Harris v. Peerless Indemnity Insurance Company
1:14-cv-01087
W.D. Tex.Mar 5, 2015Background
- Kenneth Harris was injured in a 2010 automobile collision caused by Lori Whitley; Whitley’s liability policy limit was $50,000 and Harris alleges extensive injuries.
- Harris sought underinsured motorist (UIM) benefits under his employer’s policy issued by Peerless Indemnity Insurance Company and sued Peerless in Texas state court asserting declaratory relief, breach of contract, Insurance Code claims, and bad-faith claims.
- Peerless removed the case to federal court based on diversity jurisdiction; Harris moved to remand, arguing Peerless should be deemed a Texas citizen under the “direct action” rule in 28 U.S.C. § 1332(c)(1).
- Harris’s position: in a direct action against an insurer the insurer is deemed a citizen of the insured’s state, and because the insured/employer is Texas, Peerless is Texas-citizen and diversity fails.
- Peerless’s position: § 1332(c)(1) does not apply because (1) Texas law does not permit the sort of direct action § 1332(c)(1) targets, and (2) suits by an insured against its own insurer are not “direct actions” under § 1332(c)(1).
- The magistrate judge concluded the suit is an action by an insured against his own insurer (not a direct action), Texas law bars direct actions against third‑party liability insurers, Peerless remains an Illinois citizen for diversity purposes, and recommended denial of remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 28 U.S.C. § 1332(c)(1) requires treating Peerless as a Texas citizen (defeating diversity) | Harris: This is a “direct action” against an insurer so insurer is deemed citizen of insured’s state; Peerless is Texas citizen | Peerless: § 1332(c)(1) targets direct actions against third‑party liability insurers; a suit by an insured against its own insurer is not a direct action; Texas law also does not permit direct actions | Court: Suit is by insured against its insurer, not a § 1332(c)(1) direct action; Peerless not deemed a Texas citizen; complete diversity exists; remand denied |
Key Cases Cited
- Northbrook Nat'l Ins. Co. v. Brewer, 493 U.S. 6 (U.S. 1989) (explaining purpose of § 1332(c)(1) to address direct actions against insurers)
- Fortson v. St. Paul Fire & Marine Ins. Co., 751 F.2d 1157 (11th Cir. 1985) (§ 1332(c)(1) not intended to defeat diversity in suits by insureds against their own insurers)
- Beckham v. Safeco Ins. Co., 691 F.2d 898 (9th Cir. 1982) (insured’s suit against own insurer is not a § 1332(c)(1) direct action)
- Barton v. Allstate Ins. Co., 729 F. Supp. 56 (W.D. Tex. 1990) (same)
- Ohio Cas. Ins. Co. v. Time Warner Entm’t Co., L.P., 244 S.W.3d 885 (Tex. App.—Dallas 2008) (Texas law does not recognize direct actions against a tortfeasor’s liability insurer before adjudication of the insured’s liability)