It typically is a rather straightforward matter when an insurance company pleads diversity jurisdiction under 28 U.S.C. § 1332. In some instances, however, the question of a defendant's citizenship can be complicated – or even unknown. A recent decision by the U.S. Court of Appeals for the Ninth Circuit suggests how an insurer can plead diversity when it cannot reasonably ascertain the facts supporting jurisdiction.

The case

Carolina Casualty Insurance Company, an insurance company incorporated in Iowa and with its principal place of business in Florida, issued a corporate liability and directors and officers' liability insurance policy to U.S. Dry Cleaning Corporation. When Dry Cleaning purchased dry cleaning stores from Team Equipment, Inc., and two affiliated entities, it issued notes to Team Equipment for partial payment. Thereafter, Team Equipment sued Dry Cleaning and certain of its officers, directors, and affiliated entities to enforce the notes.

Carolina filed a complaint against Team Equipment, Dry Cleaning, and the other underlying defendants for a declaratory judgment that Carolina was not liable under Dry Cleaning's insurance policy. Its asserted basis of jurisdiction was diversity of citizenship under 28 U.S.C. § 1332.

The district court dismissed the complaint, without prior notice to Carolina, 17 days after it was filed, ruling that the insurer had “not adequately alleged the facts essential for … subject matter jurisdiction.” First, the district court observed that two of the entity defendants were limited liability companies, but that Carolina had not alleged the citizenship of the LLCs by alleging the citizenship of their members. As to the individual defendants, the district court noted that Carolina had alleged their states of residency and not their states of citizenship, as required for diversity jurisdiction. Finally, the district court observed that Carolina had made its allegations “on information and belief,” not on knowledge, and held that this was insufficient to allege jurisdiction.

Carolina moved to alter or amend the judgment under Federal Rule of Civil Procedure 59(e). As part of the motion, Carolina submitted a proposed amended complaint. Carolina advised the district court in its moving papers that it was unable to determine the citizenship of the LLCs because their organizational filings did not list their members. As a result, Carolina alleged simply that the members of the LLCs were “citizens of neither Iowa nor Florida.” As to the eight individual defendants, Carolina alleged that four of them were citizens of California and that four of them were citizens of neither Iowa nor Florida. Carolina continued to make its allegations on information and belief but made clear that the basis for its allegations was the four complaints or proposed complaints filed in the underlying action.

The district court denied the motion for reconsideration and held that the proposed amended complaint also suffered from jurisdictional defects. Carolina appealed.

The circuit court's Decision

The circuit court reversed.

The circuit court decided that because the information necessary to establish the diversity of the citizenship of some of the defendants was not reasonably available to Carolina, the district court should have permitted Carolina to plead its jurisdictional allegations as to those defendants on information and belief and without affirmatively asserting those defendants' citizenship. In the circuit court's opinion, Carolina had made a showing that at least some of the information necessary to establish the diversity of the parties' citizenship was within the defendants' control, and the circuit court decided that these amounted to “unusual circumstances” in which a party need not affirmatively allege the citizenship of an opposing party. In this situation, the circuit court held, “it was sufficient for Carolina to allege simply that the defendants were diverse to it.”

The case is Carolina Casualty Ins. Co. v. Team Equipment, Inc., Nos. 12–56203, 12–56235 (9th Cir. Feb. 4, 2014). Attorneys involved include: James K. Thurston, Melissa A. Murphy–Petros (argued), Wilson Elser Moskowitz Edelman & Dicker LLP, Chicago, IL, for Plaintiff–Appellant; Jonathan B. Sokol, Los Angeles, CA, for Defendant–Appellee Team Equipment, Inc.

FC&S legal comment

Other circuit courts also have adopted the principle that, at an early stage in the proceedings, a party should not be required to plead jurisdiction affirmatively based on actual knowledge. For example, in Medical Assurance Co. v. Hellman, 610 F.3d 371 (7th Cir.2010), the Seventh Circuit held that a plaintiff was permitted to plead on information and belief that the defendants were citizens of different states. The defendants could not object that the plaintiff had not proven their citizenship because they had not proffered any evidence rebutting the factual premise of the jurisdictional allegations, the circuit court reasoned. Instead, the Seventh Circuit held that the complaint could stand and the district court should reevaluate its jurisdiction if contrary information emerged later.

In Lewis v. Rego Co., 757 F.2d 66 (3d Cir.1985), the Third Circuit held that three of the four defendants were permitted to allege in a removal petition “on information and belief” that the fourth defendant, who had not joined the removal petition, was “not a citizen of Pennsylvania,” and that this was “sufficient to establish diversity jurisdiction.”

In these situations, when defendants respond to a complaint, the district court can revisit the jurisdictional allegations. If the defendants deny that the court has jurisdiction, the district court can evaluate the record created by the parties to determine its jurisdiction, perhaps finding that jurisdictional discovery is appropriate. See Harris Rutsky & Co. Ins. Servs., Inc. v. Bell & Clements Ltd., 328 F.3d 1122 (9th Cir.2003). Of course, even if the defendants concede jurisdiction, the district court still may conclude that some further showing of citizenship may be required to confirm its jurisdiction.

Finally, it should be acknowledged that if an insurer is unable to determine the residence of individual defendants, serving a complaint and summons on them also might pose a problem.

Originally published on FC&S Legal: The Insurance Coverage Law Information Center. FC&S Legal is the industry's ONLY single-source, comprehensive portal developed specifically for insurance coverage law professionals. To find out more, visit www.fcandslegal.com. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice is required, the services of a competent professional person should be sought.

Special Reports /

How Can an Insurer Plead Diversity in Coverage Action Where it Cannot Ascertain Facts Supporting Jurisdiction?

Related Stories

Recommended For You