Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-01242/USCOURTS-caed-2_06-cv-01242-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1331 Fed. Question: Insurance Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

KEVIN K. L. LIMM,

NO. CIV. S-06-1242 WBS DAD

Plaintiff,

v. MEMORANDUM AND ORDER RE: 

MOTION TO DISMISS AND REMAND

GEORGE J. HAHN, STATE FARM

INSURANCE COMPANY, and DOES 1

- 100,

Defendants.

----oo0oo----

Defendants State Farm Insurance Company and George J. 

Hahn move to dismiss this action as against defendant Hahn, upon

the ground that his joinder is fraudulent. For the foregoing

reasons, the court denies defendants’ motion and remands the case

to state court for lack of jurisdiction. 

I. Factual Background

Defendant State Farm Insurance Company (“State Farm”)

provided automobile insurance for plaintiff Kevin K. L. Limm. 

(Compl. ¶ 16.) State Farm employs defendant Hahn as an insurance

broker. (Id. ¶ 4.) Defendant Hahn and plaintiff are citizens of

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California; defendant State Farm is a citizen of the State of

Illinois. (Notice of Removal ¶ 6.)

Plaintiff alleges that, prior to April 15, 2004,

defendants represented that they had obtained a one hundred

thousand dollar ($100,000.00) uninsured motorist policy in

plaintiff’s name. (Compl. ¶ 16.) Defendants did not obtain such

a policy and allegedly knew that they had failed to do so. (Id.

¶ 18.) Plaintiff further alleges that defendants State Farm and

Hahn held themselves out as specialists, and as such, they did

not fulfill the requisite duty of care. (Id. ¶¶ 11, 13.) 

Plaintiff claims that he did not know that he had less

than one hundred thousand dollars worth of uninsured motorist

coverage and that he relied upon defendants’ misrepresentation to

his detriment. (Id. ¶¶ 18, 20, 22.) Plaintiff was subsequently

involved in an accident with an uninsured motorist and sustained

injuries in excess of the limit on his uninsured motorist policy. 

(Id. ¶¶ 20, 21.) Plaintiff brought suit in state court against

both defendants alleging the following causes of action:

negligence, negligent misrepresentation, and intentional

misrepresentation. (Id.) Defendants removed the case to this

court, contending that this court has diversity jurisdiction over

this matter because defendant Hahn, as an agent of State Farm who

cannot be individually liable, was fraudulently joined for the

purpose of defeating removal. (Notice of Removal ¶¶ 2, 3.) 

Defendants now move to dismiss defendant Hahn. 

II. Discussion

For a federal court to have jurisdiction based on

diversity of citizenship under 28 U.S.C. § 1332, there must be

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complete diversity between the parties. Morris v. Princess

Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001). Complete

diversity exists only when no defendant is a citizen of the same

state as any plaintiff. Caterpillar, Inc. v. Lewis, 519 U.S. 61,

68 (1996). Therefore, because Hahn is, like plaintiff, a citizen

of California, complete diversity does not exist on the face of

the complaint. 

However, a federal court may still have diversity

jurisdiction over the case if a non-diverse defendant has been

fraudulently joined. Morris, 236 F.3d at 1067. “‘Fraudulent

joinder’ is a term of art [and] it does not reflect on the

integrity of plaintiff or counsel but is merely the rubric

applied when a court finds either that no cause of action is

stated against the nondiverse defendant, or in fact no cause of

action exists.” Lewis v. Time Inc., 83 F.R.D. 455, 460 (E.D.

Cal. 1979) (citation omitted). “[I]f the plaintiff fails to

state a cause of action against a resident defendant, and the

failure is obvious according to the settled rules of the state,”

then a court should deem the defendant’s joinder fraudulent and

ignore it for purposes of diversity jurisdiction. Morris, 236

F.3d at 1067 (quoting McCabe v. Gen. Foods Corp., 811 F.2d 1336,

1339 (9th Cir. 1987)).

Because there is a general presumption against finding

fraudulent joinder, defendants bear a heavy burden in proving

that joinder was not proper. Quiroz v. Valley Forge Ins. Co.,

No. 05-2025, 2005 WL 1806366, at *3 (N.D. Cal. July 28, 2005). 

“The removing party must prove there is absolutely no possibility

that the plaintiff will be able to establish a cause of action

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Defendants cite caselaw that suggests that insurance 1

agents are never individually liable when acting within the scope

of their employment, referencing Lippert, 241 Cal. App. 2d at

382. California caselaw on this issue is not a model of clarity. 

Significantly, however, defendants’ selective citations avoid

mention of cases that discuss the “special duty” exception to the

rule established in Lippert. 

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against the non-diverse defendant in state court.” Id. (citing

Kruso v. Int’l Tel. & Tel. Corp., 872. F.2d 1416, 1426-27 (9th

Cir. 1989)). “[T]he court must resolve all material ambiguities

in plaintiff’s favor.” Macey v. Allstate Prop. & Cas. Ins. Co.,

220 F. Supp. 2d 1116, 1117-18 (N.D. Cal. 2002) (citing Good v.

Prudential, 5 F. Supp. 2d 804, 807 (N.D. Cal. 1998)). Thus, any

disputed questions of fact are to be resolved in favor of the

plaintiff. Charlin v. Allstate Ins. Co., 19 F. Supp. 2d 1137,

1140 (E.D. Cal. 1998) (citing Dodson v. Spiliada Maritime Corp.,

951 F.2d 40, 42 (5th Cir. 1992)). Additionally, “[w]hen there

are real ambiguities among the relevant state law authorities,

federal courts that are considering motions to remand should

avoid purporting to decide how state courts would construe those

authorities.” Macey, 220 F. Supp. 2d at 1118 (citing Briano v.

Conseco Life Ins. Co., 126 F. Supp. 2d 1293, 1297 (C.D. Cal.

2000)). 

Under California law, there is a general rule that “an

insurance agent whose principal is disclosed cannot be held

individually liable to an insured.” Quiroz, 2005 WL 1806366, at

*5 (citing Lippert v. Bailey, 241 Cal. App. 2d 376, 382 (1966)). 

Courts have recognized exceptions to this general rule, including

(1) the dual agency exception and (2) the “special duty”

exception. Id. (citing Macey, 220 F. Supp. 2d at 1120). The 1

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In Macey v. Allstate Property & Casualty Insurance Co.,

the court pointed out that the rule articulated in Lippert is not

incorrect, but is incomplete because it fails to take account of

the “special duty” line of cases. 220 F. Supp. 2d at 1122. With

a careful and thorough treatment of the cases that fail to

recognize this exception to the Lippert rule, the court in Macey

concluded that a district court faced with the issue of

fraudulent joinder should concede the possibility that a

California court may recognize this exception if there is a

factual basis for it in the complaint, and the district court

should therefore remand. Id. at 1119-29. As demonstrated by the

analysis in the text, this court comes to the same conclusion.

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dual agency rule is that an agent and the principal may both be

liable to a client when the client is unaware of the principalagent relationship. Lippert, 241 Cal. App. 2d at 383. Plaintiff

does not appear to argue that this exception applies. 

With regard to the special duty exception, California

courts have held that an insurance agent is subject to a

heightened duty when: “(a) the agent misrepresents the nature,

extent or scope of the coverage being offered or provided, (b)

there is a request or inquiry by the insured for a particular

type or extent of coverage, or (c) the agent assumes an

additional duty by either express agreement or by ‘holding

himself out’ as having expertise in a given field of insurance

being sought by the insured.” Quiroz, 2005 WL 1806366, at *7

(citing Fitzpatrick v. Hayes, 57 Cal. App. 4th 916, 927 (1997);

Paper Savers, Inc. v. Nacsa, 51 Cal. App. 4th 1090, 1096-97)).

Relatedly, an insurance agent may be liable under the

“special duty” exception when the agent promises to procure

insurance for an insured and fails to do so. See, e.g., Quiroz,

2005 WL 1806366, at *6 (“An insurance agent has an obligation to

use reasonable care, diligence, and judgment in procuring the

insurance requested by an insured.” (citing Butcher v. Truck Ins.

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Exch., 77 Cal. App. 4th 1442, 1461 (2000)) (alteration in

original))); Hydro-Mill Co., Inc. v. Hayward, 115 Cal. App. 4th

1145, 1153 (2004) (“[T]he general rule [is] that an agent or

broker who fails to procure insurance as requested will be liable

for any resulting damage . . . .” (quoting Saunders v. Cariss,

224 Cal. App. 3d 905, 909 (1990)) (alteration in original));

Westrick v. State Farm Ins., 137 Cal. App. 3d 685, 687, 691

(1982) (overturning a directed verdict in favor of an automobile

insurance agent because “an insurance agent who promises to

procure insurance will indeed be liable for his negligent failure

to do so . . . [and cannot] avoid liability for foreseeable harm

caused by his silence or inaction merely because he has not

expressly promised to assume responsibility” (citations

omitted)).

Plaintiff has alleged that defendant Hahn is

individually liable as an insurance agent for his negligent and

intentional failure to obtain insurance coverage for plaintiff. 

In support of this claim, plaintiff has alleged that defendant

Hahn misrepresented the scope of plaintiff’s coverage by stating

that plaintiff had one hundred thousand dollar uninsured motorist

insurance coverage. Plaintiff does not clearly indicate whether

he requested this coverage in the complaint, but any dispute over

this fact should be resolved in plaintiff’s favor. Charlin, 19

F. Supp. 2d at 1140. Finally, plaintiff has alleged that

defendant Hahn held himself out as a specialist with expertise. 

Plaintiff has thereby alleged facts that raise the possibility

that defendant Hahn is subject to liability. Cf. Maffei v.

Allstate Cal. Ins. Co., 412 F. Supp. 2d 1049, 1053 (E.D. Cal.

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28 Plaintiff has filed a separate motion to remand, but 2

that motion is rendered moot by the court’s determination here.

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2006) (concluding that joinder was fraudulent where defendant was

“nothing more than an empty corporate shell” and therefore could

not be liable to the plaintiffs on any theory alleged in the

complaint).

Because the court cannot find to a near certainty that

there is no cause of action against defendant Hahn for breach of

a special duty in state court, Hahn is a proper defendant for the

purposes of this motion. See Bennet v. Allstate Ins. Co., 753 F.

Supp. 299, 302 (N.D. Cal. 1990) (for a court to find fraudulent

joinder, “it must appear to a ‘near certainty’ that joinder of

[defendant] was fraudulent”). Additionally, because Hahn’s

presence as a defendant in the case destroys diversity, the court

must remand this action to state court.2

IT IS THEREFORE ORDERED that defendants’ motion to

dismiss this action as against defendant Hahn, be, and the same

hereby is, DENIED. Because the court lacks diversity

jurisdiction over the parties pursuant to 28 U.S.C. § 1332, this

case is hereby REMANDED to Superior Court of the State of

California in and for the County of El Dorado. 

DATED: August 18, 2006

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