Butler v. Zurich American Ins. Co., 184 F. Supp. 2d 695 (N.D. Ohio 2002)

*696 Claudia A. Ford, E.J. Leizerman & Associates, LLC, Michael J. Leizerman, Law Office of E.J. Leizerman, Myron Duhart, Ronald F. Leonhardt, E.J. Leizerman & Associates, LLC, Toledo, OH, for Plaintiff.

Dale E. Markworth, Mansour Gavin Gerlack & Manos, David J. Fagnilli, Davis & Young, Cleveland, OH, for Defendants.

KATZ, District Judge.

This matter is before the Court on Plaintiff's motion to remand (Doc. No. 10) for lack of subject matter jurisdiction. For the following reasons, the motion will be granted, and the case remanded to the Court of Common Pleas for Lucas County, Ohio.

On November 9, 1999, in Toledo, Lucas County, Ohio, Plaintiff Lisa Butler suffered bodily injury when the vehicle in which she was a passenger collided with a utility pole. At the time of the accident Butler was employed by Wendy's Restaurant ("Wendy's"), and her father (not involved in the accident) was an employee of Reiter Automotive ("Reiter").

On October 30, 2001, Butler filed suit for benefits under policies of uninsured/underinsured motorist coverage ("UM/UIM") against Twin City Fire Insurance Company ("Twin City") and Zurich American Insurance Company ("Zurich") in the Court of Common Pleas for Lucas County, Ohio.^[2] Her suit was based on an insurance policy, issued by Twin City to Wendcentral Corporation, that insured Wendy's, and on a policy issued by Zurich to Reiter.

Butler claimed that she was entitled to coverage pursuant to the rule stated in Scott-Pontzer v. Liberty Mut. Fire Ins. Co., 85 Ohio St.3d 660, 710 N.E.2d 1116 (1999). Scott-Pontzer stands for the proposition that an employee may recover under the UM/UIM coverage of her employer's commercial automobile liability policy, even though the employee was not *697 acting in the scope of employment at the time of her accident. In Ezawa v. Yasuda Fire & Marine Ins. Co., 86 Ohio St.3d 557, 715 N.E.2d 1142 (1999), the Ohio Supreme Court, without comment, extended Scott-Pontzer to include coverage of the child of an employee of a corporation.

On December 14, 2001, purportedly pursuant to 28 U.S.C. § 1441(a) and 28 U.S.C. § 1332(a) (1), Twin City, with the consent of Zurich, removed the action to this Court.^[3] Twin City claimed that complete diversity between the parties existed because Butler was an Ohio resident, Twin City was an Indiana corporation with principal place of business in Indiana, and Zurich was a New York corporation with principal place of business in Illinois.

On December 27, 2001, Butler filed a motion to remand, claiming that complete diversity was destroyed by operation of 28 U.S.C. § 1332(c) (1), which, in certain situations, deems an insurance company to share the citizenship of its insured. If the statute were to operate as Butler suggests, Twin City would be a citizen of both Indiana and Ohio.^[4] Twin City opposed the motion, arguing that § 1332(c) did not apply. Butler filed a reply. The parties' contentions are addressed below.

Butler claims that diversity is destroyed by 28 U.S.C. § 1332(c) (1), which provides,

(c) For the purposes of this section and section 1441 of this title

(1) a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business, except that in any direct action against the insurer of a policy or contract of liability insurance, whether incorporated or unincorporated, 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, as well as of any State by which the insurer has been incorporated and of the State where it has its principal place of business.

28 U.S.C. § 1332(c) (1).

The Supreme Court has noted that the so-called "direct action exception" to diversity jurisdiction was enacted in an effort to trim the burgeoning dockets of district courts in Wisconsin and Louisiana, both of which were experiencing increased diversity filings due to state statutes that permitted an injured party to sue an instate tortfeasor's out-of-state insurer without joining the tortfeasor:

Believing that such suits did "not come within the spirit or the intent of the basic purpose of the diversity jurisdiction of the Federal judicial system," S.Rep. No. 1308, [88th Cong.2d Sess.], at 7, Congress enacted the proviso "to eliminate under the diversity jurisdiction of the U.S. district courts, suits on certain tort claims in which both parties are local residents, but which, under a State `direct action' statute, may be brought directly against a foreign insurance carrier without joining the local tort-feasor as a defendant[.]" id. at 1 (emphasis added).

Northbrook Nat'l Ins. Co. v. Brewer, 493 U.S. 6, 10, 110 S. Ct. 297, 299, 107 L. Ed. 2d 223 (1989).

Twin City argues that § 1332(c) (1) is inapplicable to Scott-Pontzer actions for two reasons. First, it contends that Butler's complaint does not constitute a "direct action." Second, it maintains that a policy providing UM/UIM coverage is not "a policy of liability insurance."

Twin City claims that the "universal rule for identifying direct actions" was set forth in Vargas v. California State Auto. Ass'n Inter-Insurance Bureau, 788 F. Supp. 462 (D.Nev.1992). In Vargas, the Court stated, "[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. This is the universal rule." Id. at 463 (citations omitted). If this rule were followed, then remand would clearly be inappropriate, since Twin City is not the tortfeasor's insurer.

Examination of recent decisions in the Northern District of Ohio demonstrates that the rule stated in Vargas is not universal. On October 19, 2001, Judge Polster ordered remand in Kormanik v. St. Paul Fire & Marine Ins. Co., No. 5:01CV2122 (N.D.Ohio Oct. 19, 2001), a Scott-Pontzer case with facts substantially similar to those in the instant case. In the wake of Kormanik, a number of other judges in the Northern District have adopted similar reasoning when remanding Scott-Pontzer cases. See Stubbins v. Nationwide Agribusiness, 181 F. Supp. 2d 805, (N.D.Ohio 2002) (Carr, J.) (collecting cases); Comella v. St. Paul Mercury Ins. Co., 177 F. Supp. 2d 704, (N.D.Ohio 2001) (O'Malley, J.); Kohus v. Hartford Ins. Co., No. 1:01CV01179 (N.D.Ohio Nov. 19, 2001) (Matia, C.J.); but see Redmon v. Sumitomo Marine Mgmt. (USA), Inc., 179 F. Supp. 2d 787 (N.D.Ohio 2001) (Aldrich, J.) (holding that Scott-Pontzer suit was not a direct action); Fidelity & Guar. Ins. Underwriters, Inc. v. Nocero, No. 1:01CV397 (N.D.Ohio Dec. 13, 2001) (Gaughan, J.) (same). Twin City recommends that this Court "disregard Kormanik as a poorly reasoned anomalous decision" (Brief in Opp. at 3).

In Kormanik, the court recognized that the United States Court of Appeals for the Sixth Circuit applied a broad reading to the applicability of § 1332(c) (1) in the context of no-fault insurance policies in Ford Motor Co. v. Insurance Co. of North America, 669 F.2d 421, 424-25 (6th Cir. 1982). The Ford court noted that "[m]ost courts which dealt with [§ 1331(c)] in the years immediately following its enactment tended to limit its application narrowly," id. at 424, but then stated that recent decisions in the Sixth Circuit had applied the jurisdiction-destroying section "more broadly than earlier decisions...." Id. The court cited with approval Aetna Cas. & Surety Ins. Co. v. Greene, 606 F.2d 123 (6th Cir. 1979), in which the Court of Appeals "made clear that application of [§ 1332(c)] is not limited to traditional tort actions." Ford, 669 F.2d at 424 (citing Greene, 606 F.2d at 126). The Ford court continued:

The impetus for the amendment [that resulted in the enactment of § 1332(c)] was the situation which resulted when Louisiana and Wisconsin departed from the traditional practice of treating the insured rather than the insurer as that real party in interest in automobile negligence cases. However, if its language encompasses other situations, we should not limit application of the amendment to the specific conditions which gave it birth....

[I]n one respect no-fault insurance operates in exactly the same way as the Louisiana and Wisconsin direct action statutes it permits a person claiming injury or damage arising from the ownership or use of a motor vehicle to sue the insurer rather than the owner or operator of the vehicle.... No-fault represents a latter-day attempt by the states to improve the mechanism for recovery by those injured or damaged in *699 accidents arising out of the use of motor vehicles.

Ford, 669 F.2d at 425-26.

Such is the case here. In Scott-Pontzer the Supreme Court of Ohio identified a rule that allows a tort victim to sue an insurer rather than a tortfeasor. Given the clear language of § 1332(c) and the Sixth Circuit's expansive interpretation of that language, Butler's Scott-Pontzer suit against Twin City is a direct action.

Having determined that a Scott-Pontzer action is a "direct action," the Court must now decide whether an insurance policy providing UM/UIM coverage is "a policy of liability insurance" within the meaning of § 1331(c). Twin City argues that it is not, since UM/UIM does not conform with the definition of "liability insurance" adopted by the Sixth Circuit in Greene:

The term "liability insurance" is applied to contracts which provide for indemnity against liability.... Liability insurance is that form of insurance by which the insured is indemnified against loss or liability on account of bodily injuries sustained by others, ... or in a broader sense, against loss or liability on account of injuries to property....

Greene, 606 F.2d at 126 (quoting Vines v. United States Fidelity & Guar. Co., 267 F. Supp. 436, 437-38 (E.D.Tenn.1967)).

On this issue the Court agrees with the reasoning in Comella v. St. Paul Mercury Ins. Co., 177 F. Supp. 2d 704, (N.D.Ohio 2001):

With regard to the defendants' assertion that, because the [plaintiffs] seek UM/UIM coverage and not "liability coverage," the statute does not apply, all of the cases cited by the defendants are factually distinct. In every case cited by the defendants, a plaintiff sued his own insurer for an alleged failure to provide UM/UIM coverage, pursuant to a contract between them, signed by the plaintiff. .... In both the instant case and in Ford, state law allows a plaintiff to sue directly an otherwise unobligated insurer to recover the tortfeasor's liability.

Id. at 708, quoted in Stubbins, at 807. Scott-Pontzer creates an obligation sufficiently in the nature of liability insurance to be included in § 1332(c).

Butler has brought a direct action against an insurer on a policy of liability insurance without joining the insured as a party defendant. Pursuant to 28 U.S.C. § 1332(c) (1), Twin City Fire Insurance Company must be deemed a citizen of the state of which its insured is a citizen. Twin City has acknowledged that Butler's employer, WENDTOLE LLC, is an Ohio LLC and an insured under the policy upon which this suit is based. (Opp. at 2). Twin City Fire Insurance Company must therefore be deemed a citizen of Ohio. Because Butler is also a citizen of Ohio, complete diversity does not exist between the plaintiff and the defendant, and this Court has no basis for subject matter jurisdiction.

Plaintiff's motion for remand (Doc. No. 10) will be granted, and the matter remanded to the Court of Common Pleas for Lucas County, Ohio.

IT IS SO ORDERED.

For the reasons stated in the Memorandum Opinion filed contemporaneously with this entry, IT IS HEREBY ORDERED, ADJUDGED, and DECREED that Plaintiff's motion for remand (Doc. No. 10) is Granted;

*700 FURTHER ORDERED that this matter is remanded to the Lucas County Court of Common Pleas.

[1] The parties have agreed to these facts only for decision on the motion to remand.

[2] Butler originally brought suit against "The Hartford," an umbrella organization encompassing a number of insurance companies. The answer and notice of remand filed by The Hartford were amended by interlineation on January 14, 2001, to reflect that Twin City is the proper defendant in this case.

[3] From this point the Defendants will be collectively referred to as "Twin City."

[4] Butler's alleged employer is an Ohio LLC.