Russell v. Liberty Insurance Underwriters, Inc., No. 18-2984 (8th Cir. 2020)
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Russell, Daniel, and Carson co-owned a business. Under a succession plan, the company was to purchase life insurance. If a shareholder died, the company would use the proceeds to buy the deceased shareholder’s stock. Daniel died. The company received insurance proceeds and kept the money. Elizabeth, Daniel’s widow, sued Russell and Carson for conversion and breach of fiduciary duty. A Kansas court issued a judgment against Russell for $822,900.77. Russell and Carson had expected Liberty to defend and indemnify them under their Directors, Officers and Company Liability Coverage and Fiduciary Liability Coverage. Liberty cited a “Personal Profit Exclusion” for claims based upon "gaining ... any profit, remuneration or financial advantage” to which they are “not legally entitled” and a “Contract Exclusion” regarding claims "attributable to any actual or alleged liability under or breach of any contract.” Russell and Carson sued Liberty in Missouri state court for bad-faith. Elizabeth joined the suit. Liberty, a corporate citizen of Massachusetts and Illinois, removed the case to federal court. Russell and Carson sought remand, arguing that in “direct action[s]” against insurers, the insurer takes the citizenship of those it insures, 28 U.S.C. 1332(c)(1); if the Trust’s equitable garnishment claim was a direct action, Liberty shared Russell’s Missouri citizenship.
The district court held that the equitable garnishment claim required Russell as a defendant, but Russell’s bad-faith claim required him as a plaintiff. The court severed the suit: Russell and Carson could sue for bad-faith failure to defend and indemnify; the Trust could separately sue Liberty and Russell. The Eighth Circuit affirmed summary judgment on the bad faith claim. Because the Missouri statutory claim is not a direct action, complete diversity exists. The district court had jurisdiction over the bad-faith claim. The policy exclusions applied.
Court Description: [Grasz, Author, with Shepherd and Kobes, Circuit Judges] Civil case - Insurance. The plaintiff Trust's equitable garnishment claim, brought under Section 379.200 of the Missouri Revised Statutes was not a "direct action" for purposes of determining jurisdiction under 28 U.S.C. Sec. 1332(c)(1), and the district court did not err in denying defendant's motion to remand the removed matter to state court; under Kansas law the Directors & Officers coverage in the disputed policy did not cover Russell and J. Carson's conduct; nor did the district court err in determining the Fiduciary Coverage did not provide coverage.
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