Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_14-cv-02880/USCOURTS-caed-2_14-cv-02880-2/pdf.json

Parties Involved:
John Coze
Plaintiff
Susanna Coze
Plaintiff
Liberty Mutual Fire Insurance Company
Defendant
Marsh USA Inc.
Defendant
Midas International Corporation
Defendant
Midas Realty Corporation
Defendant
TBC Corporation
Defendant

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

JOHN COZE and SUSANNA COZE,

Plaintiffs,

v.

TBC CORPORATION, MIDAS REALTY 

CORPORATION, MIDAS 

INTERNATIONAL CORPORATION, 

LIBERTY MUTUAL FIRE INSURANCE 

COMPANY, MARSH USA INC; and 

DOES 1 to 100, inclusive,

 Defendants.

CIV. NO. 2:14-02880 WBS DAD

MEMORANDUM AND ORDER RE: MOTION 

TO REMAND

----oo0oo----

Defendant Midas1 leased property from plaintiffs. 

(Compl. ¶ 9 (Docket No. 1-1).) The lease agreement allegedly 

required Midas to obtain liability and property damage insurance 

coverage and designate plaintiffs as loss payees and/or as 

 

1 The Complaint does not specify whether “Midas” refers 

to the Midas Realty Corporation, the Midas International 

Corporation, or both. 

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additional insureds on the policy. (Id. ¶ 10.) Accordingly, 

Midas took out a policy through defendant Liberty Mutual. (Id. ¶ 

11.) 

Plaintiffs allege that during an inspection of the 

premises they discovered substantial damage. (Id. ¶ 13.) They

filed this action in Sacramento Superior Court, alleging breach 

of contract, breach of the covenant to keep and surrender leased 

premises in good condition, real property damage, and breach of 

the covenant of good faith and fair dealing against Midas and 

TBC. They also asserted claims of breach of contract and breach 

of the implied covenant of good faith and fair dealing against

Liberty Mutual and Marsh USA, which they refer to collectively as 

“the insurer.” (Id. ¶ 4.) 

Defendants removed the action to district court on the 

basis of diversity jurisdiction, asserting complete diversity 

exists because plaintiffs are citizens of California; Liberty 

Mutual was incorporated in Wisconsin and has its principal place 

of Business in Massachusetts; Marsh was incorporated in Delaware 

and has its principal place of business in New York; and TBC and 

its subsidiary Midas were incorporated in Delaware and have their

principal places of business in Florida. (Notice of Removal at 

1-2 (Docket No. 1).) Plaintiffs later dismissed Midas and TBC 

with prejudice.

Plaintiffs now move to remand the action to state 

court, arguing that diversity is destroyed under 28 U.S.C. § 

1332(c)(1). Only defendant Liberty Mutual opposed the motion, 

but the court was later advised that plaintiffs reached a 

settlement with that defendant. Because Marsh, USA remains in 

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the action, the court will proceed to consider the merits of 

plaintiffs’ motion. 

The district court exercises jurisdiction over an 

action where complete diversity exists and the amount in 

controversy exceeds the sum or value of $75,000. 28 U.S.C. § 

1332(a). A special rule applies, however, to so-called “direct 

actions” against insurers. Section 1332(c)(1) provides that

a corporation shall be deemed to be a citizen of every 

State and foreign state by which it has been 

incorporated and of the State or foreign state where 

it has its principal place of business, except that in 

any direct action against the insurer of a policy or 

contract of liability insurance, whether incorporated 

or unincorporated, to which action the insured is not 

joined as a party-defendant, such insurer shall be 

deemed a citizen of every State and foreign state of 

which the insured is a citizen; every State and 

foreign state by which the insurer has been 

incorporated; and the State or foreign state where the 

insurer has its principal place of business . . . .

Id. § 1332(c)(1) (emphasis added). Plaintiffs argue that this is 

a “direct action,” and that Liberty Mutual and Marsh USA should 

thus assume plaintiffs’ California citizenship, destroying 

diversity.

2

Plaintiffs’ motion rests on a misapplication of § 

1332(c)(1). A “direct action” is “of such a nature that the 

liability sought to be imposed could be imposed against the 

insured.” Searles v. Cincinnati Ins. Co., 998 F.2d 728, 729 (9th 

Cir. 1993). In a direct action, the insurer is essentially a 

surrogate for the defendant tortfeasor whom it insures, who has 

not been joined. See id. “Section 1332(c)(1) was intended to 

 

2 The parties do not dispute that the amount-incontroversy minimum is met. 

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eliminate diversity jurisdiction for suits on certain tort claims 

in which both parties are local residents, but which, under a 

State ‘direct action’ statute, may be brought directly against a 

foreign insurance carrier without joining the local tort-feasor 

as a defendant.” Id. (citing Northbrook Nat’l Ins. Co. v. 

Brewer, 493 U.S. 6, 10 (1989)) (internal quotation marks 

omitted). Based on this reading of Congress’s intent, the Ninth 

Circuit held that a ‘first party’ insurance action, or a suit by 

an insured against an insurer, is not a ‘direct action.’ 

Searles, 998 F.2d at 729. 

Plaintiffs brought breach of contract and breach of the 

implied covenant of good faith and fair dealing claims against 

Liberty Mutual and Marsh USA for duties the insurer owed directly 

to them, including the duty to investigate “their” claim. 

(Compl. ¶ 33.) Plaintiffs allege that they are the “insured” 

under the meaning of § 1332(c)(1) as the “intended beneficiaries 

under the terms of the insurance contract.” (Compl. ¶ 11.) 

Based on plaintiffs’ own characterization of the Complaint, (see

Pl.’s Mem. at 2 (stating plaintiffs are bringing the lawsuit 

against Liberty Mutual as insureds under the policy)), this is 

therefore a “first party” insurance action--a suit by an insured 

against an insurer. This is not a direct action under § 

1332(c)(1) where, rather than suing a tortfeasor defendant, a 

plaintiff brings the claims it would have brought against the 

tortfeasor instead against defendant’s insurer. Section

1332(c)(1) cannot apply. See Searles, 998 F.2d at 729. 

IT IS THEREFORE ORDERED that plaintiffs’ motion to 

remand be, and the same hereby is, DENIED.

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Dated: July 28, 2015

 

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