co., 751 F.2d 1157, 1159 (11th Cir.1985), reh. denied, 757 F.2d 287; White v. United States Fidelity and Guaranty Co., 356 F.2d 746, 747-48 (1st Cir.1966).

Vargas v. California State Auto. Ass'n Inter-Ins. Bureau, 788 F.Supp. 462, 463 (D.Nev.1992).

Plaintiffs argue that the Sixth Circuit "broadened" § 1332(c)(1) in Ford Motor Co., 669 F.2d at 425. However, what was broadened in Ford was not the terms of art "direct action" or "to which action the insured is not joined as a party-defendant," but the definition of "a policy or contract of liability insurance." The Sixth Circuit held that the latter term was broad enough to encompass a no-fault insurance policy because no-fault statutes displaced traditional tort liability laws. Id. ("No-fault has been substituted for tort liability in Michigan....").

In all other respects, Ford is indistinguishable from the long line of cases construing a direct action as a suit by a tort victim brought against the tortfeasor's insurer without joining the tortfeasor. That is, Ford was a tort victim—its property was damaged when Refiners Transport delivered a catalyst to a Ford facility, the catalyst was mistakenly poured into a resin tank, and the tank exploded. Ford sued Refiner Transports' no-fault insurer, Insurance Company of North America, but did not join the alleged tortfeasor. Thus, Ford is a classic "direct action" suit, with the only variant being that a no-fault policy was held to be "a policy or contract of liability insurance."

The argument that this is a direct action under Ford hangs on Ford's approving citation to Tyson v. Connecticut General Life Ins. Co., 495 F.Supp. 240 (E.D.Mich. 1980). In Tyson, plaintiff employee sued his employer's group health insurer. The district court held that the insurer was deemed a citizen of the employer's state, thus destroying diversity. 495 F.Supp. at 243. Similarly, in Aetna Cas. & Sur. Ins. Co. v. Greene, 606 F.2d 123, 126 (6th Cir. 1979), plaintiff sued his employer's workers compensation insurer for failure to pay a claim. The Sixth Circuit attributed the employer's citizenship to the insurer. Id. at 126-27.

In support of their motion to remand, plaintiffs cite several recent decisions from the U.S. District Court for the Northern District of Ohio which have interpreted "direct action" to include suits brought pursuant to Scott-Pontzer. Defendant, in turn, also cites cases from the Northern District cases which have declined to interpret "direct action" to encompass Scott-Pontzer suits.

B. Northern District Cases Ordering Remand

The Northern District initially dealt with the direct action issue in the unpublished decision of Kormanik v. St. Paul Fire and Marine Ins. Co., 208 F.Supp.2d 824 (2001). Relying on Ford to broadly interpret § 1332(c)(1), Judge Polster concluded that a Scott-Pontzer suit was a direct action. Noting the "burgeoning number" of Scott-Pontzer cases, the court found that the same reasons for which the direct action proviso was enacted applied with "equal force to Scott-Pontzer actions." Slip op. at 4. The court also believed that state courts, rather than federal district courts, should handle the task of addressing any unsettled issues...