Spooner v. Paul Revere Life Ins. Co.

• Decision Date: 30 January 1984
• Docket Number: Civ. No. 83-4841.
• Parties: James J. SPOONER, Plaintiff, v. The PAUL REVERE LIFE INSURANCE CO., Defendant.
• Court: U.S. District Court — Western District of Michigan

578 F. Supp. 369

James J. SPOONER, Plaintiff, v. The PAUL REVERE LIFE INSURANCE CO., Defendant.

Civ. No. 83-4841.

United States District Court, E.D. Michigan, S.D.

January 30, 1984.

Claude Romain, Southfield, Mich., for plaintiff.

Gerald E. Rosen, Detroit, Mich., for defendant.

MEMORANDUM OPINION

RALPH M. FREEMAN, District Judge.

This matter is before the Court on plaintiff's motion to remand, filed pursuant to 28 U.S.C. § 1447(c). This action is for recovery of benefits allegedly due under the terms of two disability insurance policies issued by defendant Paul Revere Life Insurance Company. The complaint alleges that plaintiff and/or his employer, Material Handling Parts Company, Inc. (Material), purchased the policies in 1978.¹ It is further alleged that plaintiff was rendered disabled as a result of injuries he sustained in an automobile accident on or about July 14, 1982. Plaintiff filed a claim for benefits under the two disability policies in October, 1982. Defendant paid benefits under the policy until April 28, 1983, when an independent medical examination allegedly revealed that plaintiff was no longer disabled. Defendant declined further payment and plaintiff filed suit in Wayne County Circuit Court on October 10, 1983. On November 4, 1983, defendant removed this matter to this Court pursuant to 28 U.S.C. § 1441. Defendant alleged that this Court had original jurisdiction under 28 U.S.C. § 1332(a)(1) inasmuch as plaintiff is a resident of Michigan and defendant is a Massachusetts corporation with its principal place of business in Worcester, Massachusetts. Plaintiff has now moved to remand this action to Wayne County Circuit Court contending that the proviso contained in 28 U.S.C. § 1332(c) is applicable to this action, thereby operating to destroy diversity jurisdiction.

The narrow issue presented by plaintiff's motion is the applicability of the proviso to the instant action. 28 U.S.C. § 1332(c) provides:

(e) For the purposes of this section and section 1441 of this title, a corporation shall be deemed a citizen of any State by which it has been incorporated and of the State where it has its principal place of business: Provided further, 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.

Plaintiff contends that the "insured" in this action is actually plaintiff's employer, Material, a citizen of the state of Michigan. Plaintiff further contends that this is a direct action against the insurer. Accordingly, plaintiff contends that the Michigan citizenship of Material should be imputed to defendant thereby destroying diversity of citizenship. The applicability of the proviso in § 1332(c) to contracts of disability income insurance has been addressed, with sharply contrasting results, by two members of this Bench. Kosmyna v. Bankers Life and Casualty Co., 550 F.Supp. 142 (E.D.Mich.1982) (Feikens, C.J.) (inapplicable); Tyson v. Connecticut General Life Insurance Co., 495 F.Supp. 240 (E.D.Mich. 1980) (Joiner, J.) (applicable). In addition to the two district court opinions, the Sixth Circuit has reviewed the enactment of the proviso. Ford Motor Co. v. Insurance Co. of North America, 669 F.2d 421 (1982). A review of the history and these three decisions is appropriate.

The Sixth Circuit summarized the history in Ford.

The immediate purpose of the 1964 amendment to § 1332(c) was made clear in the legislative history. Louisiana and Wisconsin had enacted laws permitting one claiming injury at the hands of another who was covered by liability insurance to sue the liability insurance carrier rather than the alleged wrongdoer. Thus even where the plaintiff and the alleged tortfeasor were residents of the same state, if the liability insurer was a citizen of a different state, diversity jurisdiction could be asserted in such a direct action. The Louisiana act particularly resulted in a flood of essentially local lawsuits clogging already crowded district court dockets. By cloaking the non-resident insurer with the citizenship of its insured, Congress removed the basis of diversity jurisdiction. See S.Rep. No. 1308, reprinted in 1964 U.S.Code Cong. & Admin.News 2778-80; Henderson v. Selective Ins. Co., 369 F.2d 143, 149 (6th Cir.1966); White v. United States Fidelity & Guaranty Co., 356 F.2d 746, 747-48 (1st Cir.1966).

Id. at 424. The court then reviewed recent decisions tending to broaden the reach of the proviso. Included in that review was a discussion of Tyson, supra. In Tyson, plaintiff filed suit against the insurance company under contract to her employer to provide disability insurance. Plaintiff alleged wrongful failure to pay benefits. The action, filed in state court, was removed pursuant to 28 U.S.C. § 1441. Plaintiff then moved to remand and the issue presented was the applicability of the proviso in § 1332(c). Judge Joiner concluded that the proviso was not only applicable to an insured tortfeasor's liability but also to an insured's contractual applicability. The relevant portion of his analysis, wherein the analogy is crafted, follows:

Thus, the applicability of § 1332(c)'s proviso has been extended beyond the tort-type actions which were burdening the courts of Wisconsin and Louisiana. In McMurry v. Prudential Property and Casualty Ins. Co. 458 F.Supp. 209 (E.D.Mich.1978), supra, Judge Cornelia Kennedy applied the proviso to a case in which a passenger of an automobile sued the owner-driver's No-Fault insurer. In Aetna Casualty & Surety Co. v. Greene 606 F.2d 123 (6th Cir.1979) supra, the court held that the proviso would apply to a suit by a employee against the employer's workers' compensation insurer.

While the proviso, by its terms, is applicable to policies of "liability" insurance, Greene indicated the type of actions to which the proviso applies by defining the nature of a liability policy:

Congress, when it used the terms "direct action" and "liability insurance" in the amendment to § 1332(c), did not intend the amendment to apply only to traditional tort claims. We cite, at length and with approval, the reasoning of Chief Judge Frank W. Wilson in Vines v. United States Fidelity & Guaranty Company, 267 F.Supp. 436 (E.D.Tenn. 1967):

The term "liability insurance" is applied to contracts, which provide for indemnity against liability.... Liability insurance is that form of insurance by which the insured is indemnified against loss or liability on account of bodily injuries sustained by others, ... or in a broader sense, against loss of liability on account of injuries to property... A policy of liability insurance is a policy that indemnifies against the condition of becoming liable.... In the recent case of Twin City Fire Insurance Company v. Wilkerson, (E.D. Tenn.1965) 247 F.Supp. 766, the Honorable Robert L. Taylor, Chief Judge of this District had occasion to construe the term "liability insurance" as used in 28 U.S.C. § 1332(c), and said this:

Although the question is not wholly without doubt, these and other cases indicate to the Court that the term `liability insurance' has over the years come to be accepted in the Courts as meaning an indemnity agreement which protects the insured against his liability to others, and the report of the Senate Committee on the subsection (c) amendment * * * discloses that it was this meaning that the Senate had in mind in considering the amendment * * *

Greene, supra, at 126.

Thus, when an insurer protects a third person against that person's liability to another, the insurer assumes the third person's citizenship for purposes of diversity of citizenship federal subject matter jurisdiction. The liability of the third person can arise under common law or under statute. Thus, a tort liability insurer assumes the citizenship of the tortfeasor, a workers' compensation insurer assumes the citizenship of the employer, and a No-Fault insurer assumes the citizenship of its insured. Where the third person's liability arises by operation of contract law, should the rule be any different? This court thinks not. If, for example, an employer obligates itself, either by a collective bargaining agreement with its employees' union or by an individual contract of employment to provide disability insurance to its employees or to a particular employee, the employer has created a liability to act in accordance with that contract that is enforceable in law. Contract law creates an obligation to provide disability protection binding on the employer. The insurance agreement is, in turn, an "agreement which protects the insured against his liability to others." Greene, supra. Thus, under the proviso in § 1332(c), the insurer "shall be deemed a citizen of the State of which the insured ... is a citizen ...." In such a case, the insurer is required by law to assume, for the purpose of determining jurisdiction of the court, the same citizenship as that of the employer whose liability for disability insurance was protected by the issuance of the policy of insurance.

495 F.Supp. at 242.

Subsequent to Tyson, the Sixth Circuit decided Ford. In Ford, plaintiff sued a resident tortfeasor's non-resident insurer for property damage arising out of the use of a motor vehicle. Plaintiff proceeded directly against the insurer under Michigan's no-fault insurance law. The Sixth Circuit concluded that the proviso in § 1332(c) operated to preclude a finding of diversity of citizenship, acknowledging that the Michigan no-fault law operated "in exactly the same way as the Louisiana and Wisconsin direct action statutes—it permits a person claiming injury or damage arising from the ownership or use of a motor vehicle to...