State Auto Property & Casualty Insurance Company Inc et al v. QBE Insurance Corporation et al

Filing 16

MEMORANDUM OF OPINION. Signed by Judge L Scott Coogler on 8/5/2015. (PSM)

FILED
2015 Aug-05 PM 04:24
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
STATE AUTO PROPERTY &
CASUALTY INSURANCE
COMPANY, INC., et al.,
Plaintiffs;
vs.
QBE INSURANCE
CORPORATION, et al.,
Defendants.

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2:15-cv-00494-LSC

Memorandum of Opinion
Before this Court is Plaintiffs State Auto Property & Casualty Insurance
Company, Inc. (“State Auto”), Penn-American Insurance Company (“PennAmerican”), and Red Rock Realty Group, Inc.’s (“Red Rock”) motion to remand this
case to the state court in Jefferson County, Alabama. (Doc. 5.) The motion has been
fully briefed and is ripe for review. For the reasons stated below, Plaintiffs’ motion is
due to be granted.
I.

Background
In May 2009, Red Rock and Defendant Hamilton Assets Management, Inc.

(“Hamilton”) executed an agreement under which Red Rock managed an apartment
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complex owned by Hamilton. According to Plaintiffs, the agreement required
Hamilton to indemnify Red Rock from certain claims that might arise during its
management of the apartment complex, and to obtain a general commercial liability
policy that included Red Rock as an “additional insured.” From November 1, 2010,
to November 1, 2011, Hamilton held a commercial liability policy issued by Defendant
QBE Insurance Corporation (“QBE”). From November 1, 2011, to November 1,
2012, Hamilton held a policy issued by Defendant Starr Indemnity & Liability
(“Starr”).
On July 25, 2013, Barry Perry (“Perry”), a tenant at the apartment complex in
question, filed a lawsuit against Red Rock in state court, alleging violations of the
Americans with Disabilities Act and the Fair Housing Act. Hamilton’s insurers, QBE
and Starr, subsequently denied any obligation to indemnify or defend Red Rock in the
Perry litigation.1 On November 30, 2014, Red Rock filed a third-party complaint
against Hamilton asserting that, pursuant to the management services agreement
between the parties, Hamilton was required to indemnify and defend Red Rock in the
Perry litigation. On February 13, 2015, Plaintiffs Red Rock, Penn-American, and State
Auto filed a declaratory judgment action in state court against Starr, QBE, and
Defendants QBE and Starr later agreed to partially indemnify and defend Red Rock. However,
the parties still dispute the extent of QBE and Starr’s obligation.

1

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Hamilton seeking indemnification and reimbursement of defense costs as
an“additional insured” under the QBE and Starr policies. Defendant Starr removed
this action to this Court on March 25, asserting diversity of citizenship under 28
U.S.C. § 1332 as the basis for federal jurisdiction. Plaintiffs filed their motion to
remand on April 23, 2015.
II.

Discussion
“It is a fundamental precept that federal courts are courts of limited

jurisdiction.” Owen Equip. & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). When
federal courts could have original jurisdiction over an action, Congress also gives
federal courts the power to exercise removal jurisdiction over civil actions originally
filed in state court. 28 U.S.C. § 1441(a). Defendants QBE and Starr assert diversity
jurisdiction under 28 U.S.C. § 1332 as the basis for removal. A case is generally
removable based on diversity jurisdiction only when “there is complete diversity
between all named plaintiffs and all named defendants, and no defendant is a citizen
of the forum State.” Lincoln Prop. Co. v. Roche, 546 U.S. 81, 84 (2005). Furthermore,
the Court must resolve any doubts about jurisdiction in favor of remand. See Burns v.
Windsor Ins. Co., 31 F.3d 1092, 1095 (11th Cir. 1994); Univ. of S. Ala v. Am. Tobacco
Co., 168 F. 3d 405, 411 (11th Cir. 1999).

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Defendants QBE and Starr do not dispute that both Hamilton and Red Rock are
citizens of Alabama. Thus, as currently aligned, the parties are not diverse for the
purposes of 28 U.S.C. § 1332. However, QBE and Starr assert that their CoDefendant Hamilton should be realigned as a plaintiff, thus making the parties
completely diverse. “[F]ederal courts are required to realign the parties in an action
to reflect their interests in the litigation.” City of Vestavia Hills v. Gen. Fid. Ins. Co.,
676 F.3d 1310, 1313 (11th Cir. 2012); see also id. (noting that the parties themselves can
neither create nor defeat diversity jurisdiction through improper designation of a
party’s interest). In determining whether the parties are properly aligned, the Court
“look[s] beyond the pleadings . . . to the principal purpose of the suit and the primary
and controlling matter in dispute.” Id. at 1314 (internal quotations and citations
omitted).
QBE and Starr argue that Hamilton should be realigned as a plaintiff because
Hamilton would actually benefit from a finding that QBE and Starr have an obligation
to indemnify and defend Red Rock pursuant to the insurance policies in question.
QBE and Starr argue that this declaratory judgment action is really a dispute between
insurance companies over who is principally responsible for indemnification and
defense costs in the Perry litigation, and that Hamilton has as much incentive as

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Plaintiffs to see that QBE and Starr pay the full amount owed, if any, to Red Rock.2
Otherwise, Hamilton could find itself solely responsible for the indemnification and
defense costs pursuant to the management services agreement between Hamilton and
Red Rock.
In making this argument for realignment, QBE and Starr rely heavily on City of
Vestavia Hills v. Gen. Fidelity Ins. Co., 676 F.3d 1310 (11th Cir. 2012), a case in which
the Eleventh Circuit affirmed a district court’s realignment of parties in a declaratory
judgment action so that the insured was aligned against its insurer. In City of Vestavia
Hills, the plaintiff had previously won a judgment against the defendant-insured. The
defendant’s insurance company refused to pay the judgment, prompting the plaintiff
to file a declaratory judgment action against both the insurance company and its
insured. In affirming the realignment of the insured as a plaintiff to create complete
diversity, the Eleventh Circuit emphasized that a judgment had already been entered
against the insured in the underlying state court litigation at the time the declaratory
judgment action was removed to federal court. Given that the plaintiff was seeking
only to obtain insurance money to pay for an already-rendered judgment, there was
2

QBE and Starr further assert that a finding against them would aid Hamilton in
establishing a defense to the third-party complaint in the Perry litigation, since a finding that Red
Rock was an “additional insured” under the commercial liability policies at issue would indicate that
Hamilton performed its obligations under the management services agreement.
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no longer a live controversy between the plaintiff and the defendant-insured.
Consequently, the Eleventh Circuit reasoned that “the only thing that [the defendantinsured] could want out of this case is for [the plaintiff ] to win.” See id. at 1314. Thus,
the court realigned the defendant-insured so that it was a plaintiff in the declaratory
judgment action.
While QBE and Starr argue that City of Vestavia Hills advocates for realignment
of the lone non-diverse defendant in this action (i.e., Hamilton), the circumstances
here differ significantly from those in City of Vestavia Hills. Most importantly, there
is still an on-going controversy in state court between Red Rock and Hamilton. The
underlying litigation in this matter—including Red Rock’s third-party complaint
against Hamilton—is still pending. Red Rock’s third-party complaint against
Hamilton asserts that, pursuant to the services management contract, Hamilton was
required to list Red Rock as an additional insured in its commercial liability policies.
Hamilton has denied these allegations in its answer to the third-party complaint, and
it is difficult to imagine how Red Rock would find itself listed as an “additional
insured” if Hamilton did not agree to include Red Rock under the relevant policies.
In other words, realigning Hamilton as a plaintiff in this action would defy common
sense, as it would result in Hamilton taking one position in this declaratory judgment

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action, while maintaining another position with respect to the claims brought against
it in the still-pending third-party complaint.
Accordingly, Red Rock and Hamilton’s interests are not “materially similar”
to the extent that realignment is necessary. Rather, the instant action for declaratory
judgment is simply an alternative means for Red Rock and its insurers to seek
indemnification and defense costs from Hamilton and its insurers for the Perry
litigation.
III. Conclusion
For the foregoing reasons, Plaintiffs’ motion to remand (Doc. 5) is due to be
granted. This action is due to be remanded to the state circuit court in Jefferson
County, Alabama. Costs are to be taxed as paid.
A separate Order will be entered.
Done this 5th day of August 2015.

L. SCOTT COOGLER
UNITED STATES DISTRICT JUDGE
177822

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