Zimmerman v. Philadelphia Indemnity Insurance Company et al

Filing 19

ORDER denying 5 Plaintiff's Motion to Remand to State Court; denying as moot 10 Defendant's Motion to Strike. ORDERED DISMISSING defendant Arizona Labor Force, Inc. Signed by Judge Frederick J Martone on 8/18/11.(DMT)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Plaintiff,
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vs.
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Philadelphia Indemnity Insurance Co., et)
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al.,
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Defendants.
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No. CV 11-8074-PCT-FJM

Norton Anthony Zimmerman,

ORDER

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We have before us plaintiff’s motion to remand (doc. 5), defendant Philadelphia

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Insurance Company’s response (doc. 8), and plaintiff’s reply (doc. 9). We also have

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defendant’s motion to strike portions of plaintiff’s reply, or alternatively, to file a sur-reply

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(doc. 10), and plaintiff’s response (doc. 11).

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I

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Plaintiff was a passenger in a van that was in an accident caused by the negligence of

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the driver of another vehicle. The van was owned by defendant Arizona Labor Force

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(“ALF”) and insured by a policy issued by defendant Philadelphia Insurance, which included

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underinsured motorist coverage. Plaintiff asserts claims for (1) a declaratory judgment that

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he is entitled to proceeds of the underinsured motorist provision of the policy, and (2) that

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he entitled to the proceeds of the policy as compensation for his damages.

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Plaintiff filed this action in the Superior Court of Arizona in Yavapai County.

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Defendants removed based on diversity jurisdiction. 28 U.S.C. § 1332. Defendant asserts

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that plaintiff is a citizen of Arizona and defendant Philadelphia Insurance is incorporated

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under the laws of Pennsylvania and has its principal place of business in Pennsylvania.

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Notice of Removal, ¶ 3, 9 (doc. 1). Defendant claims that ALF, an Arizona company, is a

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fraudulently joined “sham” defendant. Plaintiff argues that we lack diversity jurisdiction

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because either (1) ALF is not a sham defendant, and therefore there is not complete diversity,

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or (2) defendant Philadelphia Insurance should be considered a citizen of Arizona, pursuant

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to the “direct action” exception to diversity jurisdiction.

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II

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“Joinder of a non-diverse defendant is deemed fraudulent, and the defendant’s

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presence in the lawsuit is ignored for purposes of determining diversity, if the plaintiff fails

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to state a cause of action against a resident defendant, and the failure is obvious according

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to the settled rules of the state.” Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th

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Cir. 2001). Plaintiff’s claims are against defendant Philadelphia Insurance, the insurer who

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issued the policy, and not against ALF, the insured.

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underinsured motorist policy issued by defendant, as an occupant of the insured vehicle

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plaintiff is an insured himself. Notice of Removal, ex. F, “Arizona Underinsured Motorists

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Coverage” (doc. 1-1). As an insured, any claim plaintiff has is against the insurer. And

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regardless of whether he is entitled to recover under the policy, plaintiff has no claim against

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the insured. ALF has no interest in this action. Plaintiff’s failure to state a claim against

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ALF is obvious, and we order defendant ALF dismissed.

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Pursuant to the terms of the

III

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For purposes of diversity jurisdiction, a corporation is a citizen of the state of its

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incorporation and where it has its principal place of business, except that “in any direct action

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against the insurer of a policy or contract of liability insurance, whether incorporated or

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unincorporated, to which action the insured is not joined as a party-defendant, such insurer

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shall be deemed a citizen of the State of which the insured is a citizen, as well as of any State

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by which the insurer has been incorporated and of the State where it has its principal place
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of business.” 28 U.S.C. § 1332(c)(1). Plaintiff argues that if AFL is a sham defendant, as

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we have determined it is, then plaintiff’s claims fall under the “direct action” exception to

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diversity jurisdiction because the action is against the insurer and the insured is not joined

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as defendant. Accordingly, Philadelphia Insurance would be considered a citizen of Arizona,

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ALF’s state of citizenship, and complete diversity would not exist.

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The “direct action” exception applies to “those cases in which a party suffering

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injuries or damage for which another is legally responsible is entitled to bring suit against the

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other’s liability insurer without joining the insured or first obtaining a judgment against him.”

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Searles v. Cincinnati Ins. Co., 998 F.2d 728, 729 (9th Cir. 1993). A “‘first party’ insurance

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action, or a suit by an insured against an insurer, is not a ‘direct action.’” Id. Rather, a “direct

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action is one in which a plaintiff is entitled to bring suit against the tortfeasor’s liability

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insurer without joining the insured.” Id. at 730.

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Plaintiff’s argument against jurisdiction fails. Plaintiff alleges that as a passenger in

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the covered vehicle, he is an intended beneficiary of the Philadelphia Insurance policy.

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Notice of Removal, “Complaint,” ¶ 14 (doc. 1-1). Pursuant to the policy, because the named

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insured is an organization (ALF), anyone occupying the vehicle is an insured. Arizona

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Underinsured Motorists Coverage at 38. Therefore, in accordance with both plaintiff’s

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allegations and the terms of the policy, this is an action by an insured against his insurer. It

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is not an action against a tortfeasor’s insurer, and does not fall under the “direction action”

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exception to diversity jurisdiction.
IV

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Because we deny plaintiff’s motion to remand, defendant’s motion to strike plaintiff’s

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reply is moot (doc. 10).
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IT IS ORDERED DENYING plaintiff’s motion to remand (doc. 5). IT IS

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FURTHER ORDERED denying defendant’s motion to strike as moot (doc. 10).

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IT IS ORDERED DISMISSING defendant Arizona Labor Force, Inc.

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DATED this 18th day of August, 2011.

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