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Eleventh Circuit Clarifies Meaning of "Direct Action" Against Insurer under Federal Diversity Statute
Practical Law Legal Update 7-567-9058 (Approx. 4 pages)
Eleventh Circuit Clarifies Meaning of "Direct Action" Against Insurer under Federal Diversity Statute
by Practical Law Litigation
| Published on 13 May 2014 • USA (National/Federal) |
In Kong v. Allied Professional Insurance Co., the US Court of Appeals for the Eleventh Circuit clarified the meaning of a "direct action" against an insurer under 28 U.S.C. § 1332(c) for the purpose of determining whether federal diversity jurisdiction exists, and affirmed the district court's denial of a motion for remand where state law required the plaintiff to first secure a judgment in state court against the insured before seeking to collect monies from his insurer.
On May 9, 2014, in Kong v. Allied Professional Insurance Co., the US Court of Appeals for the Eleventh Circuit clarified the meaning of a "direct action" against an insurer under 28 U.S.C. § 1332(c) for the purpose of determining whether federal diversity jurisdiction exists, and affirmed the district court's denial of a motion for remand where state law required the plaintiff to first secure a judgment in state court against the insured before seeking to collect monies from his insurer (No. 13-12305, (May 9, 2014)).
Joanne Kong was injured during a massage. She sued the massage therapist, Patricia Costello, who tendered the claim to her insurance provider, Allied Professional Insurance Company (Allied). Allied denied the claim. After learning of the denial, Kong and Costello agreed to the entry of a stipulated judgment in favor of Kong, but Kong agreed not to collect on the judgment against Costello. Costello then assigned to Kong the right to collect any insurance monies from Allied. Kong filed a case against Allied to collect on the judgment in Florida state court. Allied removed the case to the United States District Court for the Middle District of Florida on the basis of diversity jurisdiction, claiming that it was incorporated in Arizona and had offices in Arizona and California, while Kong was a Florida citizen.
Kong moved to remand the case to state court, arguing that the action was a "direct action" against Allied under Florida law and 28 U.S.C. § 1332(c), which imputes the insured's citizenship to the insurer in a direct action by the injured party against an insurer. Thus, according to Kong, because Costello was a citizen of Florida, Allied was as well. The district court, however, rejected Kong's argument and denied the motion to remand, finding that there was complete diversity. While another suit on the matter was pending in California, Kong again moved to remand the case, and was again denied. Kong appealed.
The Eleventh Circuit affirmed the district court's finding that it had diversity jurisdiction, concluding that:
- Although 28 U.S.C. § 1332(c) does not define what constitutes a direct action for purposes of determining diversity, other courts and leading treatises have uniformly defined the term to mean those cases in which a party suffering injury is entitled to bring suit against the liability insurer of the person who caused the injury, without joining that person or first obtaining a judgment against him.
- The legislative history of 28 U.S.C. § 1332(c) supports this definition of a direct action.
- A key feature of a direct action under 28 U.S.C. § 1332(c) is and has always been the plaintiff's ability to skip suing the tortfeasor and sue his insurer instead.
Because Florida law required Kong to first secure a judgment against Costello, which Kong in fact secured, the Eleventh Circuit found that Kong's claim against Allied was not a direct action under 28 U.S.C. § 1332(c), and thus, Allied was not a Florida citizen. As a result, complete diversity jurisdiction existed and denial of Kong's motion for remand was proper.