AUGUST 2017 BAD FAITH CASES: REMOVAL PROPER WHERE DIVERSITY CANNOT BE DEFEATED BY DIRECT ACTION ARGUMENT, AND AMOUNT IN CONTROVERSY MET (Philadelphia Federal)

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This UIM action arose after the insureds were injured in an automobile accident and the insurer denied their claim. The insurer filed a notice to remove the action to federal court citing diversity jurisdiction. The insureds filed a motion to remand and argued that that the amount in controversy did not exceed the $75,000 jurisdictional threshold, and that there was no actual diversity of citizenship under a direct action theory.

Despite Illinois being the insurer’s principal place of business, the insureds argued that the Court should consider the insurer a citizen of Pennsylvania because this is a direct action. The Court disagreed, and held “[a] direct action only exists when ‘the cause of action against the insurance company is of such a nature that the liability sought to be imposed could be imposed against the insured.’” Thus, the Court ruled that the insurer is a citizen of Illinois for purposes of diversity jurisdiction.

Furthermore, the Court found that the amount in controversy threshold was satisfied because the insureds each sought in excess of $50,000 under the insurance policy, $50,000 in loss of consortium, and punitive damages and attorneys’ fees under the bad faith statute.

Therefore, the Court found that removal was proper, and denied the insured’s motion.

Date of Decision: July 31, 2017

Allison v. State Farm Mutual Automobile Insurance Co., No. 17-2742, 2017 U.S. Dist. LEXIS 119476 (E.D. Pa. July 28, 2017) (Beetlestone, J.)

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