Redmon v. Sumitomo Marine Management (U.S.A.)

• Citation: 179 F.Supp.2d 787
• Decision Date: 30 October 2001
• Docket Number: No. 1:01CV1871.,1:01CV1871.
• Parties: Judy L. REDMON, Executor of the Estate of Shelby Ann Lust, Plaintiff, v. SUMITOMO MARINE MANAGEMENT (U.S.A.), INC., Defendant.
• Court: United States District Courts. 6th Circuit. United States District Court of Northern District of Ohio

179 F.Supp.2d 787

Judy L. REDMON, Executor of the Estate of Shelby Ann Lust, Plaintiff, v. SUMITOMO MARINE MANAGEMENT (U.S.A.), INC., Defendant.

No. 1:01CV1871.

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

October 30, 2001.

Patrick T. Murphy, Bucyrus, OH, for plaintiff.

Alan H. Abes, Gregory A. Harrison, John D. Luken, Dinsmore & Shohl, Cincinnati, OH, Robert S. Marshall, Bates & Carey, Chicago, IL, for defendant.

MEMORANDUM AND ORDER

ANN ALDRICH, District Judge.

This is an insurance contract case arising out of an automobile accident. The plaintiff, Judy L. Redmon, on behalf of the estate of Shelby Ann Lust, seeks to recover under Lust's employer's underinsured motorist contract with the defendant, Sumitomo Marine Management (U.S.A.), Inc. ("Sumitomo"). Now before the Court are Redmon's motion to remand this action to the Common Pleas Court of Crawford County, Ohio (Doc. # 14), and Redmon's motion to consolidate this case with two other pending cases arising out of the same accident (Doc. # 13). For the following reasons, this Court denies the motion to remand and grants the motion to consolidate.

I. Background

Shelby Ann Lust, John H. Bargar II, and Heather Armstrong were occupants of a vehicle driven by Kurt Lauthers. All four died when Mr. Lauthers, apparently due to his own negligence, lost control of the car and drove off the road. Mr. Lauthers was insured by Ohio Mutual Insurance Group ("Ohio Mutual"), but his policy carried maximum per accident liability coverage of $50,000. Ohio Mutual tendered its policy limits to the estates of the three passengers. All four individuals were also employees of Imasen Bucyrus Technology, Inc. ("Bucyrus"), which had an automobile insurance contract with Sumitomo. Redmon seeks to recover under that policy's underinsured motorist clause, and filed suit in the Crawford County Court of Common Pleas. Sumitomo subsequently removed to this Court. The executor of Mr. Bargar's estate likewise filed suit in state court claiming breach of the same insurance contract, and Sumitomo again removed. See Bargar v. Sumitomo Marine Mgmt. (U.S.A.), Inc., No. 1:01CV1938 (N.D.Ohio Aug. 10, 2001). Sumitomo meanwhile filed a declaratory judgment action against the executor of the estate of the third passenger, Ms. Armstrong, and that case is also currently pending. See Sumitomo Marine Mgmt. (U.S.A.), Inc. v. Armstrong, No. 1:01CV1937 (N.D.Ohio Aug. 10, 2001). Redmon now moves the Court to remand this case to the Crawford County Court of Common Pleas for lack of subject matter jurisdiction. Sumitomo opposes this motion. Redmon also seeks an order consolidating this case with the companion Bargar and Armstrong cases. This motion is unopposed.

II. Analysis

A. Motion to Remand

In her motion to remand, Redmon argues that this Court lacks jurisdiction relying on 28 U.S.C. § 1332(c)(1), which states 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 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) (1994). Thus, while Sumitomo is a New York corporation with its principal place of business in New Jersey and Ms. Lust and Ms. Redmon as executor of her estate are Ohio residents, Redmon argues that Sumitomo is nondiverse because it is deemed to be a citizen of Ohio, the state of Lust's citizenship. The vast majority of federal courts, however, have interpreted the term "direct action" to apply only to tort actions brought by third parties against the insurer as a substitute for the insured. See, e.g., Bowers v. Cont'l Ins. Co., 753 F.2d 1574, 1576 (11th Cir.1985) (holding that suits by insureds against insurers are not direct actions within the meaning of the statute); White v. United States Fid. & Guar. Co., 356 F.2d 746, 747-48 (1st Cir.1966) (same); Kimball Small Props. v. Am. Nat'l Fire Ins., 755 F.Supp. 1465 (N.D.Cal.1991) (same); Field v. Liberty Mut. Ins. Co., 769 F.Supp. 1135, 1138 (D.Haw.1991) (same); McGlinchey v. Hartford Accident & Indem. Co., 666 F.Supp. 70, 71 (E.D.Pa.1987) (same); Smith v. State Farm Ins. Co., 615 F.Supp. 453, 455 (D.Haw.1985) (same). Courts reaching this conclusion have generally relied on legislative history, which suggests that "direct action" was meant by Congress as a term of art to refer to the so-called direct action statutes enacted in Louisiana and certain other states in the early 1960s, which allowed tort plaintiffs to sue a tortfeasor's insurance carrier directly, without joining the tortfeasor as a party. See Rosa v. Allstate Ins. Co., 981 F.2d 669, 674-75 (2d Cir.1992) (summarizing the relevant legislative history). Since these statutes often had the effect of removing nondiverse tortfeasors from basic tort actions, many federal courts saw an increase of up to 50% in their caseloads due largely to insurers' newfound ability to remove tort actions brought by diverse plaintiffs. The insurance provision of section 1332(c)(1) was enacted to respond to this problem by narrowing the diversity jurisdiction of federal district courts. Id. Most courts interpreting the provision have therefore ignored its seemingly broad language in favor of a narrow interpretation based on legislative intent.

The Sixth Circuit, however, has given the insurance provision of section 1332(c)(1) an unusually expansive reading. See Ford Motor Co. v. Ins. Co. of N. America, 669 F.2d 421, 424 (6th Cir.1982) (adopting the broad reading of section 1332(c)(1) applied by some Sixth Circuit and Fifth Circuit courts). More specifically, the Sixth Circuit has held that the provision should not be limited only to the tort context, but should be extended to encompass some contract actions as well. Aetna Cas. & Sur. Ins. Co. v. Greene, 606 F.2d 123, 126 (6th Cir.1979). Thus, in Ford and Greene, the Sixth Circuit held that an insurer should be deemed a citizen of the state of its insured in no-fault insurance and workers compensation cases. In Greene, the plaintiff sued his employer's workers compensation insurer directly for failure to pay a claim, and the Sixth Circuit attributed the employer's citizenship to the insurer. Id. at 126-27. In Ford, the employer was itself the injured party and plaintiff. The Ford court, however, cited approvingly Tyson v. Conn. Gen. Life Ins. Co., 495 F.Supp. 240 (E.D.Mich.1980), where a plaintiff-employee sued his employer's group health and disability insurer directly for failure to pay a claim, and the court deemed the insurer a citizen of the insured employer's state, destroying diversity. Ford, 669 F.2d at 425 (citing Tyson, 495 F.Supp. at 243). Taken together, the Ford and Greene decisions stand for the proposition that a direct action can sound in either contract or tort, can be brought against the insurer of the plaintiff-employee's employer, and can be based on any policy of "liability insurance," broadly defined as "a policy that indemnifies against the condition of becoming liable." Greene, 606 F.2d at 126 (internal quotation omitted).

After the Ohio Supreme Court's opinion in Scott-Pontzer v. Liberty Mut. Fire Ins. Co., 85 Ohio St.3d 660, 710 N.E.2d 1116 (1999), employees, even when acting outside the scope of employment, can recover under their employer's uninsured/underinsured motorist ("UIM") policies unless the insurance contract explicitly limits coverage to the insured corporate entity and excludes individual employees. Scott-Pontzer, 710 N.E.2d at 1119-20. In this case, Redmon seeks to recover under Lust's employer's UIM policy with Sumitomo. For the purposes of this order, the Court assumes, without deciding, that Lust was an insured driving an insured automobile under Bucyrus's UIM policy with Sumitomo. This Court must therefore decide whether this breach of contract action brought directly against the plaintiff's employer's UIM insurer constitutes a direct action within the meaning of section 1332(c)(1) under relevant Sixth Circuit precedent. Upon a closer reading of Greene and Ford, this Court concludes that it does not.

It is worth noting, preliminarily, that Ford has been roundly criticized both outside the Sixth Circuit and by lower courts within the Sixth Circuit. See, e.g., Rosa, 981 F.2d at 674-75; Spooner v. Paul Revere Life Ins. Co., 578 F.Supp. 369, 372-73 (E.D.Mich.1984); Kosmyna v. Bankers Life & Cas. Co., 550 F.Supp. 142, 143-44 (E.D.Mich.1982). In particular, at least two courts have noted that Ford's approval of Tyson, in which a plaintiff-employee's suit against his insured employer's disability insurer was dismissed for lack of diversity, appears to have been based on a misreading of that case as one involving no-fault insurance. See Spooner, 578 F.Supp. at 372; Kosmyna, 550 F.Supp. at 144. These courts subsequently rejected Tyson and held that section 1332(c)(1)'s insurance provision does not apply to destroy diversity when a plaintiff-employee sues his employer's disability insurer. Spooner, 578 F.Supp. at 373; Kosmyna, 550 F.Supp. at 144. As the Kosmyna court noted, "[u]nder the terms of a disability income policy, the insured is not the employer, but the employee. The insured, contrary to the assertion in Tyson, is not protected against incurring liability to others. The insured employee is merely protected against loss of income." 550 F.Supp. at 143. The court in Spooner aptly summarized the distinction:

The application of [section 1332(c)(1)'s insurance] proviso to an insurance company in the typical tort action is proper because the tortfeasor has purchased the policy as protection against liability arising from his breach of a duty owed to the injured party. The typical action is such that the act for which liability is sought to be imposed against the...