Harris v. Peerless Indemnity Insurance Company

Filing 11

REPORT AND RECOMMENDATIONS re 7 Motion to Remand to State Court filed by Kenneth Harris. Signed by Judge Andrew W. Austin. (td)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
KENNETH HARRIS,

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V.
PEERLESS INDEMNITY
INSURANCE COMPANY

A-14-CV-1087-LY

REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
TO:

THE HONORABLE LEE YEAKEL
UNITED STATES DISTRICT JUDGE
Before the Court are Plaintiff’s Memorandum in Support of Motion to Remand (Dkt. No. 7);

and Defendants’ Response (Dkt. No. 8). The District Court referred the above motion to the
undersigned Magistrate Judge for a report and recommendation pursuant to 28 U.S.C. §636(b) and
Rule 1(c) of Appendix C of the Local Rules of the United States District Court for the Western
District of Texas, Local Rules for the Assignment of Duties to United States Magistrate Judges.
I. GENERAL BACKGROUND
Plaintiff Kenneth Harris (“Harris”) was injured in a motor vehicle collision on November 5,
2010, caused by Lori Whitley (“Whitley”), in which Harris sustained “extensive personal injuries.”
(Dkt. No. 7). Whitley maintained an automotive liability policy with a liability limit of $50,000.
Harris’ employer, Russell & Traugott Painting & Decorating Ltd., maintained a motor vehicle policy,
Policy No. BA 8325449 (“Policy”), with Peerless Indemnity Insurance Company (“Peerless”), which
provided underinsured motorist coverage for the vehicle Harris was operating at the time of the
collision. Id. Alleging that the $50,000 liability limit on Whitley’s policy rendered Whitley
“underinsured” for the damages she caused Harris, on October 30, 2014, Harris sued Peerless in the

200th District Court of Travis County, Texas, seeking underinsured motorist benefits under the
Policy. See Harris v. Peerless Indemnity Insurance Company, D-1-GN-14-4563, in the 200th District
Court of Travis County Texas, Dkt No. 1, Exh. A. In his state court Original Petition, Harris
requests a judgment pursuant to Chapter 37 of the Texas Civil Practice and Remedies Code declaring
that Lori Whitley is an underinsured motorist, and that Harris’ damages fall within the coverage
afforded by the Policy. Harris also claims: breach of duty of good faith and fair dealing; violations
of the Texas Insurance Code §§ 541.060 and 542.051 et seq.; and breach of contract. Id.
On December 9, 2014, Peerless removed the case to federal court on the basis of diversity.
Harris now moves to remand, asserting that pursuant to 28 U.S.C. § 1332(a)(1)(A)1, in a direct action
against an insurer, the insurer is deemed to be a citizen of the state of which the insured is a citizen.
Harris argues, that because he and his employer, Russell & Traugott Painting & Decorating Ltd., are
both citizens of Texas, Peerless should also be deemed a Texas citizen. Peerless responds that: (1)
Texas law does not permit the direct actions contemplated in 28 U.S.C. § 1332(c)(1)(A); (2) an
uninsured/underinsured insurance policy is not “liability insurance” under § 1332; and (3)
§ 1332(c)(1) is applicable only to suits against a third-party tortfeasor’s insurance carrier. Dkt. No.
8 at 1.
II. ANALYSIS
There are two principal bases upon which a district court may exercise removal jurisdiction:
the existence of a federal question, and complete diversity of citizenship between the parties. 28
U.S.C. §§ 1331 and 1332. Here, Peerless alleges diversity of citizenship as the basis of the Court’s

1

Harris incorrectly refers to 28 U.S.C. § 1332(a)(1)(A).
§ 1322(c)(1)(A).
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The correct subsection is

jurisdiction.

A federal court may exercise diversity jurisdiction after removal only if three

requirements are met: (1) the parties are of completely diverse citizenship, see 28 U.S.C. § 1332(a);
(2) none of the properly joined defendants is a citizen of the state in which the case is brought, see 28
U.S.C. § 1441(b)(2); and (3) the case involves an amount in controversy of more than $75,000, see
28 U.S.C. § 1332(a). Harris alleges that there is no diversity jurisdiction in this case because Peerless
qualifies as a Texas citizen pursuant to the “direct action” exception set out in 28 U.S.C.
§ 1332(c)(1).
Under § 1332(c)(1), in “direct actions” against an insurer in which the insured is not joined
as a defendant, the insurer is deemed not only to be a citizen of its state of incorporation and of its
principal place of business but also of the state of which its insured is a citizen. 28 U.S.C.
§ 1332(c)(1). Congress enacted this provision to eliminate the basis for diversity in states that allow
injured parties to seek damages from an insurance company without joining the insurance company’s
insured as a party-defendant. Northbrook Nat'l Ins. Co. v. Brewer, 493 U.S. 6, 9 (1989); Fortson v.
St. Paul Fire and Marine Ins. Co., 751 F.2d 1157, 1159 (11th Cir. 1985); see also Adams v. State
Farm Mut. Auto. Ins. Co., 313 F.Supp. 1349, 1352 (N.D. Miss. 1970) (noting that Congress did not
intend for § 1332(c)(1) to apply to suits by an insured against his own insurer).
An insured person’s suit against his insurer, such as this suit, is not a “direct action,” and
therefore “the section 1332(c)(1) direct action provision does not preclude diversity jurisdiction.”
Blankenship v. Sentry Ins. Co., 1995 WL 861099, *1 (S.D. Tex. 1995) (citing Beckham v. Safeco
Ins., Co., 691 F.2d 898, 901–02 (9th Cir. 1982)); Guerrero v. State Farm Mut. Auto. Ins. Co., 181
F.3d 97, 1999 WL 346977 at FN. 1 (5th Cir. 1999) (stating that 28 U.S.C. § 1332(c)(1) was “not
intended to thwart diversity in suits between an insured and the insured’s own insurance company”);

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Peace Tabernacle v. Nationwide Property & Casualty Ins. Co., No H–10–2363, 2010 WL 4583125,
*3–4 (S.D. Tex. Nov.4, 2010); Barton v. Allstate Ins. Co., 729 F.Supp. 56, 57 (W.D. Tex. 1990);
Fortson, 751 F.2d at 1159.
Additionally, Texas law does not permit direct actions against third-party liability insurers
to which the direct action provision of 28 U.S.C. § 1332(c)(1) could apply. Ohio Cas. Ins. Co. v.
Time Warner Entertainment Co., L.P., 244 S.W.3d 885, 888 (Tex. App. – Dallas 2008, pet. denied)
(holding that, in Texas, a “tort claimant has no direct cause of action against the tortfeasor’s liability
insurer until the insured-tortfeasor is adjudged liable to the tort claimant.”).
Harris is not bringing suit against a third-party liability insurer. Rather, Harris’ suit is an
action by him against his own insurance company. Thus, this suit is not a direct action under the
meaning of 28 U.S.C. § 1332(c)(1). Consequently, Peerless is an Illinois citizen for the purposes of
diversity jurisdiction, and the complete diversity requirement of federal jurisdiction is satisfied,
rendering remand to state court improper.
III. RECOMMENDATION
Based upon the foregoing, the undersigned RECOMMENDS that the District Court DENY
Plaintiff’s Motion to Remand (Dkt. No. 7).
IV. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing
objections must specifically identify those findings or recommendations to which objections are
being made. The District Court need not consider frivolous, conclusive, or general objections. See
Battle v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).

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A party’s failure to file written objections to the proposed findings and recommendations
contained in this Report within fourteen (14) days after the party is served with a copy of the Report
shall bar that party from de novo review by the District Court of the proposed findings and
recommendations in the Report and, except upon grounds of plain error, shall bar the party from
appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the
District Court. See 28 U.S.C. § 636(b)(1)(c); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass
v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).
To the extent that a party has not been served by the Clerk with this Report &
Recommendation electronically pursuant to the CM/ECF procedures of this District, the Clerk is
directed to mail such party a copy of this Report and Recommendation by certified mail, return
receipt requested.
SIGNED this 5th day of March, 2015.

_____________________________________
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE

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