Jаmes G. Davis Construction Corporation (“Davis”) is a Virginia corporation with its principal place of business in Maryland. Erie Insurance Exchange (“Erie”) is a commercial insurance provider formed as an unincorporated association in Pennsylvania.
I.
A party may move to dismiss a case for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) or Rule 12(b)(6) of the Federal Rules of Civil Procedure. A Rule 12(b)(1) motion places the district court in the role of a fact finder for the limited purpose of assessing disputes over allegations critical to establishing subject matter jurisdiction. When the movant contests.the truth of the complaint’s jurisdictional allegations, the district court may “go beyond the allegations of the complaint and in an evidentiary hearing determine if there are facts to support the jurisdictional allegations.” Adams v. Bain,
In contrast, when a Rule 12(b)(6) motion is filed, the plaintiff has procedural advantages not present in the Rule 12(b)(1) context: “[T]he facts аlleged in the complaint are taken as true, and the motion must be denied if the complaint alleges sufficient facts to invoke subject matter jurisdiction.” Kerns v. United States,
In its apparent haste to submit its Motion, Erie failed to specify its procedural line of attack, stating only that it moves pursuant to Rule “12(b).” The Court’s review of the pleadings, however, suggests that Erie intended to submit its Motion pursuant to Rule 12(b)(1) since Erie disputes Davis’s key jurisdictional allegation that Erie is a “corporation,” and offers evidence pertaining to the nature and locаtion- of its business. For its part, Davis has submitted information it learned about Erie from the Maryland State Department of Assessments and Taxation. The Court, therefore, analyzes Erie’s Motion as made pursuant to Rule 12(b)(1).
H.
, [5,6] Federal district courts have original jurisdiction in all civil actions where the amount in controversy exceeds $75,000 and the adverse parties are “diverse,” i.e., citizens of different States. 28 U.S.C. § 1332. - Diversity of citizenship must be “complete,” meaning that “no plaintiff may be a citizen of the same state as any defendant.” Ware v. Jolly Roger Rides,
The parties agree that Erie is an unincorporated association, and that “[a]s an unincorporated association, a reciprocal insurance exchange is considered to have the citizenship of its members for diversity purposes in federal court.” True v. Robles,
The jurisdictional dispute in this case turns on a single question: Who are Erie’s “members”? Erie argues that its members are its policyholders and, because it has policyholders in both Virginia and Maryland, Erie has common citizenship with Davis. Complete diversity, says Erie, is therefore lacking.
Davis asserts that Erie’s citizenship is its state of formation which, in this case, is Pennsylvania. While Erie may have policyholders in Virginia and Maryland, Davis contends that the policyholders are not Erie’s “members” for purposes of establishing diversity jurisdiction; instead, the policyholders are merely Erie’s “customers.”
This question has split federal judges in this District and beyond. On the one hand, now retired-judge Benson Everett Legg has held that “Erie’s individual policyholders are its customers, not its members.” Erie Insurance Exchange v. Davenport Insulation, Inc.,
This Court holds that Erie’s members include its policyholders, hence complete diversity of citizenship between Davis and Erie’s members is required before federal jurisdiction will obtain.
Some background about reciprocal insurance exchanges is in order. A reciprocal insurance exchange is an unincorporated association of persons or еntities, referred to as “subscribers,” who exchange risks among themselves. 1 Jeffrey E. Thomas, New Appleman on Insurance Law Library Edition § 1.08[4][e]. The goal of the exchange is for an individual or entity to obtain insurance by
This backgrоund, in the Court’s view, demonstrates why Davis’ analysis is more persuasive than Judge Legg’s analysis. In a reciprocal insurance exchange, there is no distinction between policyholders (or “customers”) and insurers (or “underwriters”). Indeed, one of the key identifying components of a reciprocal insurance exchange is that all of the policyholders are also providers of insurance to each other (or “subscribers”). Thus, “when a disgruntled policyholder sues the reciprocal, he is suing not so much the entity as he is his fellow individual members of that entity.” Baer v. United Services Automobile Association,
Davis persists, arguing that Maryland statutory law and a case from the U.S. Court of Appeals for the Fifth Circuit, Royal Insurance Co. of America v. Quinn-L Capital Corp.,
Davis’ reliance on Maryland state law is a non-starter. Assuming that “state law might give an unincorporated association the capacity to suе or be sued as an entity, the citizenship of each of the members must still be considered for diversity purposes in federal court.” Lumbermen’s Underwriting Alliance v. Mobil Oil Corp.,
Royal is distinguishable because it involved a Lloyd’s plan, which is different than a reciprocal insurance exchange. See Appleman, supra, § 1.08[4][e] (warning that a reciprocal insurance exchange is “[n]ot to be confused with the Lloyd’s model of ‘insurance exchange’ ”). In a Lloyd’s plan, there is a clear distinction between the policyholders and the underwriters. See id. at 882 (“Under the Lloyd’s plan, the insured typically obtains insurance from one or more members of the Lloyd’s group [of underwriters]; each member accepts responsibility for a portion of the risk, and liability among the members is several but not joint.”). But that distinction between pоlicyholders and
Davis’ angst seems to derive from the perception that Erie has found a way to evade federal diversity jurisdiction by relying on the artifice оf the unincorporated association. To be sure, its frustration is shared by some members of Congress, who have proposed, to date unsuccessfully, modifying the diversity jurisdiction statute to capture entities the likes of Erie:
This rule “has been frequently criticized because often an unincorporated association is, as a practical matter, indistinguishable from a corporation in the same business.” Some insurance companies, for example, are “inter-insurance exchanges” or “reciprocal insurance associations.” For that reason, federal courts have treated them as unincorporated associations fоr diversity jurisdiction purposes. Since such companies are nationwide companies, they are deemed to be citizens of any state in which they have insured customers. Consequently, these companies cаn never be completely or even minimally diverse in any case. It makes no sense to treat an unincorporated insurance company differently from, say, an incorporated manufacturer for purposes of diversity jurisdiction. New subsection 1332(d)(10) corrects this anomaly.
Senate Judiciary Committee, Report on The Class Action Fairness Act of 2005, S.Rep. No. 109-14, at 46 (2005), reprinted in 2005 U.S.C.C.A.N. 3, 43. Be that as it may, until some such modification is enacted as law, this Court cannot find diversity as a basis for exercising its jurisdiction over this case or comparable cases.
The Motion to Dismiss (Paper No. 5) is GRANTED. A separate Order shall issue.
Notes
. The First Amended Complaint alleges that "Erie is a Pennsylvania corporation engaged in the commercial insurance business,” but at oral argument and in its papers, Davis through counsel acknowledged that Erie is an unincorporated association formed in Pennsylvania.
. Erie also argues that diversity jurisdiction is lacking because there is no amount in controversy asserted in the First Amended Complaint. This argument, while not fatal to Davis because' it is easily curable, is a moot point, given the Court’s resolution of Erie’s Motion on other grounds.
. Judge Legg relied on the reasoning of an opinion of another federal district court. See Garcia v. Farmers Insurance Exchange,
. Davis' reliance on Maryland state law is also curious, given that both sides agree that Erie is formed under and regulated according to Pennsylvania law.