ELLIOTT v. AMERICAN STATES INSURANCE COMPANY

Filing 26

MEMORANDUM OPINION AND ORDER. Signed by JUDGE N. C. TILLEY, JR. on 3/17/2017, that Plaintiff Loretta Elliott's Motion to Remand (Doc. # 13 ) is DENIED. (Daniel, J)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
LORETTA T ELLIOTT,
Plaintiff,
v.
AMERICAN STATES INSURANCE
COMPANY,
Defendant.

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1:16CV1175

MEMORANDUM OPINION AND ORDER
This matter is before the Court on Plaintiff Loretta T Elliott’s Motion to
Remand [Doc. #13] in which she argues that Defendant American States Insurance
Company’s Notice of Removal is untimely under 28 U.S.C. § 1446(b) and that,
because the parties are both citizens of North Carolina, there is no diversity
jurisdiction under 28 U.S.C. § 1332. For the reasons explained below, the motion
is denied.
I.
On August 9, 2016, Elliott, a citizen of North Carolina, filed this action
against American States Insurance Company (“American States”), a corporation
organized under the laws of Indiana with its principal place of business in
Massachusetts, in Durham County Superior Court alleging unfair and deceptive
trade practices under North Carolina law. (See generally Compl. [Doc. #7]; Notice
of Removal ¶ 4.b. [Doc. #1].) The suit stems from a January 2013 automobile
accident involving Elliott and another driver in which Elliott sustained injuries.

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(Compl. ¶¶ 3-7.) After Elliott received payments from State Farm, the other
driver’s insurer, and from American States, her provider of underinsured motorist
(“UIM”) coverage, she instituted this action alleging that American States (1) did
not act in good faith to settle Elliott’s UIM claim, (2) attempted to settle for an
amount less than her UIM coverage, and (3) compelled her to institute litigation to
recover amounts due under her UIM policy – each act constituting an unfair and
deceptive trade practice in violation of North Carolina law. (Id. ¶¶ 10-23.)
II.
The parties agree that Elliott served the Complaint and Summons on North
Carolina’s Commissioner of Insurance on August 12, 2016, that American States
received the Complaint and Summons from the Commissioner of Insurance on
August 24, 2016, and that American States removed the action to this Court on
September 23, 2016. (See Proof of Acceptance of Service by Gloria H. Glasco, Ex.
2 to Notice of Removal [Doc. #1-2] & Ex. A to Mot. to Remand [Doc. #13-1]; CSC
Notice of Service of Process, Ex. 2 to Notice of Removal [Doc. #1-2]; Petition for
Removal [Doc. #1]; Br. in Supp. of Pl.’s Mot. to Remand [Doc. #14] at 2; Def.’s
Br. in Opp’n [Doc. #17] at 2-3.) The parties disagree as to which date triggered
the thirty-day removal period under 28 U.S.C. § 1446(b). Elliott contends that the
operative date is August 12 in which case the notice of removal is untimely, while
American States argues the operative date is August 24 in which case its notice of
removal is timely.

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28 U.S.C. § 1446(b) directs that “[t]he notice of removal of a civil action or
proceeding shall be filed within 30 days after the receipt by the defendant, through
service or otherwise, of a copy of the initial pleading setting forth the claim for
relief upon which such action or proceeding is based . . . .” Citing Murphy
Brothers, Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344 (1999) and Barbour v.
International Union, 640 F.3d 599 (4th Cir. 2011), Elliott argues that this provision
is straightforward when there is a single defendant, as here. (Br. in Supp. of Pl.’s
Mot. to Remand at 3-4.) American States’ “time to remove is triggered by
simultaneous service of the summons and complaint”, which occurred, according
to Elliott, on August 12, 2016. (Id. at 4.)
On the other hand, American States relies primarily on Gordon v. Hartford
Fire Insurance Co., 105 F. App’x 476, 480 (4th Cir. 2004) (unpublished), in which
the Fourth Circuit held that “[w]hen service is effected on a statutory agent [which
the North Carolina Commissioner of Insurance is, according to American States],
rather than on an agent appointed by the defendant, the time to remove the action
to federal court does not start to run until the defendant actually has received a
copy of the complaint.” (Def.’s Br. in Opp’n at 3-6.) Elliott denies that the removal
statute permits such an interpretation and argues that, even if it did, the North
Carolina Commissioner of Insurance is not American States’ statutory agent.
In North Carolina, a foreign insurance company may be licensed to do
business when, among other requirements, it “[f]iles with the Commissioner an
instrument appointing the Commissioner as the company’s agent on whom any
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legal process under G.S. 58-16-30 may be served.” N.C. Gen. Stat. § 58-165(10). According to its Notice of Removal, American States is incorporated in
Indiana with its principal place of business in Massachusetts. (Notice of Removal at
¶ 4.b.) As such, to do business in North Carolina, it filed an instrument appointing
the North Carolina Commissioner of Insurance as its agent for service of process,
pursuant to statute. (Appointment, Ex. 1 to Reply Br. in Supp. of Pl.’s Mot. to
Remand [Doc. 19-1].) To determine whether the Commissioner of Insurance is
American States’ statutory agent, the Court looks to Gordon and other instructive
cases.
Just as in North Carolina, the Maryland law applicable in Gordon requires
foreign insurance companies who offer insurance in Maryland “to have the
Maryland Insurance Administration . . . serve as their statutory agent for the
delivery of complaints.” 105 F. App’x at 480 (citing Md. Code Ann., Ins. § 4-107
(“[E]ach insurer applying for a certificate of authority must appoint the
Commissioner as attorney for service of process issued against the insurer in the
State.”)) (emphasis added). The Fourth Circuit’s characterization of the Maryland
Commissioner of Insurance as the defendant insurance company’s “statutory
agent”, along with the similarities between the Maryland and North Carolina
statutes requiring appointment of the Commissioners of Insurance as agents for
service of process on foreign insurers, support a finding that the North Carolina
Commissioner of Insurance is American States’ statutory agent. See also, e.g.,
Tucci v. Hartford Fin. Servs. Grp., Inc., 600 F. Supp. 2d 630 (D.N.J. 2009) (citing
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N.J. Stat. Ann. § 17:32-2(c) which requires a foreign insurance company seeking
to do business in New Jersey to permit legal process to be served on the
commissioner and characterizing the New Jersey Commissioner of Banking and
Insurance as the defendant’s statutory agent); Skidaway Assocs., Ltd. v. Glens
Falls Ins. Co., 738 F. Supp. 980 (D.S.C. 1990) (noting that the plaintiff served the
South Carolina Department of Insurance “in accordance with South Carolina law”,
distinguishing “between agents designated by statute and agents designated and
selected by a party to receive process”, and characterizing the South Carolina
Commissioner of Insurance as the defendant’s statutory agent).
Having concluded that the North Carolina Commissioner of Insurance is
American States’ statutory agent, the next step is to determine if service on a
statutory agent begins the thirty-day time period for removal. The only Fourth
Circuit opinion to address the question is Gordon in which the court found that
service on the statutory agent did not trigger the time period for removal. 105 F.
App’x at 481. Although it is an unpublished opinion, it is in line with “the
overwhelming majority of district courts to consider the question”. Id. at 480-81
(citing Lilly v. CSX Transp., Inc., 186 F. Supp. 2d 672 (S.D.W. Va. 2002),
Hibernia Cmty. Dev. Corp. v. U.S.E. Cmty. Servs. Grp., Inc., 166 F. Supp. 2d 511
(E.D. La. 2001), Auguste v. Nationwide Mut. Ins. Co., 90 F. Supp. 2d 231
(E.D.N.Y. 2000), Monterey Mushrooms, Inc. v. Hall, 14 F. Sup. 2d 988 (S.D. Tex.
1998), Skidaway Assocs., Ltd., 738 F. Supp. 980); see also Tucci, 600 F. Supp.
2d at 632-33 (“Though there is no published circuit court opinion on the subject,
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the vast majority of courts to consider this question have held that the thirty-day
period for removal does not commence with service on a statutory agent, but
instead when the defendant receives the summons and complaint.”); 14C Charles
Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3731 (4th ed.
Oct. 2016 update) (“[I]t now appears to be settled law that the time for removal
begins to run only when the defendant or someone who is the defendant’s agentin-fact receives the notice via service, as prescribed in the Murphy Brothers case.”)
The Tucci court addressed an argument similar to the one that Elliott
advances here – that such a finding “is in conflict with” Murphy Brothers, Inc. In
Murphy Brothers, Inc., the issue before the Court was whether the period for
removal begins when the defendant receives a faxed courtesy copy of the
complaint before service of official process. 526 U.S. at 347. As the Tucci court
noted, “The Supreme Court was not asked, and did not address, the meaning of
the requirement that there be ‘receipt by the defendant,’ let alone whether formal
service on a statutory agent necessarily must start the removal period.” 600 F.
Supp. 2d at 635. Nevertheless, the Court’s recognition that Congress intended
section 1446(b) to afford defendants “adequate time” after receipt of the initial
pleading provides, as the Tucci court concluded, support for the “well-established
rule that the removal period begins not with service on a statutory agent, but with
receipt by defendants or their true agent”. Id. (citing Murphy Bros., Inc., 526 U.S.
at 351-54).

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Elliott also argues that such a finding conflicts with a statement that the
Fourth Circuit made in Barbour, a case involving the timeliness of removal when
there are multiple defendants. The court stated, “If a case involves a single
defendant, the operation of § 1446(b) is straightforward. The defendant must file
the notice of removal within thirty days of service.” 604 F.3d at 605. As with
Murphy Brothers, Inc., the issue of service on statutory agents was not before the
Barbour court, and nothing in the court’s aforementioned statement is undermined
by the conclusion that the time for removal is triggered when the defendant or its
agent-in-fact receives the summons and complaint.
The conclusion that service on a statutory agent does not begin the period
for removal also finds support in the comparison of a statutory agent with a
registered agent or agent-in-fact. “[S]tatutory agents are government officials who
are designated to receive service of process or other documents under state law.
These agents are not agents in fact, but . . . are merely mediums for the
transmission of important papers.” Val Energy, Inc. v. Ring Energy, Inc., No. 141327-RDR, 2014 WL 5510976, *2 (D. Kan. Oct. 31, 2014) (distinguishing
between resident agents appointed by foreign corporations and “true statutory
agents”); see also 14C Wright & Miller § 3731 (“Realistically speaking, of course,
statutory agents are not true agents but merely are a medium for transmitting the
relevant papers.”). “Statutory agents, unlike agents in fact, have both limited
purpose and limited power.” Tucci, 600 F. Supp. 2d at 633 (noting that statutory
agents “are not true agents but are merely a medium for transmitting the relevant
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papers”). These basic concepts are evident here where Elliott served the
Complaint and Summons on the North Carolina Commissioner of Insurance who
then forwarded the documents to American States. (See Notice of Removal, Ex.
2.) Only upon receipt on August 24, 2016 of the Complaint and Summons as
forwarded by the Commissioner could American States have known whether or not
the matter could be removed to federal court, which it did within thirty days on
September 23, 2016.
III.
Elliott next argues that the parties are not completely diverse and, thus, the
Court lacks jurisdiction under 28 U.S.C. § 1332. According to Elliott, because this
is a direct action against American States, pursuant to 28 U.S.C. § 1332(c)(1),
American States takes on the citizenship of its insured, Elliott – that of North
Carolina. (Br. in Supp. of Pl.’s Mot. to Remand at 4-5.) On the other hand,
American States asserts that this is not a direct action and, therefore, that its
citizenship is determined solely by its states of incorporation and principal place of
business – neither of which is North Carolina. (Def.’s Br. in Opp’n at 6-9; Notice of
Removal at 4.)
The determination of corporate citizenship pursuant to 28 U.S.C. §
1332(c)(1) often is straightforward – for purposes of 28 U.S.C. §§ 1332 and
1441, a corporation is deemed to be a citizen of every state in which it is
incorporated and of every state in which it has its principal place of business.
However, there is an exception to that rule. “[I]n any direct action against the
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insurer of a policy or contract of liability insurance . . . to which action the insured
is not joined as a party-defendant, such insurer shall be deemed a citizen of” every
state in which it is incorporated, every state in which it has its principal place of
business, and every state of which the insured is a citizen. 28 U.S.C. §
1332(c)(1)(A)-(C).
“[A] ‘direct action’ is a tort claim in which the insurer essentially stands in
the shoes of its legally responsible insured”. Rosa v. Allstate Ins. Co., 981 F.2d
669, 677 (2d Cir. 1992). It is “an action by an injured party against an insurer to
recover for damages caused not by the insurer but by its insured, who is not joined
in the action.” Eltsefon v. State Farm Mut. Auto. Ins. Co., 826 F. Supp. 2d 922,
925 (E.D. Va. 2011).
“This is in contrast to cases in which the injured party ‘seeks to hold the
insurer responsible for breaching the terms of its insurance policy or for its
independent tortious acts.’” Corn v. Precision Contracting, Inc., 226 F. Supp. 2d
780, 783 (W.D.N.C. 2002) (quoting Rosa, 981 F.2d at 677). In other words, “a
direct action would not include an action by the insured against the insurer based
on its independent wrongs.” Id. at 782 (citing Searles v. Cincinnati Ins. Co., 998
F.2d 728, 729-730 (9th Cir. 1993)). Unless “’the liability sought to be imposed
could be imposed against the insured, the action is not a direct action.’” Id.
(quoting Searles, 998 F.2d at 729). Compare Corn, 226 F. Supp. 2d at 783
(finding a direct action where the plaintiffs sued the alleged tortfeasor and its
liability insurer to determine the limits of the policy such that the insurer stood in
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the shoes of its insured) with U.S. Home Corp. v. Nationwide Mut. Fire Ins. Co.,
No. 1:15-cv-1464-GBL-JFA, 2016 WL 958348, *1, *5 (E.D. Va. Mar. 8, 2016)
(finding no direct action where the plaintiff sought a declaratory judgment against
its own insurer) and Porter v. Buck, No. 7:14CV00176, 2014 WL 3563415, *4
(W.D. Va. July 18, 2014) (finding no direct action where the plaintiff sought a
declaratory judgment against her own insurer) and Eltsefon, 826 F. Supp. 2d at
926 (finding no direct action where the plaintiffs sued the alleged tortfeasor’s
insurer for breach of oral agreement, fraud, and unjust enrichment) and
Cunningham v. Twin City Fire Ins. Co., 669 F. Supp. 2d 624, 628-29 (D. Md.
2009) (finding no direct action where the plaintiff sued the issuer of his former
employer’s workers compensation and liability insurance policies for intentional
misrepresentation and tortious interference) and Boyd v. Baird, No. 5:07CV25-V,
2008 WL 1724011, *3-5 (W.D.N.C. Apr. 10, 2008) (finding no direct action
where the plaintiff sued his own insurer for breach of contract and unfair and
deceptive trade practices).
Here, Elliott has not sued the alleged tortfeasor’s insurer to recover for
damages that she sustained as a result of the automobile accident. Instead, she
has sued her own insurer, American States, for unfair and deceptive trade
practices, a suit that is clearly not a direct action under section 1332(c)(1).
Elliott challenges this conclusion by arguing, among other things, that cases
distinguishing suits like hers from direct actions by analyzing legislative history
violate principles of statutory construction. (Br. in Supp. of Pl.’s Mot. to Remand at
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6-13.) Although she argues that the meaning of the phrase “in any direct action
against the insurer of a policy or contract of liability insurance” is clear and
unambiguous (id. at 11), the Boyd court recognized that “the statute’s purported
plain meaning is not ‘plain’ in application . . . [and that] it is entirely appropriate to
consider what Congress intended”, 2008 WL 1724011, at *3. It is not the only
court to make this conclusion or to have found support for the definition of a direct
action in the provision’s legislative history. See U.S. Home Corp., 2016 WL
958348, at *4 (discussing the legislative history of the direct action provision);
Eltsefon, 826 F. Supp. 2d at 925 (same); Cunningham, 669 F. Supp. 2d at 627
(same). This Court finds these cases persuasive.
IV.
In sum, American States timely removed this action by filing its notice of
removal within thirty days of its receipt on August 24, 2016 of the Complaint and
Summons. Furthermore, this Court has jurisdiction over the matter because the
parties are completely diverse and there are no other challenges to jurisdiction.
V.
For the reasons stated herein, IT IS HEREBY ORDERED that Plaintiff Loretta
Elliott’s Motion to Remand [Doc. #13] is DENIED.
This the 17th day of March, 2017.

/s/ N. Carlton Tilley, Jr.
Senior United States District Judge

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