IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF OREGON 

MARVIN L. STAGGS and 

MARJORIE A. STAGGS, 

Plaintiffs, 

v. 

FARMERS INSURANCE 

EXCHANGE, 

Defendant. 

MCSHANE, Judge: 

Civ. No. 3:15-cv-01502-MC 

OPINION AND ORDER 

Plaintiffs Marvin and Marjorie Staggs ("Plaintiffs") filed this action against defendant 

Farmers Insurance Exchange ("Defendant" or "Farmers"), alleging breach of an insurance 

contract. Before the court is Defendant's Motion to Dismiss, ECF No. 6, pursuant to Federal 

Rule of Civil Procedure 12(b )( 1 ). I have considered the parties' motion_s and all of the pleadings 

on file. For the reasons that follow, Defendant's motion to dismiss is GRANTED and Plaintiffs' 

complaint is DISMISSED WITHOUT PREJUDICE. 

FACTUAL AND PROCEDURAL BACKGROUND 

This case arises out of an insurance coverage dispute between Farmers and Plaintiffs. 

Plaintiffs owned a home in Marion County, Oregon, which was destroyed by a fire on or about 

August 10, 2013. At the time of the fire, the home was insured under a Farmers homeowners' 

policy. An insurance coverage dispute ensued and Plaintiffs filed this lawsuit on August 10, 

2015. In its Motion to Dismiss, ECF No. 6, Farmers argues that the court lacks subject matter 

jurisdiction over this matter because there is no diversity between the parties. 

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Case 6:15-cv-01502-MC Document 10 Filed 04/27/16 Page 1 of 8
Plaintiffs are citizens of Oregon. Farmers is a reciprocal insurance exchange with its 

primary place of business in California. Some Farmers policyholders-such as Plaintiffs-are 

Oregon citizens. Based on the distinction between a corporation and a reciprocal insurance 

exchange, which I will discuss in more detail below, the parties disagree about whether Farmers 

is a citizen of Oregon or California for purposes of determining subject matter jurisdiction. 

STANDARD OF REVIEW 

A Rule 12(b )(1) dismissal for lack of subject matter jurisdiction can be based either on 

the face of the complaint or on extrinsic evidence demonstrating lack of jurisdiction on the facts 

of the case. White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). When evaluating an attack on 

jurisdiction, the court accepts as true all factual allegations set forth in the complaint. United 

States v. One 1997 Mercedes E420, 175 F.3d 1129, 1130 n. 1 (9th Cir. 1999). Plaintiffs, as the 

party asserting jurisdiction, have the burden of establishing that the court has subject matter 

jurisdiction. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). 

Federal courts are courts oflimitedjurisdiction, having subject matter jurisdiction only 

over matters authorized by the Constitution and Congress. See id. Any actions or agreements by 

the parties are irrelevant when determining subject matter jurisdiction. Ins. Corp. of Ireland v. 

Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982). Instead, the court only has 

original jurisdiction over actions that involve over $75,000 in controversy and are between 

citizens of different states. 28 U.S.C. § 1332(a)(l). "Diversity jurisdiction requires complete 

diversity between the parties-each defendant must be a citizen of a different state from each 

plaintiff." In re Digimarc Corp. Derivative Litig., 549 F.3d 1223, 1234 (9th Cir. 2008). For 

purposes of determining a party's citizenship, a natural person is deemed a citizen of the state in 

which he or she is domiciled, Kanter v. Warner-Labert Co., 265 F.3d 853, 857 (9th Cir. 2001), a 

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Case 6:15-cv-01502-MC Document 10 Filed 04/27/16 Page 2 of 8
corporation is deemed a citizen of any state in which it is incorporated or has its principal place 

of business, see 28 U.S.C. § 1332(c), and an unincorporated association is deemed a citizen of 

any state in which its "members" are citizens, Johnson v. Columbia Properties Anchorage, LP, 

437 F.3d 894, 899 (9th Cir. 2006); see also Shultz Corp. v. Indus. Indemnity Co., 727 F. Supp. 

1359, 1362 (D. Or. 1989). 

DISCUSSION 

I. This Court Lacks Subject Matter Jurisdiction Over Farmers 

A. Background on Reciprocal Insurance Exchanges 

In a reciprocal insurance exchange, individuals and businesses pool risk by agreeing to 

indemnify each other against particular kinds oflosses. 43 Am. Jur. 2d Insurance§ 72 (2016). 

These policyholders-known as "subscribers"-act through a common attorney-in-fact and are 

simultaneously both insurers and insureds. Id.; see also 2 John A. Appleman & Jean Appleman, 

Insurance Law & Practice§ 10121 (2011). Unlike mutual insurance companies, insurance 

exchanges do not have a corporate existence; instead, they are simply an unincorporated 

association of individuals who swap potential liabilities between themselves. 43 Am. Jur. 2d 

Insurance § 72 (2016); 2 J. Appleman at § 1012. As an unincorporated association, a reciprocal 

insurance exchange is a citizen of any state in which its members are citizens. 

B. As a Reciprocal Insurance Exchange, Farmers Shares Citizenship with Each of 

its Members 

The parties do not dispute that Farmers is a reciprocal insurance exchange. Accordingly, 

as a matter oflaw, Farmers is an unincorporated association and its citizenship hinges on the 

citizenship of its members. Johnson, 437 F.3d at 899; Shultz Corp., 727 F. Supp. at 1362; see 

also True v. Robles, 571 F.3d 412, 422 n. 2 (5th Cir. 2009) ("As an unincorporated association, a 

reciprocal insurance exchange is considered to have the citizenship of its members for diversity 

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purposes in federal court"). Notwithstanding this fact, Plaintiffs raise three unavailing arguments 

for why Farmers should be considered a California citizen. 

First, Plaintiffs contend Farmers' principal place of business is located in California, 

variously citing addresses located on Plaintiffs' insurance policy and Farmers' website. Def.' s 

Br., ECF No. 7, at 2-3. Although the principal place of business test determines a corporation's 

citizenship, 28 U .S.C. § 1332( c ), it is not relevant when considering the citizenship of an 

unincorporated association such as Farmers, Johnson, 437 F.3d at 899; Shultz Corp., 727 F. 

Supp. at 1362. 

Plaintiffs further point to the Oregon Insurance Division's online insurance company 

search engine. Def.'s Br., ECF No. 7, at 2. Search results for "Farmers Insurance Exchange" list 

Farmers' "State oflncorporation" as California and its "Incorporation Date" as January 1, 1928. 

Def.'s Br., ECF No. 7-2. Despite results revealed by this cursory search, Farmers is not a 

corporation. Plaintiffs' reliance on this search engine-as opposed to the California Secretary of 

State or Farmers' own website 1--does not change Farmers' legal form. 

Lastly, Plaintiffs make a two-part argument that their Farmers homeowners' insurance 

policy, when combined with several provisions of California law, should be read to 

fundamentally alter Farmers' organizational structure. Def.'s Br., ECF No. 7, at 3--4. First, 

Plaintiffs assert that because the policy states Farmers may be sued in state or federal court, 

Farmers must be a corporation. Even assuming that language in the insurance policy can change 

Farmers' legal form, this argument is inapposite. Agreements by the parties cannot alter this 

court's subject matter jurisdiction. Ins. Corp. of Ireland, 456 U.S. at 702. Second, Plaintiffs 

claim that policy language stating that Farmers may be sued as an individual means Farmers 

1 Farmers' website, which Plaintiffs cite, notes that there are "key differences" between a mutual insurance company 

and an insurance exchange. FARMERS INSURANCE EXCHANGE UPDATE, www.farmers.com/exchange (last visited 

Apr. 21, 2016). One of these significant distinctions is citizenship for subject matter jurisdiction purposes. 

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Case 6:15-cv-01502-MC Document 10 Filed 04/27/16 Page 4 of 8
must be a California citizen. This position is incorrect: state law allowing an unincorporated 

association to be sued in an individual capacity does not change the focus of this court's subject 

matter jurisdiction inquiry, which still hinges on the citizenship of the association's members. 

See Lumbermen 's Underwriting All. v. Mobil Oil Corp., 612 F. Supp. 1166, 1169 (D. Idaho 

1985) (citing Navarro Sav. Ass 'n v. Lee, 446 U.S. 458, 461 (1980); United Steelworkers of Am., 

AFL-CIO v. R. H Bouligny, Inc., 382 U.S. 145 (1965)). For these reasons, I decline to presume 

Farmers is a California citizen without looking to the citizenship of its members. 

C. Farmers is an Oregon Citizen 

My inquiry, then, turns to the citizenship of Farmers' members. Federal courts have split 

as to whether subscribers to a reciprocal insurance exchange are members or merely customers 

of the exchange. Compare Nevada Capital Ins. Co. v. Farmers Ins. Exchange, No. 2:12-cv02166-APG-CWH, 2014 WL 6882342 (D. Nev. Dec. 4, 2014); James G. Davis Const. Corp. v. 

Erie Ins. Exchange, 953 F. Supp. 2d 607 (D. Md. 2013); James River Ins. Co. v. Cast & 

Assocuates, Inc., No. 4:11-CV-00730-JJM, 2012 WL 1190891 (D. Ariz. Mar. 5, 2012) with 

Garcia v. Farmers Ins. Exch., 121 F. Supp. 2d 667, 669 (N.D. Ill. 2000). I conclude that under 

California law, a reciprocal insurance exchange's subscribers are its members. 

Farmers is organized under California law, which defines subscribers as members of an 

insurance exchange. See Cal. Ins. Code§§ 1300-1305. Moreover, California's Corporations 

Code defines an unincorporated association's member as "a person who ... has a right to 

participate in the selection of persons authorized to manage the affairs of the unincorporated 

association."2 Cal. Corp. Code§ 18015(b). Here, that right is expressly reserved to the 

subscribers in the insurance policy. Def.'s Br., ECF No. 7-1, at 55 ("The Board of Governors 

2 Alternatively, the Code allows an unincorporated association to define "members" in its governing principles. Cal. 

Corp. Code§ 18015(a). Because neither party points to such a definition in Farmers' homeowners' insurance policy 

or subscription agreement, I will assume the default definition. 

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shall be chosen by subscribers .... The Board of Governors shall have full power and authority 

to establish such rules and regulations for [Farmers'] management as are not inconsistent with 

the subscriber agreements"). For these reasons, I conclude that Farmers' citizenship must be 

determined in relation to the citizenship of its member-subscribers. Because the Plaintiffs are 

Oregon citizens and Farmers' member-subscribers, I hold that Farmers is an Oregon citizen; 

therefore, this court lacks subject matter jurisdiction because there is not complete diversity 

between the parties. 

Although Plaintiffs urge me to adopt the minority rule-that an insurance exchange's 

subscribers are customers, not members-as articulated in Garcia, 121 F. Supp. 2d at 669 (N.D. 

Ill. 2000), I decline to do so for two reasons. First, as noted above, I find that California law is 

controlling on this issue in this case, and it expressly states that an exchange's subscribers are 

indeed its members. See Cal. Ins. Code §§ 1300-1305. Second, although there are arguably flaws 

to the rule that an unincorporated association has the citizenship of its members,3 it is Congress's 

responsibility to change the law. Five years after Garcia, for example, Congress passed the Class 

Action Fairness Act of 2005 ("CAF A"), which amended the diversity of citizenship rule for 

specific class actions. See 28 U.S.C. § 1332(d)(10) (for a subset of class actions, "an 

unincorporated association shall be deemed to be a citizen of the State where it has its principal 

place of business and the State under whose laws it is organized"). As the Senate Judiciary 

3 Plaintiffs cite a multitude of cases in which Farmers has sought to remove similar cases from state to federal court 

on the basis of diversity of citizenship. See, e.g. Fountain v. Farmers Ins. Exchange, No. 4: l 3-cv-120-D(2), 2014 

WL 6851623 (E.D. N.C. Dec. 3, 2014); Wheeler v. Farmers Ins. Exchange, No. 13-cv-0951, 2014 WL 280356 

(W.D. La. Jan. 22, 2014); Brackney v. Farmers Ins. Exchange, No. 4-l l-cv-00527-FJG, 2011WL3678822 (W.D. 

Mo. Aug. 22, 2011); Thompson v. Victoria Fire & Ca. Co., 32 F. Supp. 2d 847 (D. S.C. 1999); Incopero v. Farmers 

Ins. Exchange, 113 F.R.D. 28 (D. Nev. 1986). To the extent Plaintiff correctly identifies that Farmers-a large, 

nationwide company-strategically and self-servingly argues opposing theories of diversity jurisdiction, I find such 

tactics troubling. Despite these inconsistencies, the relevant law here is clear. Although I caution Farmers in its 

approach to analogous litigation in the future, I note that this particular area of law is unsettled in many jurisdictions, 

which explains the conflicting arguments Farmers has made in other lawsuits. 

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Case 6:15-cv-01502-MC Document 10 Filed 04/27/16 Page 6 of 8
Committee remarked in its report on CAF A, this change was prompted by the same unfairness 

that Plaintiffs perceive here: 

This rule "has been frequently criticized because often an unincorporated 

association is, as a practical matter, indistinguishable from a corporation in the 

same business." Some insurance companies, for example, are "inter-insurance 

exchanges" or "reciprocal insurance associations." For that reason, federal courts 

have treated them as unincorporated associations for diversity jurisdiction 

purposes. Since such companies are nationwide companies, they are deemed to be 

citizens of any state in which they have insured customers. Consequently, these 

companies can never be completely or even minimally diverse in any case. It 

makes no sense to treat an unincorporated insurance company differently from, 

say, an incorporated manufacturer for purposes of diversity jurisdiction. New 

subsection 1332(d)(10) corrects this anomaly. 

S.Rep. No. 109-14, at 46 (Feb. 28, 2005), reprinted in 2005 U.S.C.C.A.N. 3, 43 (footnotes 

omitted). However, this change only abrogates the rule for particular class actions; it does not 

alter this court's general diversity jurisdiction. Until Congress extends subsection 1332(d)(10) to 

all general diversity cases involving unincorporated associations, I lack subject matter 

jurisdiction over Plaintiffs' complaint. 

II. Leave to Amend 

I further decline to grant Plaintiffs leave to amend. Although leave to amend should be 

freely given, Fed. R. Civ. P. 15(a)(2), courts may refuse such a request when, for example, 

amendment would be futile, Foman v. Davis, 371 U.S. 178, 182 (1962). Here, I find that no 

additional pleading could possibly give the court subject matter jurisdiction over this case. 

Accordingly, amendment would be futile, and this case is dismissed without prejudice for proper 

refiling in a court with subject matter jurisdiction. 

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., . ' . 

CONCLUSION 

For these reasons, Defendant's Motion to Dismiss, ECF No. 6, is GRANTED. Plaintiffs' 

complaint is hereby DISMISSED WITHOUT PREJUDICE. 

IT IS SO ORDERED. 

DATED this 2-I day of April 2016. 

\.. ___ _ 

Michael J. McShane 

United States District Judge 

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