Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-92-03027/USCOURTS-ca10-92-03027-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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FIL1_JD United States CO\,rt of Appealf 

UNITED STATES COURT OF APPEALS Tenth Circuit 

FOR THE TENTH CIRCUIT FEB 2 2 1993 

ROBERT L. HOECKER 

Clerk 

JAMES SOURS, 

Plaintiff-Appellant, 

) 

) 

) 

) 

v. ) No. 92-3027 

) (D.C. No. 91-2158-L) 

AMERICAN STATES INSURANCE COMPANY, 

Defendant-Appellee. 

) (D. Kan.) 

) 

) 

ORDER AND JUDGMENT* 

Before TACHA and BALDOCK, Circuit Judges, and BABCOCK,** District 

Judge.*** 

**Honorable Lewis T. Babcock, District Judge, 

District Court for the District of Colorado, 

designation. 

United States 

sitting by 

Plaintiff-appellant James Sours appeals the dismissal of his 

claim against defendant-appellee American States Insurance Company 

* This order and judgment has no precedential value and shall 

not be cited, or used by any court within the Tenth Circuit, 

except for purposes of establishing the doctrines of the law of 

the case, res judicata, or collateral estoppel. 10th Cir. R. 

36.3. 

*** After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34 . 1 . 9. The case is therefore ordered 

submitted without oral argument. 

Appellate Case: 92-3027 Document: 010110175840 Date Filed: 02/22/1993 Page: 1 
under Fed. R. Civ. P . 12 (b) (6). Sours was injured in an 

automobile accident in which one of the drivers was Rollin 

Russell. Sours sued Russell in Kansas state court and obtained a 

judgment against him for $107,114.42. At the time of the 

accident, American States insured Russell through an automobile 

liability policy with a limit of $25,000.00. After obtaining the 

judgment against Russell, Sours filed this action against American 

States in federal court alleging negligent defense and bad faith 

claims and seeking to recover the entire amount of the judgment 

from American States. 

American States filed a motion to dismiss under Rule 12(b) (6) 

for failure to state a claim on which relief can be granted. The 

district court found that Kansas law did not allow actions such as 

this directly against insurers absent an assignment of policy 

rights by the insured or garnishment of these rights by the 

injured party. Sours had neither garnished nor been assigned 

Russell's rights. The district court therefore granted Ameri c an 

States' motion without prej udice to Sours' later bringing a 

garnishment action against American States. 

Sours filed a timely notice of appeal. Our standard of 

review is de nova , and we will uphold a Rule 12(b) (6 ) dismissal 

"only when it appears that the plaintiff can prove no set of facts 

in support of the claims that would entitle the plaintiff to 

relief." Jacobs, Visconsi & Jacobs, Co. v. City of Lawrence, 927 

F.2d 1111, 1115 (10th Cir. 1991). 

We were initially concerned about our 

requested supplemental briefing on this issue. 

2 

jurisdiction 

The complaint 

and 

in 

Appellate Case: 92-3027 Document: 010110175840 Date Filed: 02/22/1993 Page: 2 
this case alleged that jurisdiction was based on diversity, 28 

U.S.C. § 1332, and that Sours and American States were citizens of 

Kansas and Indiana respectively and therefore diverse. The 

jurisdictional question turns on whether this case is properly 

characterized as a "direct action" against American States, as 

both parties referred to it in their briefs, and is therefore 

subject to 28 U.S.C. § 1332(c) (1). Under§ 1332(c) (1), an insurer 

against which a direct action is asserted is considered a citizen 

of the state of which the insured is a citizen. Thus, if Russell 

were a citizen of Kansas and if this were considered a direct 

action, there would not be complete diversity, and we would have 

to dismiss the case for lack of subject matter jurisdiction. 1 

In their supplemental briefs, both parties contend that this 

is not a direct action. In doing so, they have altered the facts 

somewhat from what the original briefs and other filings showed . 

Sours' opening brief and his complaint state that he is seeking 

recovery of the full $107,114.42 judgment awarded against Russell. 

1 Prior to filing the complaint, Sours received $100,000.00 

under his underinsured motorist coverage from Allstate Insurance 

Company. In return, Sours assigned to Allstate all of his claims 

against Russell and American States to the extent of the payment 

from Allstate. ~ Appellee's Supp. App., Underinsured Motorist 

Release and Subrogation Agreement at 1. Both Sours and Allstate 

are therefore real parties in interest under Fed. R. Civ. P. 

17 (a), and Allstate should have been joined as a plaintiff. See 

Garcia v. Hall, 624 F.2d 150, 152 (10th Cir. 1980). However, if 

joinder would defeat diversity, Allstate need not be joined. Id. 

The fact that Allstate has not been joined is not an issue 

critical to the subject matter jurisdiction question. Sours 

appears to be a proper plaintiff under Kansas substantive law. 

see Fidelity & Deposit Co. v. Shawnee State Bank, 766 P.2d 191, 

194 (Kan . Ct. App. 1988) (where loss only partially covered by 

insurance, insured is proper party to bring the action) . 

3 

Appellate Case: 92-3027 Document: 010110175840 Date Filed: 02/22/1993 Page: 3 
Neither of these documents nor American States' response brief 

indicates that any payment was made to Sours under the American 

States policy. Sours' and American States' supplemental briefs, 

however, both state that American States has paid Sours the 

$25,000.00 policy limit and that Sours' claim is only for the 

judgment amount in excess of $25,000.00. 

That change in facts affects our jurisdiction analysis. This 

is not a typical direct action case because Sours has already 

obtained judgment against Russell. Cf. Velez v. Crown Life Ins. 

Co., 599 F.2d 471, 473 (1st Cir. 1979) (direct action is where 

party injured by insured's negligence proceeds against insurer 

alone). Moreover, the parties' assertion that Sours is not trying 

to recover directly under the policy convinces us that we have 

jurisdiction: 

"[W)here the suit brought either by the insured or by an 

injured third party is based not on the primary 

liability covered by the liability insurance policy but 

on the insurer's failure to settle within policy limits 

or in good faith, the section 1332(c) direct action 

proviso does not preclude diversity jurisdiction." 

Tuck v. United Servs. Auto. Ass'n, 859 F.2d 842, 847 (10th Cir. 

1988) (quoting Fortson v. St. Paul Fire & Marine Ins. Co., 751 F.2d 

1157, 1159 (11th Cir. 1985)), cert. denied, 489 U.S. 1080 (1989). 

Because Sours appears now to be trying to recover only for amounts 

in excess of the American States policy and only for American 

States' bad faith and negligence, we conclude that this is not a 

direct action as contemplated by 28 U.S.C. § 1332(c) and that 

there is diversity jurisdiction here. In doing so, we 

4 

Appellate Case: 92-3027 Document: 010110175840 Date Filed: 02/22/1993 Page: 4 
specifically decline to address the issue of whether we would have 

jurisdiction were Sours seeking recovery based on the primary 

liability under the policy. 

Our conclusion that we have jurisdiction, however, is of 

little avail to Sours on the merits of his claim. He admits that 

this is not a garnishment action, though that apparently would 

have been a proper way for Sours to proceed. See Gilley v. 

Farmer, 485 P.2d 1284, 1290 (Kan. 1971). He asserts that he seeks 

recovery based on Russell's contract rights with American States 

and not based on some tort theory. Relying on Glenn v. Fleming. 

799 P. 2d 79 (Kan. 1990), the district court concluded that Sours 

therefore needed an assignment from Russell to proceed against 

American States. We agree . 

In Glenn, the Kansas Supreme Court held that bad faith and 

negligent defense claims are contract rather than tort claims and 

that they are assignable. 799 P.2d at 90-91. It therefore 

allowed the injured party who had an assignment from the 

tortfeasor to proceed against the tortfeasor's insurer. Id. We 

believe, as did the district court, that implicit in Glenn's 

holding is the requirement that the injured party first be 

assigned the insured's policy rights before being allowed to 

maintain an action against the insurer. Sours cites no Kansas 

cases holding otherwise . The cases he cites are either assignment 

or garnishment cases or are case s where the insurer apparently did 

not object to the injured party's action. See, e.g . • Bollinger v. 

Nuss, 449 P.2d 502, 507 (Kan. 1969) (noting that "insurer appears 

content to disregard any question of [injured party's] right to 

5 

Appellate Case: 92-3027 Document: 010110175840 Date Filed: 02/22/1993 Page: 5 
complain of negligence or bad faith of an insurer toward its 

insured"); Castoreno v. Western Indem. Co., 515 P.2d 789, 791-95 

(Kan. 1973) (not addressing issue nor indicating whether insurer 

objected to action). 

Sours contends that having obtained judgment against Russell , 

he steps into Russell's shoes with respect to Russell's rights 

under the American States policy. Without Sours' assignment or 

garnishment of Russell's rights, however, Russell would also 

appear able to assert the same claim that Sours is trying to 

make. Under Sours' argument, both he and Russell would be 

standing in Russell's shoes and would apparently be equal ly able 

to assert a bad faith and negligence claim against American 

States, and American States could be obligated to pay both claims. 

Sours cites us no Kansas authority supporting this position, and 

we decline to interpret Kansas law to allow it. 2 

2 Sours requests that we certify the issue presented in this 

appeal to the Kansas Supreme Court. Certification is a permissive 

procedure, and we decline to do so here for a number of reasons . 

10th Cir. R. 27 . 1 provides that motions for certification be filed 

contemporaneously with the moving party's brief on the merits. 

Sours failed to file his motion until nearly two months after his 

opening brief and nearly one month after American States filed its 

response brief. In addition , Kansas's certification statute 

allows certification where it appears to the certifying court that 

there is no controlling precedent. Kan. Stat. Ann. § 60-3201 . We 

are convinced that, if not technically controlling, Glenn 

certainly foretells the manner in which the Kansas Supreme Court 

would resolve the issue in this case . Finally, Sours contends 

that certification is "the most reasonable, expeditious, and 

inexpensive way" to answer this state law question. Memorandum in 

support of motion to certify at 3. We remind Sours that he chose 

to file his case in federal court, and hence is in a "somewhat 

awkward position" to now claim that a state court is the most 

reasonable forum to resolve his claim. ~ Colonial Park Country 

Club v. Joan of Arc, 746 F . 2d 1425, 1429 (10th Cir. 1984). 

6 

Appellate Case: 92-3027 Document: 010110175840 Date Filed: 02/22/1993 Page: 6 
The judgment of the United States District Court for the 

District of Kansas is AFFIRMED, and the motion for certification 

is DENIED. 

Entered for the Court 

Bobby R. Baldock 

Circuit Judge 

7 

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