Scott v. State Farm Fire & Casualty Company et al
Filing
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OPINION and ORDER Denying Defendant State Farm Fire & Casualty Company's 15 Motion for Summary Judgment. Signed by District Judge Linda V. Parker. (Loury, R)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
KELLY SCOTT,
Plaintiff,
Civil Case No. 13-13287
Honorable Linda V. Parker
v.
STATE FARM FIRE & CASUALTY
COMPANY, KEVIN SAULTER, and KURT DOLL,
Defendants.
_______________________________/
OPINION AND ORDER DENYING DEFENDANT STATE FARM FIRE &
CASUALTY COMPANY’S MOTION FOR SUMMARY JUDGMENT
This matter is presently before the Court on Defendant State Farm Fire &
Casualty Company’s Motion for Summary Judgment, filed pursuant to Federal
Rule of Civil Procedure 56 on January 31, 2014. (ECF No. 15.) Plaintiff filed a
response to the motion on February 24, 2014. (ECF No. 20.) State Farm Fire &
Casualty Company (“State Farm”) filed a reply brief on March 10, 2014. (ECF
No. 21.) The matter initially was assigned to the Honorable Mark A. Goldsmith,
but was reassigned to the undersigned pursuant to Administrative Order 14-AO030 on May 28, 2014. The Court held a motion hearing on June 25, 2014. For the
reasons that follow, the Court now denies the motion.
I.
Factual and Procedural Background
On July 31, 2011, Plaintiff Kelly Scott (“Scott”) was riding a tube towed by
a boat which was owned and operated by Defendant Kevin Saulter (“Saulter”).
(ECF No. 2 ¶ 9.) The tube collided with a boat hoist owned by Defendant Kurt
Doll (“Doll”) on Tan Lake in Oxford Township, Michigan. (Id.) Scott sustained
serious personal injuries as a result of the collision. (Id.) She sued Saulter in state
court alleging negligence and other claims arising from the accident (“underlying
lawsuit”).
At the time of the accident, Saulter was covered by at least two insurance
policies issued by State Farm: State Farm Insurance Homeowners Policy No. 22-BJ-J-802-6 (“Homeowners Policy”) and State Farm Insurance Boatowners Policy
No. 22-B-H-J-647-2 (“Boatowners Policy”). (ECF No. 1 ¶ 1.) Presumably Saulter
requested that State Farm defend and indemnify him in the underlying lawsuit
because, according to the instant Complaint, State Farm declined to do so. (Id.
¶ 10.) Scott has indicated to this Court that the underlying action was dismissed
without prejudice, by stipulation of the parties, so she could pursue the present
action to determine State Farm’s obligations in connection with the accident. (ECF
No. 16 at Pg ID 208.)
In fact on July 3, 2013, Scott filed the present declaratory judgment action
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against Defendants in the Circuit Court for Oakland County, Michigan. In her
Complaint, Scott claims that the Homeowners Policy and/or Boatowners Policy
provides coverage for Saulter’s negligence in operating the boat and causing
Scott’s injuries. (ECF No. 2 ¶¶ 11, 12.) She asks the Court to declare that the
policies provide coverage with respect to the boating/tubing accident and that
under one or both policies, State Farm owes a duty to defend and indemnify
Saulter with respect to any claims brought in the underlying action. (Id. at Pg ID
21.) On July 13, 2013, State Farm removed Scott’s Complaint to federal court on
the basis of diversity jurisdiction, 28 U.S.C. § 1332, asserting that Saulter and Doll
(who are citizens of the same state as Scott) have been fraudulently joined.
On January 31, 2014, State Farm filed the pending summary judgment
motion in which it argues that Michigan law bars Scott’s action against it.
Specifically, State Farm contends that Michigan Compiled Laws Section 500.3030
bars this “direct action” by an injured third-party against the insurer of the alleged
tortfeasor.
II.
Summary Judgment Standard
Summary judgment pursuant to Rule 56 of the Federal Rules of Civil
Procedure is appropriate “if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed R.
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Civ. P. 56(a). The central inquiry is “whether the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so one-sided that one
party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 251-52, 106 S. Ct. 2505, 2512 (1986). After adequate time for discovery and
upon motion, Rule 56 mandates summary judgment against a party who fails to
establish the existence of an element essential to that party’s case and on which
that party bears the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317,
322, 106 S. Ct. 2548, 2552 (1986).
III.
The Parties’ Arguments
State Farm argues that it is entitled to summary judgment, contending that
section 500.3030 bars an injured party from suing the insured of the alleged
tortfeasor. In its motion, State Farm cites several cases where the Michigan courts
“applied this statute in barring direct actions such as the present action.” (ECF No.
15 at Pg ID 119, citing Bray v. Unified Prop. Grp., LLC, No. 12-12618, 2012 WL
5363792 (E.D. Mich. Oct. 30, 2012) (unpublished op.); In re LaMarre, 494 F.2d
753 (6th Cir. 1974); Allstate Ins. Co. v. Hayes, 499 N.W.2d 743 (Mich. 1993); and
Vidimos, Inc. v. Laser Lab Ltd., 99 F.3d 217 (7th Cir. 1996)).
In response, Scott argues that section 500.3030 is not applicable to this
declaratory judgment action because it is not an “original action[.]” Scott counters
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that the underlying lawsuit in which she sought to establish the liability of State
Farm’s insured (i.e. Saulter) is the “original action.” In reply, however, State Farm
argues that Hayes, supra, and Security Insurance Co. v. Daniels, 245 N.W.2d 418
(Mich. Ct. App. 1976), “make clear that the protection of [the statute] applies to
both tort actions and declaratory judgment actions.” (ECF No. 21 at Pg ID 282.)
IV.
Analysis
This Court agrees with Scott that section 500.3030 does not bar the present
declaratory judgment action which addresses coverage, only. The statute reads:
In the original action brought by the injured person . . . the insurer
shall not be made or joined as a party defendant, nor, except as
otherwise provided by law, shall any reference whatever be made to
such insurer or to the question of carrying of such insurance during
the course of trial.
Mich. Comp. Laws § 500.3030 (footnote omitted and emphasis added).
Michigan’s Insurance Code does not define the term “original action” and this
Court could not find a single federal or state court case providing a definition. The
term, however, is plainly used by the courts to refer to the lawsuit filed by an
injured party to determine the liability of the alleged tortfeasor, not an ancillary
lawsuit to decide coverage issues involving the alleged tortfeasor’s insurer. This
makes logical sense, as the intent of the legislature in enacting section 500.3030
was to avoid prejudice caused by the jury’s awareness that the defendant/alleged
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tortfeasor is insured. See Lieberthal v. Glens Falls Indem. Co. of Glens Falls, N.Y.,
24 N.W.2d 547, 549 (Mich. 1946) (“The public policy sought to be sustained in
this State by the statute and judicial decisions is that a plaintiff shall not be
permitted to inject into his suit the element of insurance and thereby obtain an
excessive and unjust verdict.”); see also id. at 552 (Butzel, C.J., dissenting) (“The
reason for the rule is set forth in Holman v. Cole, 242 Mich. 402, 218 N.W. 795,
796 (1928), as follows: ‘It is a fact of which we cannot but take judicial notice that,
in cases where jurors obtain information that the damages as fixed by them will be
paid by insurance companies, the amount thereof is usually greatly enhanced.’ ”).
Further supporting the Court’s interpretation is its finding that an “original
action” is equivalent to the “direct action” referenced in the federal diversity
jurisdiction statute, 28 U.S.C. § 1332. Section 1332(c)(1) provides in part that “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.” 28 U.S.C.
§ 1332(c)(1). The Sixth Circuit has found that this provision “evidently was
enacted to prevent a plaintiff from end-running the diversity of citizenship
requirement (where the tortfeasor hails from plaintiff’s state, but the tortfeasor’s
insurer does not) by suing the tortfeasor’s insurer instead of the tortfeasor.” Estate
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of Monahan v. Am. States Ins. Co., 75 F. App’x 340, 343 (6th Cir. 2003); see also
Peterson v. TIG Specialty Ins. Co., 211 F. Supp. 2d 1013, 1015 (S.D. Ohio 2002)
(“[T]his direct action exception that destroys diversity exists only where a
third-party tort victim forgoes suing the tortfeasor in favor of instead suing the
tortfeasor’s liability insurer directly.”). Federal courts in Michigan have defined
the term “direct action” in § 1332(c)(1) to mean cases “where the plaintiff is suing
the tortfeasor’s insurer, rather than suing the tortfeasor directly, on the issue of
liability.” Estate of Monahan, 75 F. App’x at 343 (emphasis added); see also
Peterson, 211 F. Supp. 2d at 1015 (citing cases in which “[c]ourts have
consistently interpreted “direct action” to include only tort actions brought by third
parties against the insurer– as a substitute for the insured tortfeasor”); Reed v.
Indiana Ins. Co., No. 10-13247, 2010 WL 6778868, at *3 (E.D. Mich. Dec. 23,
2010) (Majzoub, M.J.), report and recommendation adopted in 2011 WL 2292206
(E.D. Mich. Feb. 16, 2012) (Roberts, J.) (concluding that the plaintiff’s complaint
against the tortfeasor’s insurer for declaratory relief as to coverage was not a direct
action under § 1332(c)(1)). The cases cited by State Farm do not suggest
otherwise and, in some instances, support the Court’s interpretation.
In Bray, the plaintiff sued the owner and property manager of an apartment
complex where she lived, as well as the owner’s insurer, for injuries her infant
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daughter sustained when carbon monoxide leaked from a defective stove. 2012
WL 5363792, at *1. In the action, the plaintiff sought to establish the owner’s and
property manager’s liability for her daughter’s injuries. Id. at *2. She, however,
also brought spoliation claims against the defendants because the stove had been
destroyed after the accident and while her attorneys were negotiating a settlement
with the owner’s insurer. Id. The district court held that the plaintiff could not
pursue her spoliation claims against the insurer because such claims can be brought
only against an opposite party against whom the plaintiff otherwise has a valid
claim. Id. at *3-4. The court concluded that the plaintiff never had an independent
claim against the insurer for the carbon monoxide exposure, as it was only the
insurer for one of the tortfeasors. Id. at *4. Unremarkably, the court simply
referred to the prohibition of direct actions set forth in section 500.3030 to indicate
that the plaintiff could not have brought an independent claim against the insurer
for the alleged negligence. Id.
The same rule was stated as dicta by the Sixth Circuit in In re LaMarre
when addressing whether the district judge had the authority to hold the claims
manager of a defendant’s insurer in contempt for failing to appear at a court
conference. 494 F.2d 753. The conference had been set in a lawsuit brought by
Audrey Frazier and other plaintiffs against Travelodge International
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(“Travelodge”) and other defendants. Id. at 754-55. Travelodge’s insurer, The
Insurance Company of North America (“INA”), had retained counsel to defend the
action on behalf of its insured and acknowledged its contractual duty to pay any
damages assessed in the action. Id. at 756. Prior to trial, counsel for both the
plaintiffs and the defendants informed the court that they had agreed on a
settlement figure; however, INA’s claims manager informed the court by telephone
that he would not accept the recommendation of his counsel. Id. at 755. In
response, the district judge ordered the claims manager to appear before the court.
Id. When the claims manager failed to show, the district judge held him in
contempt of court. Id.
The issue presented to the Sixth Circuit was whether the district judge had
the authority to compel the claims manager’s appearance, when he was not a party
to the lawsuit. Id. at 756. The appellate court concluded that the judge held such
power. Id. The court reasoned that while section 500.3030 “prohibits the naming
of any insurance company as a party defendant, the reality of the matter is that INA
had retained counsel, was prepared to defend the suit, and was in complete control
of the settlement negotiations. Further it is undisputed that Charles LaMarre was
the resident agent of INA in charge of the case.” Id. This decision, like Bray, only
highlights the rule that an insurer cannot be named in an action seeking to establish
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liability for the plaintiff’s injuries. That is not the type of action now presented,
however.
The Michigan Supreme Court’s decision in Allstate Insurance Company v.
Hayes, 499 N.W.2d 743, also does not further State Farm’s argument. The issue
before the Court in Hayes was simply whether, in a declaratory judgment action
brought by an insurer against the insured and the injured party concerning
coverage, a default judgment against the insured deprives the trial court of its
power to declare the rights and liabilities of the remaining parties. Id. at 57. The
Court expressly stated that it was “not reach[ing] the issue whether an injured party
has a ‘vested’ interest from the time of the injury, which would permit the
institution by the injured party of an action for declaratory relief.” Id. at 746. The
Court suggested that the injured party in fact could seek a declaration of coverage
outside the underlying action, as the Court stated:
While the Court of Appeals correctly concluded that Keillor [the
injured party] was not a third-party beneficiary [to the insurance
contract between the insurer and alleged tortfeasor], it erred in
concluding that third-party-beneficiary status was necessary to allow
Keillor to “continue to pursue the action” for a declaration of
coverage. The nature of the procedural remedy is to declare interests
not yet vested. Thus, the fact that the injured party is not a third-party
beneficiary of the insurance contract is not determinative of his
“standing” to continue the action for a declaration of his rights as a
conceded real party in interest.
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Id.
In support of its motion, State Farm refers in its reply brief to the Hayes
Court’s citation to section 500.3030 when stating that the injured party could not
have joined the insurance company in the underlying tort action and that
“‘[i]ndeed, as a matter of policy, the federal courts will decline the request for a
declaration of rights by the injured party when state law prevents an injured party
from filing a direct action against the insurer.’” (ECF No. 21 at Pg ID 281, quoting
Hayes, 499 N.W.2d at 749 n.13.) State Farm omits that this statement is included
only in a footnote and that it is dicta, as the Court clearly indicated that the case
before it was not a direct action. See Hayes, 499 N.W.2d at 745 & n.4. As
indicated in the preceding paragraph, the Hayes Court expressly declined to reach
the issue of whether an injured party may initiate a declaratory judgment action
concerning coverage against the tortfeasor’s insured, separate from an action
addressing liability. Id. at 746. Finally, when read in its entirety, the Hayes
Court’s statement in footnote 13 of its decision does not speak to the ability of an
injured party to pursue a declaratory judgment action against a tortfeasor’s insurer
concerning coverage. Rather the Court was addressing only the timing of such an
action and the impact of the timing on a court’s decision whether to exercise its
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discretion to grant declaratory relief.1
The footnote reads in full:
The parties have not cited authority that addresses how much
interest a party must have in order to ask for a declaration of rights;
however, Security Ins. Co. v. Daniels, 70 Mich. App. 100, 245
N.W.2d 418 (1976), is instructive. Daniels recognized that an injured
person’s interest in the resolution of the policy coverage question
stems from the availability of a postjudgment garnishment action
against the insurer in which the coverage question would be litigated.
While the insurer “could have accepted the protection of MCL
500.3030 . . . [which prohibits joiner of the insurance company in the
underlying tort action], and postponed litigation of the coverage
issue,” id. at 105, 245 N.W.2d 418 the insurer itself had raised the
coverage issue in its action for declaratory judgment, and had named
the injured party as a defendant in that action.Indeed, as a matter of
policy, the federal courts will decline the request for a declaration of
rights by the injured party when state law prevents an injured party
from filing a direct action against the insurer. See, e.g., Hunt v. State
Farm Mut. Automobile Ins. Co., 655 F. Supp. 284 (D. Nev.1987);
MacMillan-Bloedel, Inc. v. Firemen’s Ins. Co., 558 F. Supp. 596 (S.D.
Ala. 1983); Hoosier Casualty Co. v. Fox, 102 F. Supp. 214 (N.D.
Iowa 1952).
But the policy underlying this principle has no relevance where
the injured party is made co-defendant with the insured in an action
instituted by the insurance company. Since the insurance company has
initiated the action, the indemnity nature of its relationship with the
insured cannot be hidden from the trier of the facts, and it has itself
1
See Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995) (“[D]istrict courts
possess discretion in determining whether and when to entertain an action under the
Declaratory Judgment Act.”); Forest Hills Co-op. v. City of Ann Arbor, – N.W.2d –, 2014
WL 2619586 (Mich. Ct. App. 2014) (quoting Hayes, 442 Mich. at 74) (“Assuming the
existence of a case or controversy within the subject matter of the court, the determination
to make such a declaration is ordinarily a matter entrusted to the sound discretion of the
court.”).
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seen fit to reveal the relationship. [6A Moore, Federal Practice (2d
ed.) ¶ 57.19, p. 57-205.]
Hayes, 499 N.W.2d at 749 n.13 (brackets in original, emphasis removed). This
Court has reviewed the three cases cited in the above quote. Those cases also
signal that the issue being discussed in footnote 13 of the Hayes Court’s decision
was not whether an injured party may bring a declaratory judgment action against
the tortfeasor’s insured for coverage, but whether a court should exercise its
discretion to make such a declaration and the timing of such an action.2
In fact, as made clear to the Court at the motion hearing, State Farm is
2
In Hunt, the District Court for the District of Nevada declined to exercise its
discretion in a declaratory judgment action brought by the wife of an injured party against
the alleged tortfeasor’s insurer regarding coverage for her loss of consortium claim
because she had not filed such a claim against the tortfeasor and the tortfeasor’s insurer
had never taken the position that it would not indemnify the plaintiff if she prevailed. 655
F. Supp. at 285, 287. Thus the court declined to adjudicate the plaintiff’s request for
declaratory relief because it was not evident to the district court that an actual controversy
existed. Id. at 286. In MacMillan-Bloedel, Inc., the District Court for the Southern
District of Alabama declined to entertain the injured party’s declaratory judgment action
concerning coverage where the insurer was defending the alleged tortfeasor in the
underlying action and Alabama law expressly provided that a court should exercise its
authority to grant or deny coverage by the insurer only after the injured party recovered a
judgment against the insured. 558 F. Supp. at 597-98. In that case as in Hunt, there did
not appear to be an actual, existing controversy to justify the court’s exercise of
jurisdiction. In fact, the court specifically referred to the Fifth Circuit’s admonishment
that district courts should avoid “sitting in judgment of questions which may never in fact
come to pass.” Finally in Fox, the District Court for the Northern District of Iowa
concluded that the injured parties could not bring a cross-claim against the torfeasor and a
counterclaim against his insurer in the insurer’s declaratory judgment action concerning
coverage, finding that such direct actions are prohibited and that state law also made the
recovery of a judgment against the tortfeasor a condition precedent to an action against
the insurer. 102 F. Supp. at 223.
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relying on this footnote in Hayes and its citation to Daniels, supra, to raise an
entirely new argument in its reply brief than the one asserted in its initial motion
(i.e. that Scott’s action is barred under Michigan Compiled Laws Section
500.3030). At oral argument, State Farm’s counsel referred several times to
Scott’s “lack of standing” to bring this declaratory judgment action. This is an
argument arising under constitutional principles, however, not section 500.3030.
It is well established that a reply brief is not the proper place to raise new
arguments. See, e.g., Scottsdale Ins. Co. v. Flowers, 313 F.3d 546, 553 (6th Cir.
2008) (citing cases).
V.
Conclusion
In short, for the reasons stated, the Court concludes that the plain language
of section 500.3030 only bars an injured party from naming the alleged tortfeasor’s
insurer as a defendant in the underlying action. The statute does not bar the injured
party from naming the insurer in a separate lawsuit seeking declaratory relief with
respect to coverage. This is the only issue properly presented to the Court in State
Farm’s motion.
Accordingly,
IT IS ORDERED, that Defendant State Farm Fire & Casualty Company’s
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Motion for Summary Judgment [ECF No. 15] is DENIED.
S/ Linda V. Parker
LINDA V. PARKER
U.S. DISTRICT JUDGE
Dated: July 7, 2014
I hereby certify that a copy of the foregoing document was mailed to counsel of
record and/or pro se parties on this date, July 7, 2014, by electronic and/or U.S.
First Class mail.
S/ Richard Loury
Case Manager
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