Trial Strategy: Understanding the Direct Action Provision of Section 1332(C)(1) in Federal Lawsuits Against Insurers

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Information about Trial Strategy: Understanding the Direct Action Provision of Section...
News & Politics

Published on February 4, 2014

Author: NationalUnderwriter

Source: slideshare.net

Description

To determine whether diversity of citizenship exists when a plaintiff sues an insurance company in federal court, one must consider the effect of 28 U.S.C. § 1332(c)(1), as a plaintiff learned in a recent case filed in the Eastern District of Michigan.

The following article is from National Underwriter’s latest online resource, FC&S Legal: The Insurance Coverage Law Information Center. The Insurance Coverage Law Information Center TRIAL STRATEGY: UNDERSTANDING THE DIRECT ACTION PROVISION OF SECTION 1332(C)(1) IN FEDERAL LAWSUITS AGAINST INSURERS December 10, 2013 Steven A. Meyerowitz, Esq., Director, FC&S Legal To determine whether diversity of citizenship exists when a plaintiff sues an insurance company in federal court, one must consider the effect of 28 U.S.C. § 1332(c)(1), as a plaintiff learned in a recent case filed in the Eastern District of Michigan. The Case Elvira Lulgjuraj, a resident of Sterling Heights, Michigan, was driving an automobile owned by Bardhyl Mulalli when she was involved in an accident. Ms. Lulgjuraj claimed that she sustained serious injuries as a result of the accident and she brought suit in the Eastern District of Michigan against the vehicle owner’s insurer, State Farm Automobile Insurance Company. Ms. Lulgjuraj did not name the vehicle owner as a party-defendant. Ms. Lulgjuraj alleged diversity of citizenship as the basis for the court’s jurisdiction, predicated on her Michigan citizenship and the Illinois citizenship of State Farm; the Lulgjuraj complaint contained no allegations as to the citizenship of the owner of the vehicle insured by State Farm. State Farm moved for summary judgment. 28 U.S.C. § 1332(c)(1) 28 U.S.C. § 1332(c)(1) provides: For purposes of this section and section 1441 of this title [which governs removal of actions] (1) a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business, except 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. (Emphasis supplied.) The Court’s Decision The court granted the insurer’s motion. In its decision, it explained that the direct action provision in 28 U.S.C. § 1332(c)(1) was applicable in suits against insurers under Michigan’s no-fault scheme, and where imputing the insured’s citizenship to the insurer destroyed diversity, a federal court was without jurisdiction to hear the case. The court then found that, pursuant to Section 1332(c)(1), it lacked subject matter jurisdiction over the action brought by Ms. Lulgjuraj. It explained that she was a citizen of Michigan and that State Farm, a citizen of Illinois, also was a citizen of Michigan because Bardhyl Mulalli, the insured, apparently was a citizen of Michigan (and it was the burden of Ms. Lulgjuraj to demonstrate otherwise, which she did not do). The court concluded by observing that the direct action provision of Section 1332(c)(1) was not applicable where an insured sued his or her own insurance carrier, but that in this case Ms. Lulgjuraj did not seek to recover benefits from her own insurance company but rather from the insurer of a third party, Bardhyl Mulalli. Call 1-800-543-0874 | Email customerservice@SummitProNets.com | www.fcandslegal.com

The case is Lulgjuraj v. State Farm Mutual Automobile Ins. Co., No. 13–11655 (E.D.Mich. Dec. 5, 2013). FC&S Legal Comment The insurance amendment to Section 1332(c)(1) that added the language emphasized above came in response to state statutes that authorized direct actions against tortfeasors’ insurers without action against the tortfeasor. See Northbrook Nat. Ins. Co. v. Brewer, 493 U.S. 6, 110 S.Ct. 297, 107 L.Ed.2d 223 (1989). Such direct action statutes effectively created diversity jurisdiction where the injured party and the insured were in fact citizens of the same state. Id. These direct action statutes increased the case burden on the federal courts by fabricating diversity where it would previously not have existed. Henderson v. Selective Ins. Co., 369 F.2d 143, 149 (6th Cir.1966). The amendment was enacted to counteract that result. Id. For other cases highlighting this rule, see, e.g., Ford Motor Co. v. Insurance Company of North America, 669 F.2d 421, 425 (6th Cir.1982); Lulgjuraj v. State Farm Mutual Automobile Ins. Co., No. 13–11656 (E.D.Mich. May 15, 2013); Mathis v. The Hartford Ins. Co., 770 F.Supp.2d 891 (E.D.Mich.2010); Tyson v. Conn. Gen. Life Ins. Co., 495 F.Supp. 240 (E.D.Mich.1980); and McMurry v. Prudential Prop. & Cas. Ins. Co., 458 F.Supp. 209 (E.D.Mich.1978). For more information, or to begin your free trial: • Call: 1-800-543-0874 • Email: customerservice@SummitProNets.com • Online: www.fcandslegal.com FC&S Legal guarantees you instant access to the most authoritative and comprehensive insurance coverage law information available today. This powerful, up-to-the-minute online resource enables you to stay apprised of the latest developments through your desktop, laptop, tablet, or smart phone —whenever and wherever you need it. NOTE: The content posted to this account from FC&S Legal: The Insurance Coverage Law Information Center is current to the date of its initial publication. There may have been further developments of the issues discussed since the original publication. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice is required, the services of a competent professional person should be sought. Copyright ©The National Underwriter Company. All Rights Reserved. Call 1-800-543-0874 | Email customerservice@SummitProNets.com | www.fcandslegal.com

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