Gonzalez v. Government Employees Insurance

Full title: JOHN P. GONZALEZ, ET AL. v. GOVERNMENT EMPLOYEES INSURANCE GROUP, ET AL

Court: United States District Court, E.D. Louisiana

Date published: Feb 28, 2000

Civ. No: 99-3707, SECTION: "R" (1) (E.D. La. Feb. 28, 2000)

Opinion

Civ. No: 99-3707, SECTION: "R" (1).

February 28, 2000.

ORDER AND REASONS

SARAH S. VANCE, United States District Judge.

Before this Court is the motion of plaintiffs, John P. Gonzalez and Patricia E. Weeks, to remand this action to state court for lack of diversity jurisdiction. For the following reasons, plaintiffs' motion is denied.

I. BACKGROUND

This case arises out of an automobile accident in New Orleans on April 13, 1999. Plaintiff, John P. Gonzalez, allegedly sustained serious injuries in a collision with an uninsured motorist, Neil Kaplan. At the time of the accident, Gonzalez was driving a car owned by his father, Sergio Gonzalez. USFG provided uninsured motorist coverage to Sergio and Maria Gonzalez for the automobile driven by Gonzalez. As a "family member," Gonzalez was an "insured" under the USFG policy. (See Def.'s Mem. Opp'n Remand Ex. A.) Gonzalez also carried personal uninsured motorist coverage under a policy issued by Prudential Property Casualty Co. Government Employees Insurance Group (GEICO) provided liability insurance to Kaplan.

Gonzalez and his wife, Patricia E. Weeks,¹ filed suit against Kaplan, GEICO, USFG, and Prudential, in Civil District Court for the Parish of Orleans on October 6, 1999. Plaintiffs sued USFG and Prudential in their capacities as uninsured/underinsured motorist carriers on the policies covering the automobile and Gonzalez personally. ( See Pet. ¶¶ XIII, XIV.) After plaintiffs settled with Kaplan and GEICO and dismissed them from the litigation, USFG removed the action to this Court on December 8, 1999. In its Notice of Removal, USFG asserts that this Court has diversity jurisdiction over this case pursuant to 28 U.S.C. § 1332 because plaintiffs are completely diverse from defendants USFG and Prudential. It is undisputed that Gonzalez and Weeks are Louisiana residents, Sergio and Maria Gonzalez are Mississippi residents, and USFG and Prudential are not Louisiana citizens.

1 Ms. Weeks joined in the action to recover for her loss of consortium. ( See Pet. ¶ IX.)

Plaintiffs now move to remand this action to state court. Plaintiffs assert that diversity jurisdiction does not exist because this is a "direct action" under the Louisiana Direct Action Statute and 28 U.S.C. § 1332(c)(1). Accordingly, USFG and Prudential arguably take on the Louisiana citizenship of their insured, Gonzalez. USFG counters that USFG and Prudential do not assume the citizenship of their insureds under § 1332(c)(1) because (1) an uninsured motorist policy is not a "policy or contract of liability insurance;" and (2) a suit against an uninsured motorist carrier is not a "direct action," as that phrase is used in the federal statute.

II. DISCUSSION

A. Removal Standard

The removing party bears the burden of establishing federal jurisdiction. See Willy v. Coastal Corp., 855 F.2d 1160, 1164 (5th Cir. 1988) ( citing Wilson v. Republic Iron Steel Co., 257 U.S. 92, 42 S.Ct. 35 (1921)). The right to remove a case to federal court derives solely from the grant of jurisdiction in 28 U.S.C. § 1441, which the Court must strictly construe. See id. (citations omitted). Under § 1441(a), a defendant may generally remove a civil action filed in state court if the federal court would have had original jurisdiction. USFG asserts that it properly removed this action pursuant to 28 U.S.C. § 1441(b) because this Court has original jurisdiction under the diversity of citizenship statute, 28 U.S.C. § 1332.

Plaintiffs argue that because the Louisiana Direct Action Statute provides that an injured person shall have a right of direct action against an uninsured motorist insurer, a suit against an uninsured motorist insurer also qualifies as a "direct action" for purposes of § 1332(c)(1). See LA. REV. STAT. ANN. § 22:655(B)(1) (West 1999).² However, federal, not state, law determines a party's citizenship for purposes of diversity jurisdiction. See Rodriguez-Diaz v. Sierra-Martinez, 853 F.2d 1027, 1030 (1^st Cir. 1988) (although federal courts apply state substantive law in diversity cases, federal common law governs determination of litigant's state citizenship under § 1332). Likewise, federal law governs the construction of removal statutes. See Jones v. Roadway Express, Inc., 931 F.2d 1086, 1092 (5^th Cir. 1991) ( citing Grubbs v. General Elec. Credit Corp., 405 U.S. 699, 705, 92 S.Ct. 1344, 1349 (1972); Paxton v. Weaver, 553 F.2d 936, 940-41 (5^th Cir. 1977)). See also Shamrock Oil Gas Corp. v. Sheets, 313 U.S. 100, 104, 61 S.Ct. 868, 870 (1941) ("removal statute which is nationwide in operation, was intended to be uniform in its application, unaffected by local law definition or characterization of the subject matter to which it is to be applied"); Able v. Upjohn Co., Inc., 829 F.2d 1330, (4^th Cir. 1987), overruled on other grounds by Caterpillar, Inc. v. Lewis, 519 U.S. 61, 74 n. 11, 117 S.Ct. 467, 475 n. 11 (1996) (courts must look to federal criteria, irrespective of local law, to determine what suits may be removed to federal court); Brizendine v. Continental Cas. Co., 773 F. Supp. 313, 318 (N.D. Ala. 1991) ("federal law determines whether the elements of removal jurisdiction have been satisfied"). "In determining its jurisdiction a federal court 'must look to the sources of its power and not to acts of states which have no power to enlarge or to contract the federal jurisdiction.'" Thompkins v. Stuttgart School Distr. # 22, 787 F.2d 439, 441 (8^th Cir. 1986) ( quoting Markham v. City of Newport News, 292 F.2d 711, 716 (4^th Cir. 1961)). Accordingly, the determination of whether an action against an uninsured motorist carrier is a "direct action" for purposes of diversity and removal jurisdiction is a question of federal law.

2 The Louisiana Direct Action Statute provides as follows:

The injured person . . . shall have a right of direct action against the insurer within the terms and limits of the policy; and, such action may be brought against the insurer alone . . . . However, such action may be brought against the insurer alone only when:

(e) When the insurer is an uninsured motorist carrier
LA. REV. STAT. ANN. § 22:655(B)(1). USFG does not dispute that this case is a "direct action" under the Louisiana statute.

B. 28 U.S.C. § 1332(c)(1)

Congress amended 28 U.S.C. § 1332(c) in 1964, primarily to relieve the overburdened dockets of federal courts in Louisiana. See Hernandez v. Travelers Ins. Co., 489 F.2d 721, 723 (5^th Cir. 1974); Birmingham Fire Ins. Co. v. Adolph, 379 F.2d 948, 950 n. 1 (5^th Cir. 1967). At the time of the amendment, Louisiana and Wisconsin had direct action statutes permitting parties injured by the negligence of an insured to remove actions against foreign liability insurers to federal courts when the non-diverse insured was not joined. See Hernandez, 489 F.2d at 723 ( citing LA. REV. STAT. ANN. § 22:655 (1959); WIS. STAT. §§ 204.30(4), 260.11(1) (1963)). The 1964 amendment to § 1332(c) aimed to resolve this problem by adding the following proviso:

For the purposes of this section and section 1441 of this title —

(1) . . . in any direct action against the insurer of a policy or a contract of liability insurance . . . 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) (West 1999). After reviewing the plain language of § 1332(c)(1), as well as the legislative history and federal common law interpreting that proviso, the Court concludes that it does not apply to plaintiffs' suit to recover uninsured motorist benefits against USFG and Prudential.

First, plaintiffs' suit is not one "against the insurer of a policy or a contract of liability insurance." 28 U.S.C. § 1332(c)(1). The Fifth Circuit interpreted the term "liability insurance" in the context of § 1332(c)(1) in Hernandez. There, the court held that "[l]iability 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 or liability on account of injuries to property." 489 F.2d at 722-23 (internal citations omitted). Based on this definition, the court held that a worker's compensation policy was a "policy or contract of liability insurance" subjecting the insurer to § 1332(c). See id. at 723 ( citing Vines v. United States Fidelity Guaranty Co., 267 F. Supp. 436, 438-39 (E.D. Tenn. 1967)). By contrast, the Fifth Circuit noted that "an uninsured motorist policy is not a 'policy or contract of liability insurance.'" See id. at 725. See also Fortson v. St. Paul Fire and Marine Ins. Co., 751 F.2d 1157, 1159 (11^th Cir. 1985) ("where the suit brought either by the insured or by an injured party is based not on the primary liability covered by the liability insurance policy . . . the section 1332(c) direct action proviso does not preclude diversity jurisdiction"). In so concluding, the court cited a number of cases in which district courts "correctly" held that § 1332(c) did not apply to actions by insureds against their own insurers under the uninsured motorist provisions of their liability insurance policies. See id. ( citing Adams v. State Farm Mut. Auto Ins. Co., 313 F. Supp. 1349 (N.D. Miss. 1970); Bishop v. Allstate Ins. Co., 313 F. Supp. 875 (W.D. Ark. 1970); Inman v. MFA Mutual Ins. Co., 264 F. Supp. 727 (E.D. Ark. 1967)). The distinction between liability insurance policies and policies for uninsured motorist coverage is clearly applicable here. Plaintiffs have filed suit against USFG and Prudential in their capacities as uninsured motorist insurers. The purpose behind such coverage is to provide protection when the liable party is underinsured or uninsured. It does not indemnify USFG or Prudential "against the condition of becoming liable." Hernandez, 489 F.2d at 723.

Second, irrespective of Louisiana's definition of a direct action, plaintiffs' suit is not a "direct action" under § 1332(c)(1). Senate Report No. 1308 accompanied the 1964 amendment and set forth its legislative purpose:

The purpose of the proposed legislation is to amend section 1332(c) of title 28, United States Code, so as to eliminate under the diversity jurisdiction of the U.S. district courts, 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 tort-feasor as a defendant.

S. Rep. No. 1308 (1964), reprinted in 1964 U.S.C.C.A.N. 2778, 2778-79. Although Congress took the phrase "direct action" from the Louisiana and Wisconsin statutes permitting such actions, the Fifth Circuit has observed that simply because an insurance company is a "direct" party does not make the litigation a "direct action." See Evanston Ins. Co. v. JIMCO, Inc., 844 F.2d 1185 (5^th Cir. 1988) ("the language of 1332(c) clearly confirms that view"). See also Rosa v. Allstate Ins. Co., 981 F.2d 669, 674 (2^d Cir. 1992); White v. United States Fidelity Guar. Co., 356 F.2d 746, 747 (1^st Cir. 1996). Rather, in light of § 1332(c)'s legislative history, federal courts have consistently held that Congress intended the word "direct" to limit the word "action" so that § 1332(c)(1) applies only to actions in which an injured party is permitted to sue directly thetortfeasor's liability insurer, when the tortfeasor himself was not joined as a defendant. See Irvin v. Allstate Ins. Co., 436 F. Supp. 575, 577 (W.D. Okla. 1977) (citations omitted). See also Velez v. Crown Life Ins. Co., 599 F.2d 471, 473 (1^st Cir. 1979) (limiting § 1332(c) to situations in which insurer's status is that of a "payor of a judgment based on the negligence of one of its insureds"); Rosa, 981 F.2d at 674-75; McGlinchey v. Hartford Accident and Indemnity Co., 666 F. Supp. 70, 71 (E.D. Pa. 1987), aff'd, 866 F.2d 651 (3^rd Cir. 1989) (direct actions limited to cases where party sues insurer on basis of an insured's liability). Thus, an action against an insurance company is only a "direct action" under § 1332(c)(1) if "the liability sought to be imposed against the insurer could be imposed against the insured." Tuck v. United Services Auto. Ass'n, 859 F.2d 842, 847 (10^th Cir. 1988) ( quoting Beckham v. Safeco Ins. Co., 691 F.2d 898, 902 (9^th Cir. 1982)). Because a suit on an uninsured motorist policy does not seek to impose liability on the uninsured motorist carrier for the negligence of its insured, it is not a "direct action" under § 1332(c). See id. See also Carpenter v. Illinois Central Gulf R.R. Co., 524 F. Supp. 249, 252 (M.D. La. 1981) (uninsured motorist carrier did not assume plaintiff's citizenship because § 1332(c)(1) did not apply to action on underinsured provisions of policy); Shief v. Tenet Healthsystem Hospital Inc., 1998 WL 849308, at *3 (E.D. La. Dec. 7, 1998) (exception in § 1332(c)(1) unavailable because subject policy was for uninsured/underinsured coverage, not liability); Couvillion v. State Farm Mut. Auto. Ins. Co., 1994 WL 382631, at *1 (E.D. La. July 19, 1994) (same); Barton v. Allstate Ins. Co., 729 F. Supp. 56, 57 (W.D. Tex. 1990) (action by insured against his uninsured motorist carrier did not fall under § 1332(c)); Adams, 313 F. Supp. at 1352 (same). On nearly identical facts as here, the Third Circuit held that § 1332(c) did not apply when the injured party filed suit against his own insurance carrier as well as the insurer of the vehicle's owner and operator to recover underinsurance benefits. See Myers v. State Farm Insurance Co. 842 F.2d 705, 706-07 (3^rd Cir. 1988), abrogation on other grounds recognized by McAlister v. Sentry Ins. Co., 958 F.2d 550, 553 (3^rd Cir. 1992).

Plaintiffs have cited, and the Court has found, only one case that arguably supports their position. In Rayburn v. Colonial Penn Franklin Insurance Co., 1998 WL 883321, at *1 (E.D. La. Dec. 15, 1998), the court held that plaintiff's suit to recover uninsured motorist benefits against his stepfather's automobile insurer was a "direct action" under the Louisiana Direct Action Statute. The Rayburn court further concluded that Colonial Penn was a liability insurer because the policy at issue included liability insurance as well as uninsured motorist coverage. See id. Based on these conclusions, the court held that § 1332(c)(1) applied, and the foreign insurance carrier assumed the plaintiff's Louisiana citizenship, defeating diversity jurisdiction. See id. at *2.

In light of the overwhelming weight of authority, including caselaw from the Fifth Circuit and at least five courts in this circuit, the Court is not persuaded by Rayburn's contrary assertion that § 1332(c)(1) applies to actions against uninsured motorist carriers. As noted above, federal law controls the question of whether diversity jurisdiction exists and a district court cannot permit a state statute to enlarge or contract that jurisdiction. Thus, that plaintiffs' suit is a direct action under the Louisiana Direct Action Statute does not change the fact that, according to the plain language of the federal statute and federal common law, it is not a direct action under § 1332(c)(1). Additionally, the Court rejects the conclusion that an uninsured motorist provision is a contract for liability insurance merely because it is added to a primary liability policy. Caselaw and practical experience indicate that uninsured motorist coverage and liability insurance are routinely extended in a single policy and this administrative unification does not eliminate the basic distinctions behind the two types of coverage. See Carpenter, 524 F. Supp. at 252 (noting that suit against insurance carrier on uninsured motorist provisions of policy is not a direct action under § 1332(c), but § 1332(c) would apply to suit against same insurer under policy's liability provisions); Adams, 313 F. Supp. at 1351-52 (§ 1332(c) did not apply when plaintiff sued foreign insurer to recover under uninsured motorist provisions of automobile liability insurance policies) ; 13B WRIGHT, MILLER COOPER, FEDERAL PRACTICE AND PROCEDURE § 3629, at 674-75 ("the 1964 amendment does not encompass actions by an insured against the insurer seeking to recover for his own injuries, including those cases in which the insured is suing under the uninsured motorist coverage of a liability policy"). For the foregoing reasons, the Court declines to follow Rayburn on these facts.

III. CONCLUSION

Because plaintiffs brought suit against USFG and Prudential to recover uninsured motorist benefits, this case does not involve a "direct action" or a "policy or a contract of liability insurance" as those phrases are used in § 1332(c)(1). Accordingly, USFG and Prudential do not assume Gonzalez's Louisiana citizenship and diversity jurisdiction exists in this Court. The Court therefore DENIES plaintiffs' motion to remand.

New Orleans, Louisiana, this 28th day of February, 2000.

MINUTE ENTRY BERRIGAN, J. February 23, 2000