Opinion
Case No. 04-02174 PVT.
August 11, 2004
ORDER GRANTING PLAINTIFF'S MOTION FOR REMAND
On June 23, 2004, Donald Brothers ("Plaintiff") filed a motion to remand this action to state court on grounds of lack of subject matter jurisdiction. Defendant Fortis Insurance Company ("Fortis") opposed the motion. Based on the briefs and arguments presented, and the file herein,
The holding of this court is limited to the facts and the particular circumstances underlying the present motion.
This Court included in its consideration Plaintiff's Reply because, despite the late filing, Defendant Fortis has dropped its Objection to Plaintiff's Untimely-Filed Reply.
IT IS HEREBY ORDERED that Plaintiff's motion for remand is GRANTED. The court finds that Defendant Fortis has not carried the burden of proving the joinder of Defendant Cogar is fraudulent. Consequently, complete diversity as required under 28 U.S.C. § 1332 does not exist and this Court therefore lacks subject matter jurisdiction over this action.
I. BACKGROUND
This is a civil action against Defendant Fortis and Defendant Michele Cogar resulting from the denial of insurance benefits. Defendant Cogar is the individual who sold Plaintiff the insurance policy issued by Defendant Fortis, an insurance company. Defendant Cogar and Plaintiff are citizens of California. Defendant Fortis is a corporation existing under the laws of Wisconsin with its principal place of business in Wisconsin. Plaintiff's pleading includes a cause of action for negligent misrepresentation against Defendant Cogar. Plaintiff alleges that Defendant Cogar negligently failed to inform Plaintiff of a preexisting condition provision of his insurance policy, which specified that Defendant Fortis would refuse to pay benefits if Plaintiff had a preexisting condition. Plaintiff subsequently suffered a heart attack, and benefit payments were denied.
The action was originally filed in the Superior Court of California for the County of Santa Clara. Defendant Fortis relied on diversity jurisdiction under 28 U.S.C. § 1332 in combination with removal authorization of 28 U.S.C. § 1441(a) to remove the case to federal district court. Plaintiff now moves for remand back to state court. Plaintiff argues the joinder of Defendant Cogar defeats complete diversity as required under 28 U.S.C. § 1332, and therefore this Court lacks subject matter jurisdiction over this action. Defendant Fortis contends remand is inappropriate, setting forth four grounds upon which the joinder of Defendant Cogar is fraudulent: 1) as an agent, Defendant Cogar cannot be held personally liable to an insured; 2) as an agent, Defendant Cogar does not have an obligation to inform an insured about the terms of a policy; 3) the essential element of an affirmative representation is lacking from Plaintiff's claim of negligent misrepresentation; 4) Plaintiff's complaint does not show a connection between the denial of insurance benefits and a misrepresentation made by Defendant Cogar. Defendant Fortis claims that because the joinder of Defendant Cogar is fraudulent, her involvement fails to defeat complete diversity, and therefore this Court possesses subject matter jurisdiction over this action.
II. DISCUSSION
Under 28 U.S.C. § 1447, if at any time before judgment, it appears that a district court lacks subject matter jurisdiction over a case previously removed from state court, the case must be remanded. This court has jurisdiction to determine if its overall diversity jurisdiction is defeated by the joinder of Defendant Cogar. See McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). In making this determination, courts should resolve doubts as to removability in favor of remanding the case to state court, Good v. Prudential Ins. Co., 5 F.Supp.2d 804, 806 (N.D. Cal. 1998) (citing Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992)), and resolve all disputed questions of fact in favor of the Plaintiff. Good, 5 F.Supp.2d at 807 (citing Dodson v. Spiliada Maritime Corp., 951 F.2d 40, 42 (5th Cir. 1992)). In the instant case, it is apparent that if Defendant Cogar is properly joined, this Court lacks subject matter jurisdiction because Cogar, like Plaintiff, is a California citizen and, thus, there would be no diversity of citizenship. Therefore, unless it can be shown that Defendant Cogar is not a properly joined Defendant, removal is inappropriate and remand must be granted.
"A defendant may remove a case with a non-diverse defendant on the basis of diversity jurisdiction and seek to persuade the district court that this defendant was fraudulently joined." Good, 5 F.Supp.2d at 806 (citing McCabe, 811 F.2d at 1399). A defendant is fraudulently joined when "a plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state." Good, 5 F.Supp.2d at 807 (citing McCabe, 811 F.2d at 1339). The removing defendant has the heavy burden of proving the non-diverse defendant's joinder is fraudulent. Jernigan v. Ashland Oil Co., 989 F.2d 812, 815-16 (5th Cir. 1993). Such proof must be demonstrated by clear and convincing evidence. Pampillonia v. RJR Nabisco, Inc., 138 F.3d 459, 461 (5th Cir. 1998).
1) Agency:
Defendant Fortis first argues that as an agent, Defendant Cogar cannot be held personally liable to the insured. As Defendant Fortis cites "liability to the . . . insured for acts or contracts of an insurance agent within the scope of his agency, with full disclosure to the principal, rests on the company." Gasnik v. State Farm Ins. Co., 825 F.Supp. 245, 249 (E.D. Cal. 1992). Defendant Fortis notes that Plaintiff has alleged in the Complaint that Defendant Cogar was "acting within the course and scope of her agency and employment with Defendant Fortis." Defendant Fortis concludes that Defendant Cogar cannot be held personally liable for negligent misrepresentation and therefore is fraudulently joined. However, this Court does not see the issue with such simplicity.
In Plaintiff's Motion for Remand, Plaintiff alleges that Defendant Cogar is not an "agent," but rather is either a "dual agent" or "broker" of Defendant Fortis. As argued by Plaintiff, "[if] an insurance agent is a dual agent . . . that agent owes a duty to both the insurer and the insured . . . consequently, the agent may be liable to the insured for negligence or other tortious behavior." Levine v. Allmerica Fin'l Life Ins. and Annuity Co., 41 F.Supp.2d 1007, 1079 (C.D. Cal. 1999). Therefore, whether Defendant Cogar can be held personally liable for negligent misrepresentation in the instant case is intimately related to her classification as either an "agent" or a "dual agent."
In order to be considered a "dual agent," one must 1) be either an independent broker or have a long-term special relationship with the insured, and 2) must "act on behalf of the insured in some way beyond his or her capacity as an agent for the insurer." Good, 5 F.Supp.2d at 808. There is no evidence indicating a special relationship between Plaintiff and Defendant Cogar. However, it is possible for Defendant Cogar to be considered an "independent broker." Plaintiff alleges Defendant Cogar is not employed by Defendant Fortis, but by an independent organization, Pacific Benefits Group, ("PBG"). As an employee of an independent agency, it is possible for Defendant Cogar to be deemed an "independent broker" and thus the first requirement of the "dual agent" definition is satisfied.
Was Defendant Cogar acting on Plaintiff's behalf, beyond her capability as an agent for Defendant Fortis? On its public web site, PBG refers to its employees as "independent insurance agents" and specifies that the agent's role is to "serve the needs of the client while representing many different insurance companies." If Defendant Cogar was acting in accordance with this stated role, the second requirement is satisfied. Therefore, the possibility exists that Defendant Cogar can be considered a "dual agent" of Defendant Fortis and Plaintiff. Under Levine, it follows that Defendant Cogar may be held personally liable for negligent misrepresentation. See Levine, 41 F.Supp.2d at 1079.
Defendant Fortis points to Good v. Prudential Ins. Co. as support for the argument that Defendant Cogar is considered an "agent" of Defendant Fortis, and therefore cannot be held personally liable for negligent misrepresentation. In Good, a Plaintiff brought a claim of negligent misrepresentation against the individual who sold him a life insurance policy for making numerous representations concerning the benefits of the policy. 5 F.Supp.2d at 806. The Court declined to classify the individual as a "dual agent," but rather considered her a disclosed "agent," acting within the scope of her agency. Id. at 808. As an "agent," the individual could not be held personally liable, and therefore the Court concluded she was fraudulently joined. Id. Good does not preclude a finding in the instant case that Defendant Cogar can be considered a "dual agent." In finding that the individual defendant in Good was considered an "agent," the Court relied on the observation that "[Plaintiff] has presented no evidence or allegation indicating that [Defendant] was acting as a dual agent." Id. However, this highlights the very factor that distinguishes the Good case from the instant one. In the instant case, Plaintiff does allege that Defendant Fortis is a "dual agent," and does present evidence in the form of the public statement of the role of PBG employees which suggests that Defendant Cogar was acting under a dual agency relationship. Therefore, Good does not bind this court to the finding that Defendant Cogar is an "agent" of Fortis, because Plaintiff has alleged, and has presented supporting evidence of the allegation, that Defendant Cogar is a "dual agent."
Plaintiff's allegation that Defendant Cogar is a "dual agent" is made in the Motion to Remand." As Defendant Fortis correctly points out, "merely calling someone a dual agent does not make it so." However, to support the argument that Defendant Cogar is not considered a "dual agent," Defendant Fortis points to the Declarations of Jeffrey Kara and Defendant Cogar which allege that Defendant Cogar was an "agent" of Fortis. Under the reasoning suggested by Defendant Fortis, it follows that merely calling someone an "agent" similarly does not make it so. The status of insurance salespersons as "agents" or "brokers" is determined by what they say and do, not by what they are called. Maloney v. Rhode Island Ins. Co., 115 Cal.App.2d 238, 244 (Cal.Ct.App. 1953). It appears to be a disputed question of fact as to whether Defendant Cogar is considered an "agent" or "dual agent." In resolving all disputed questions of fact in favor of the Plaintiff, Plaintiff's allegation that Defendant Cogar is considered a "dual agent" outweighs the allegation of Defendant Fortis that Defendant Cogar is considered an "agent." See Good, 5 F.Supp.2d at 807.
Defendant Fortis argues that Plaintiff's allegation in the Motion to Remand that Defendant Cogar is a "dual agent" or "broker" should not be considered since it seeks to modify the allegation in Plaintiff's Complaint that Defendant Cogar is an "agent" of Defendant Fortis. Defendant cites Brown v. Allstate Ins. Co. as support for the contention that Plaintiff should not be allowed to "amend away" his original allegation of employment and agency in the Complaint. 17 F.Supp.2d 1134 (S.D. Cal. 1998). In Brown, the Court found that Plaintiff included the names of non-diverse defendants in the caption and headings of the compliant, but failed to mention them in the body of the complaint. Id. at 1137. The Court did not allow Plaintiff to amend the complaint to state a cause of action against the individual defendants, stating "[w]hether an action should be remanded must be resolved by reference to the complaint at the time the petition for removal was filed." Id. (quoting Kruso v. I.T.T., 872 F.2d 1416, 1426 (9th Cir. 1989)). Because the original complaint failed to make a material allegation against non-diverse individual defendants, the Court concluded the defendants were fraudulently joined. Brown, 17 F.Supp.2d at 1137.
Unlike Plaintiff in Brown, Plaintiff in the instant case does make an allegation against Defendant Cogar in the Complaint. See id. Under Plaintiff's fifth cause of action, Plaintiff alleges that "Defendant Cogar negligently failed to inform Plaintiff of the material fact that Defendant Fortis would refuse to pay benefits if Plaintiff had a preexisting condition." There is a material distinction between amending a complaint to add a cause of action against a defendant, as in Brown, and amending specific facts related to an allegation against a defendant, as in the instant case.
In Pelleport Investors, Inc. v. Budco Quality Theatres, Inc. the Ninth Circuit Court of Appeals considered information offered in Plaintiff's brief on remand to determine whether remand based on lack of diversity jurisdiction was appropriate. 741 F.2d 273, 279 (9th Cir. 1984). Plaintiff's brief stated that Plaintiff had no intention of ever naming any of the Doe defendants mentioned in the Complaint. Id. The information did not modify an improperly alleged cause of action against the Doe defendants, but rather modified a specific fact relating to a cause of action against defendants, namely, Plaintiff's intent to carry through with the claim. See id. The Court considered this information, which was presented outside of the scope of the original complaint, in determining that the allegations against the Doe defendants did not defeat diversity jurisdiction. Id.
Based on the distinguishing factors of Brown, the similar scenario presented in Pelleport, and the presumption against removal, this Court will consider information in Plaintiff's Motion to Remand in determining whether Defendant Cogar is fraudulently joined. This Court concludes that it is possible that Defendant Cogar can be considered a "dual-agent." Consequently, she is not protected by the automatic immunity from personal liability enjoyed by "agents."
2) Obligation to Inform:
Defendant Fortis argues that an agent is under no general obligation to inform potential insured about policy exclusions, and therefore Plaintiff does not have a valid claim against Defendant Cogar. However, as indicated above, it is possible for Defendant Cogar to be considered a "dual agent" rather than merely an "agent" of Fortis. Therefore, this argument does not succeed in proving Defendant Cogar is fraudulently joined.
Furthermore, California courts have recognized an insurance agent's duty and personal liability stemming from negligent misrepresentations regarding policy provisions or the extent to which an insured is covered. In Paper Savers Inc. v. Nacsa, the Court recognized that an insurance agent can personally assume a special duty toward his insured by misrepresenting policy terms or extent of coverage. 51 Cal.App.4th 1090, 1096-97 (Cal.Ct.App. 1996). The Court in Clement v. Smith held an insurance agent personally liable for negligent misrepresentations regarding the scope of coverage, stating "[a]bsent some notice or warning, an insured should be able to rely on an agent's representations of coverage without independently verifying the accuracy of those representations by examining the relevant policy provisions." 16 Cal.App.4th 39, 45 (Cal.Ct.App. 1993). In Westrick v. State Farm Insurance, the Court states that "a disparity of knowledge may impose an affirmative duty to disclosure." 137 Cal.App.3d, 685, 691 (Cal.Ct.App. 1982). The Westrick Court elaborates by noting that "[i]n the insurance field, the quasi-public nature of the insurer's obligation imposes upon him a duty of good faith and fair dealing, which requires the insurer to `give at least as much consideration to the [insured's] interests as it does to its own.'" Id. The Westrick Court further states that "[s]ince `it is a matter almost of common knowledge that a very small percentage of policy-holders are actually cognizant of the provisions of their policies . . . [and t]he insured usually confides implicitly in the agent securing the insurance[,]'" Id. at 192 (quoting Raulet v. Northwestern Nat'l Ins. Co., 157 Cal. 213, 230 (Cal. 1910), "the insurer's duty includes the duty `reasonably to inform an insured of the insured's rights and obligations under the insurance policy.'" Westrick, 137 Cal.App.3d at 192 (quoting Davis v. Blue Cross of N. Cal., 25 Cal.3d 418, 428 (Cal. 1979)).
In the instant case, the preexisting condition exclusion in the insurance policy purchased by Plaintiff pertains to the scope of policy coverage. A disparity of knowledge of the policy provisions clearly existed between Defendant Cogar and Plaintiff. In light of Paper Savers, Clement, and Westrick, it cannot be concluded that Defendant Cogar obviously, under well-settled rules of the State, held no obligation to inform Plaintiff of the preexisting condition provision.
3) Affirmative Representation:
Defendant Fortis argues that Plaintiff's claim of negligent misrepresentation against Defendant Cogar is invalid because an essential element of negligent misrepresentation is lacking: an affirmative representation. Plaintiff's Complaint states that Defendant "failed to inform" Plaintiff of the fact that Defendant Fortis would refuse to pay benefits if Plaintiff had a preexisting condition. Defendant contends that an omission cannot be the basis of a misrepresentation.
In Randi v. Muroc Joint Unified School Dist., the Supreme Court of California recognizes that the tort of negligent misrepresentation requires a positive assertion, and does not apply to implied misrepresentations. 14 Cal.4th 1066, 1083 (Cal. 1997) (citing Evan F. v. Hughson United Methodist Church, 8 Cal.App.4th 828, 840-41 (Cal.Ct.App. 1992)). However, the court also notes that misleading "half-truths" may satisfy the positive assertion element of negligent misrepresentation. Randi, 14 Cal.4th at 1082-83. In Randi, Defendant wrote a letter of recommendation on behalf of a candidate for employment at a school, but failed to disclose the candidate's history of sexual misconduct. Id. at 1070. The Court held that a claim of negligent misrepresentation based on such an omission was valid. Id. at 1084.
In Westrick, the Court held that an insurance agent could be liable for negligent misrepresentation for failing to explain a limiting provision of an existing policy to an insured. 137 Cal.App.3d at 692-93. In finding that an omission can be the basis of a negligent misrepresentation claim, the Court stated "we find no reason to distinguish between the misfeasance of giving erroneous information and the nonfeasance of giving no information at all." Id. at 692. The Westrick Court explained that "the fact that [Defendant's] conduct consisted of inaction instead of a wrongful action is not determinative." Id. at 693.
Furthermore, as mentioned, this Court is considering information relating to a cause of action against defendants presented in Plaintiff's Motion for Remand. Plaintiff's Motion states that Defendant Cogar "negligently misrepresented facts about the application process and insurance coverage." This allegation does not foreclose the possibility that Defendant Cogar did make affirmative representations to Plaintiff regarding the policy coverage. Therefore, Plaintiff's claim of negligent misrepresentation against Defendant Cogar is not defeated based on a lack of an affirmative representation.
4) Materiality:
Defendant Fortis argues that Plaintiff's claim is lacking a second essential element of negligent misrepresentation: materiality. Defendant Fortis argues that Plaintiff's Complaint does not specify the reason for Fortis's denial of benefit payments, and therefore fails to demonstrate the nexus between Defendant Cogar's misrepresentation and the denial of benefits. This argument unfairly places Plaintiff in an impossible situation. Defendant Fortis has given Plaintiff no reason for denying benefits, and concludes that since Plaintiff cannot point to a reason for denial, a claim based on his rational presumption of a reason is invalid.
Plaintiff alleges in the Complaint that Defendant Cogar negligently failed to inform Plaintiff of the material fact that Defendant Fortis would refuse to pay benefits if Plaintiff had a preexisting condition. Within this allegation is the presumption that the lack of benefits payment is due to the preexisting condition exclusion, which speaks to the material element of negligent misrepresentation. Therefore, Plaintiff's claim of negligent misrepresentation against Defendant Cogar is not defeated based on a lack of materiality.
III. CONCLUSION
When resolving all disputed questions of fact in favor of the Plaintiff, and all doubts in favor of remanding the case to state court, this Court concludes that Defendant Fortis has not met the heavy burden of proving that Defendant Cogar is fraudulently joined. Consequently, this Court finds that since both Defendant Cogar and Plaintiff are citizens of California, complete diversity as required under 28 U.S.C. § 1332 is defeated, and this Court consequently lacks subject matter jurisdiction over this action. Remand is therefore appropriate.