Tatar v. Liberty Mut. Fire Ins. Co., No. C2-01-1211.

• Decision Date: 15 April 2002
• Docket Number: No. C2-01-1211.
• Citation: 214 F.Supp.2d 834
• Parties: Donald Lee TATAR, Administrator of the Estate of Michele Lynn Tatar, et. al., Plaintiffs, v. LIBERTY MUTUAL FIRE INSURANCE COMPANY, et. al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

214 F.Supp.2d 834

Donald Lee TATAR, Administrator of the Estate of Michele Lynn Tatar, et. al., Plaintiffs, v. LIBERTY MUTUAL FIRE INSURANCE COMPANY, et. al., Defendants.

No. C2-01-1211.

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

April 15, 2002.

COPYRIGHT MATERIAL OMITTED

David Nicholas Dittmar, Weirton, WV, Claudia R. Eklund, Lowe, Eklund, Wakefield & Mulvihill Co., LPA, Cleveland, OH, for Plaintiffs.

Keith A. Savidge, Seeley, Savidge & Aussem Co., Cleveland, OH, for Defendants.

OPINION AND ORDER

HOLSCHUH, District Judge.

Plaintiffs, Donald Lee Tatar, administrator of the estate of Michele Lynn Tatar, and Donald L. Tatar and Susan A. Tatar individually, filed this case seeking insurance proceeds based on the Supreme Court of Ohio's decision in Scott-Pontzer v. Liberty Mutual Fire Ins. Co., 85 Ohio St.3d 660, 710 N.E.2d 1116 (1999). Defendant, Liberty Mutual Fire Insurance Company, removed this action from the Court of Common Pleas of Jefferson County, Ohio pursuant to 28 U.S.C. § 1441, asserting diversity jurisdiction under 28 U.S.C. § 1332. The matter is before this Court on plaintiffs' motion to remand. Plaintiffs claim that the proviso to 28 U.S.C. § 1332(c)(1) works to destroy diversity in this case. The motion is fully briefed and is ripe for decision. For the following reasons, the Court concludes that the proviso to 28 U.S.C. § 1332(c)(1) is inapplicable here. Thus, plaintiffs' motion to remand will be denied.

I.

The following statement of facts is taken from the complaint, the removal petition and the plaintiffs' motion to remand. Plaintiffs bring this action in an attempt to recover losses experienced as a result of an automobile accident on December 28, 2000, in which their daughter Michele Lynn Tatar was killed. Michele was a passenger in an automobile operated by Michael Taylor, whose alleged negligence caused the fatal collision. Plaintiffs' complaint alleges that the damages sustained by the plaintiffs, "exceed or may exceed the insurance coverage applicable to the collision." Thus, the plaintiffs attempt to recover excess damages under an underinsured motorists policy which defendant issued to Sears, Roebuck & Co., plaintiff Donald Tatar's employer. Plaintiffs contend this policy covers Sears employees under the theory of recovery set forth by the Ohio Supreme Court in Scott-Pontzer.

As a preliminary matter, the Court notes that the de facto citizenship of the parties is not in serious dispute. The plaintiffs reside in Ohio and are thus, citizens of Ohio. Defendant contends, in the notice of removal, and plaintiffs do not dispute, that defendant is incorporated in Massachusetts and that its principal place of business is in Massachusetts. However, plaintiffs argue in their motion to remand that the proviso to 28 U.S.C. § 1332(c)(1) destroys diversity of citizenship.

II.

28 U.S.C. § 1332(c)(1) states, in pertinent part, that "[f]or the purposes of this section and section 1441 of this title — (1) a corporation shall be deemed to be a citizen of any State in which it has been incorporated and of the state where it has its principal place of business..." However, § 1332(c)(1) includes a proviso which provides an exception to diversity jurisdiction. Thus, if a plaintiff brings a "direct action" against "the insurer of a policy or contract of liability insurance, such insurer shall be deemed a citizen of the State of which the insured is a citizen." In order for a particular case to come within this proviso, such action must be (1) a direct action, and (2) brought against the insurer of a policy or contract of liability insurance. Failure to satisfy both elements renders the proviso inapplicable. For the following reasons, the Court concludes that this action is neither a direct action, nor brought against the insurer of a policy or contract of liability insurance.

The phrase "direct action" is not defined in the statute and does not have a generally accepted meaning. It is therefore necessary to look at secondary sources to determine the intent of the statute's drafters. Those sources clearly indicate that an action to recover uninsured/under-insured motorist benefits does not constitute a "direct action," as evidenced by the legislative purpose behind the proviso as well as by the statute's interpretation by federal courts.

Congress added the provision in question in 1964. The report of the Senate Committee stated that the purpose in enacting the § 1332(c)(1) proviso was to eliminate from federal diversity jurisdiction suits on certain tort claims brought under state "direct action" statutes. Specifically, Louisiana had enacted a "direct action" statute which allowed a suit in tort where both the plaintiff and the tortfeasor were citizens of the same state to be brought directly against a foreign insurance carrier without joining the tortfeasor as a defendant. Although there was some debate over whether the tortfeasor's citizenship could be disregarded in determining if diversity of citizenship existed in such a case, the United States Supreme Court held in Lumbermen's Mutual Casualty Company v. Elbert, 348 U.S. 48, 75 S.Ct. 151, 99 L.Ed. 59 (1954) that such an action could properly be brought in federal court where the plaintiff and the insurer were of diverse citizenship.

After the Elbert decision, suits brought under such "direct action" statutes (including a similar Wisconsin statute) flooded the federal courts. To relieve this burden on the federal courts, Congress added the proviso to eliminate from federal jurisdiction, "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." S.Rep. No. 1308, 88TH Cong., 2nd Sess. 1964. The proviso's purpose was clearly articulated and does not indicate any aim to encompass the type of cases which have emerged under Scott-Pontzer, where an employee is permitted to bring suit against his or her employer's insurer for uninsured/under-insured motorists coverage where a third party has caused injury or death to an employee's family member. Thus, this case does not fall within the purpose of the statute.

A Scott-Pontzer action proceeds not against the tortfeasor's insurer, but against an insurance company which is claimed to have issued a policy that directly covers the injured plaintiffs. In other words, the plaintiffs contend that they are "insureds" under the policy. The federal courts have repeatedly held that suits brought by an insured against his or her insurer do not constitute a "direct action" within the meaning of § 1332(c)(1). See, e.g., White v. United States Fid. & Guar. Co., 356 F.2d 746, 747 (1st Cir.1966) (suit by insured against insurer is not a direct action); Bowers v. Continental Ins. Co., 753 F.2d 1574, 1576 (11th Cir.1985) ("The general rule has always been that the direct action proviso does not affect suits brought by an insured against his own insurer"). Because the proviso addresses cases where the insured tortfeasor was not joined as a party-defendant, applying the proviso where the insured is the plaintiff would be plainly contrary to the purpose of the proviso.

In arguing for a contrary result, plaintiffs cite to an unreported decision from the Northern District of Ohio, Comella v. St. Paul Mercury Insurance Company, 177 F.Supp.2d 704 (N.D.Ohio 2001) (holding that Scott-Pontzer suits meet the requirements of the § 1332 proviso to destroy diversity). In Comella, the court distinguished those cases holding that a suit by an insured against the insurer is not a direct action by finding that the employer, not the plaintiff-employee in a Scott-Pontzer action, is the insured. Comella, 177 F.Supp.2d at 708 n. 3. This Court respectfully disagrees with this analysis. In Scott-Pontzer, the Ohio Supreme Court clearly explained that the employee is considered a named insured, Scott-Pontzer, 85 Ohio St.3d at 665, 710 N.E.2d 1116, and that status is the sole foundation for a plaintiff's ability to bring a Scott-Pontzer action. Thus, the plaintiffs in this case raise claims as insureds under the policy.

In addition to the general rule that an action by an insured against an insurer does not constitute a direct action, the federal courts have expressly eliminated from the scope of "direct action" suits brought to recover uninsured motorist benefits. In Tuck v. United Servs. Auto Ass'n, 859 F.2d 842, 843 (10th Cir.1988), the parents of the decedent sought uninsured motorists benefits under the United Services Automobile Association policy after their son was killed in an automobile accident caused by an uninsured motorist. The Court held that the Tucks' suit did not constitute a "direct action" because the Tucks were not seeking to impose liability on USAA for the negligence of any party insured by USAA. The Court noted that the proviso was enacted to eliminate diversity jurisdiction where an injured third party brought a claim based on primary liability under the insurance policy. Id. at 847. Thus, the Court held that the action brought against an insurer for uninsured motorist benefits did not constitute a direct action. Id.

The Sixth Circuit Court of Appeals has not had occasion to consider whether a Scott-Pontzer suit against an uninsured/under-insured motorist insurer constitutes a direct action for purposes of § 1332. However, that Court has consistently given a narrow construction to the proviso. In Henderson v. Selective Ins. Co., 369 F.2d 143 (6th Cir.1966), the Court refused to extend the scope of the proviso beyond the situation arising out of the enactment of direct action statutes in those states permitting suits against the insurance company without joining the insured. Years later, only after finding that aspects of the Michigan no-fault insurance scheme operated exactly the same way as the "direct action" statutes,...