Lumbermen's Mutual Casualty Company v. Elbert/Opinion of the Court

This case concerns the Louisiana direct action statute. This Court has today had occasion to test that statute against certain claims of unconstitutionality, Watson v. Employers Liability Assurance Corp., 348 U.S. 66, 75 S.Ct. 166. Questions are raised here involving the diversity jurisdiction of the federal courts in cases arising under the statute.

Respondent, a citizen of Louisiana, was injured in an automobile accident at Shreveport, Louisiana, allegedly because of the negligence of Mrs. S. W. Bowen, also a Louisiana citizen. Petitioner, an Illinois corporation, had issued a public liability policy to Mr. Bowen insuring him and members of his household against claims arising from their negligent operation of the family car. The policy was applied for, issued, and delivered within the State of Louisiana. Petitioner was certificated to do business in Louisiana and had, as a legal prerequisite thereto, consented in writing to be sued directly for damages sustained in Louisiana accidents involving its policyholders.

The pertinent portion of the direct action statute provides:

'The injured person or his or her heirs, at their option,     shall have a right of direct action against the insurer      within the terms and limits of the policy in the parish where      the accident or injury occurred or in the parish where the insured has his domicile, and said      action may be brought against the insurer alone or against      both the insured and the insurer, jointly and in solido.' LSA      Rev.Stat., Tit. 22, § 655. (Italics added.)

Pursuant to this provision, respondent brought this action against petitioner in the United States District Court for the Western District of Louisiana, alleging diversity of citizenship and damages in excess of $3,000. Mrs. Bowen, the alleged tortfeasor, was not made a codefendant. Petitioner moved to dismiss the complaint for lack of federal jurisdiction; the district judge granted the motion. 107 F.Supp. 299, 108 F.Supp. 157. The Court of Appeals, 201 F.2d 500; 202 F.2d 744, reversed and remanded the case to the District Court for trial, one judge dissenting from the denial of a petition for rehearing. From that decision, this Court granted certiorari, 347 U.S. 965, 74 S.Ct. 773. Thus, the sole question to be decided is whether the United States District Court in Louisiana has jurisdiction over this suit for damages brought under the direct action statute against the wrongdoer's insurer alone, where diversity of citizenship exists between the complainant and the defendant insurer but not between the complainant and the wrongdoer.

Section 1332(a) of the Judicial Code, 28 U.S.C. § 1332(a), 28 U.S.C.A. § 1332(a), reads as follows:

'The district courts shall have original jurisdiction of all     civil actions where the matter in controversy exceeds the sum      or value of $3,000 exclusive of interest and costs, and is      between:

'(1) Citizens of different States * *  * .'

It is petitioner's contention that the 'matter in controversy' here is the underlying tort liability of the alleged wrongdoer. If this were true, of course, no diversity of citizenship would exist between respondent and Mrs. Bowen, as the real party-defendant in interest. But the Louisiana courts have differentiated between actions brought by an injured party against the insurer alone and those brought against either the tortfeasor alone or together with the insurer. In the former action, the insurer is foreclosed from asserting defenses such as coverture, normally available to the tortfeasor. Edwards v. Royalty Indemnity Co., 182 La. 171, 161 So. 191. Similarly, the insurer is severely restricted in advancing technical defenses based upon the terms of the policy, such as a failure of notice, when the injured party brings a direct action. Jackson v. State Farm Mutual Automobile Ins. Co., 211 La. 19, 29 So.2d 177. While either type of action encompasses proof of the tortfeasor's negligence, in the separate suit against the insurer a plaintiff must also establish liability under the policy. The Louisiana courts have characterized the statute as creating a separate and distinct cause of action against the insurer which an injured party may elect in lieu of his action against the tortfeasor. West v. Monroe Bakery, 217 La. 189, 46 So.2d 122; Jackson v. State Farm Mutual Automobile Ins. Co., supra.

Petitioner is therefore not merely a nominal defendant but is the real party in interest here. This conclusion to disregard the tortfeasor's citizenship in the instant case for purposes of federal jurisdiction is fortified by cases honoring the states' characterization of a guardian or other fiduciary as determinative of the real party in interest in federal litigation. New Orleans v. Gaines's Administrator, 138 U.S. 595, 11 S.Ct. 428, 34 L.Ed. 1102; Mexican Central R. Co. v. Eckman, 187 U.S. 429, 23 S.Ct. 211, 47 L.Ed. 245. There is even greater justification for disregarding the tortfeasor's citizenship here than for disregarding the citizenship of a beneficiary since the insurer unlike a fiduciary-has a direct financial interest in the outcome of this litigation.

Petitioner next asserts that the tortfeasor is an indispensable party to this litigation, and that failure to join her as a defendant deprives the federal court of jurisdiction. Clearly under the Louisiana statute and practice the argument has no merit. And the circumstances which have led the federal courts to findings of indispensability are not present here. In Shields v. Barrow, 17 How. 130, 139, 15 L.Ed. 158, indispensable parties were defined as 'Persons who not only have an interest in the controversy, but an interest of such a nature that a final decree cannot be made without either affecting that interest, or leaving the controversy in such a condition that its final termination may be wholly inconsistent with equity and good conscience.' The tortfeasor in a Louisiana direct action against the insurer is not such a person. The state has created an optional right to proceed directly against the insurer; by bringing the action against petitioner, respondent has apparently abandoned her action against the tortfeasor. See Miller v. Commercial Standard Ins. Co., 199 La. 155, 526, 6 So.2d 646, 649. Thus a complete disposition of the entire claim may be made in this one action, without injustice to any of the participants.

Finally, petitioner contends that the federal courts should decline, as a matter of discretion, to exercise their jurisdiction over suits against an insurer alone. This argument is based upon the differing standards of review on appeal of a jury verdict in the Louisiana and federal courts. Petitioner relies upon Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424, as authority for the suggested discretionary refusal to exercise jurisdiction. But in Burford, jurisdiction was declined to avoid a potential interference with a state's administrative policy-making process, a consideration not present here. Moreover, traditional equitable authority, not available here, was relied upon to justify the holding.

The language of the congressional grant of jurisdiction to the lower courts, 28 U.S.C. § 1332(a), 28 U.S.C.A. § 1332(a), is clear, and this case seems to us to fall squarely within the provision. In Louisiana the practice of bringing direct actions in the federal courts has long been recognized. See e.g., New Amsterdam Casualty Co. v. Soileau, 5 Cir., 167 F.2d 767, 6 A.L.R.2d 128, certiorari denied, 335 U.S. 822, 69 S.Ct. 45, 93 L.Ed. 376; Bankers Indemnity Ins. Co. v. Green, 5 Cir., 181 F.2d 1; Belanger v. Great American Indemnity Co., 5 Cir., 188 F.2d 196. Neither federal nor Louisiana law suggests any reason to disturb this practice. The decision of the Court of Appeals is affirmed.

Affirmed.