No. 004451 MMC
February 6, 2001
ORDER GRANTING MOTION TO REMAND
Before the Court is the Motion To Remand filed December 27, 2000 by plaintiff Odette Ashley. Defendant The Equitable Life Assurance Society of the United States ("Equitable") has filed opposition, to which plaintiff has filed a reply. Having considered the papers submitted in support of and in opposition to the motion, the Court deems the matter appropriate for decision on the papers, VACATES the hearing scheduled for February 2, 2001, and rules as follows.
On July 27, 2000, plaintiff filed an action in Superior Court of the State of California in and for the County of Contra Costa asserting claims against her disability insurance carrier, Equitable, and the individual who marketed and sold the policy of insurance, defendant Robert Sall ("Sall"). Plaintiff and Sall are both residents of the State of California. Equitable is a resident of the State of New York.
Plaintiff, an attorney, alleges that on or about June 28, 1993, plaintiff entered into a contract with Equitable known as an occupational disability policy ("the policy"), with the understanding that the policy provided her with coverage in the event that she became totally disabled. (See Compl. at 2-3, ¶ IV.) Plaintiff alleges that after the policy's purchase, she became and remained disabled and entitled to receive full benefits under the policy, but that Equitable refused to pay any benefits. (See Compl. at 3-4, ¶¶ VI-VII.) Plaintiffs complaint alleges five causes of action against Equitable: breach of contract, anticipatory breach of contract, breach of the covenant of good faith and fair dealing, violation of California Business and Professions Code § 17200, and intentional infliction of emotional distress. (See Compl. at 5-8, ¶¶ XII-XXIV; 10-13, ¶¶ XXIX-XXXX). Plaintiffs complaint alleges one cause of action against Sall for negligence. (See Compl. at 9, ¶¶ XXV-XXVIII).
Plaintiff alleges that at the time she purchased the policy, Sall "was a broker, agent and legal representative" of Equitable and was entitled to market, promote, advertise and sell defendant Equitable's products to members of the public. (Compl. at 3, ¶ V.) Plaintiff alleges that she purchased the policy as a result of negligent representations made by Sall. (Compl. at 3, ¶ IV.) Plaintiff alleges that Sall "was aware of plaintiffs ignorance of all aspects of disability insurance" and "held himself out as an expert in the field of disability insurance" and that she solely relied on Sall "for information, advice and guidance" when purchasing her insurance policy. (Compl. at 9, ¶ XXVI.) More particularly, plaintiff alleges that Sall
carelessly and negligently provided advice and information to plaintiff concerning the true and actual nature, extent and content of said policy and . . . led plaintiff to believe that in the event she purchased the policy she would receive the best and most comprehensive benefits and coverage available and would be covered for the full benefits payable under total occupational disability, that she would be entitled to receive said benefits without the necessity to continually provide said Equitable with information and, further, carelessly and negligently failed and neglected to inform plaintiff that insurance companies other than defendant Equitable in fact provided better and more desirable coverage.
(Compl. at 9-10 ¶ XXVIII.)
On November 29, 2000, Equitable removed the action to federal court on the basis of diversity of citizenship, asserting that Sall is a "sham" defendant. On December 27, 2000, plaintiff filed the instant motion.
Courts strictly construe the removal statute against removal jurisdiction. See Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992). This strong presumption against removal jurisdiction means that the defendant always has the burden of proving that removal is proper. Id.
Here, Equitable removed on the basis of diversity jurisdiction. District courts have diversity jurisdiction over all civil actions between citizens of different states, or between citizens of a state and citizens or subjects of a foreign state, where the amount in controversy exceeds $75,000, exclusive of interest and costs. 28 U.S.C. § 1332.
Removal of a civil action that alleges claims against a non-diverse defendant is nonetheless proper where it appears that such defendant has been fraudulently joined. The term "fraudulent" is not used in the tort sense; no intent to deceive or other "bad" motive on plaintiffs part need be shown. See Schwarzer, Federal Civil Procedure Before Trial, § 2:671 (2000). As the Ninth Circuit has observed: "Fraudulent joinder is a term of art. If 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, the joinder of the resident defendant is fraudulent." McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987). "As a matter of general principle, however, courts generally employ a presumption against fraudulent joinder. "Diaz v. Allstate Ins. Group, 185 F.R.D. 581, 586 (C.D.Cal. 1998) (citations omitted). See Green v. Amerada Hess Corp., 707 F.2d 201, 205 (5th Cir. 1983) ("The burden of proving a fraudulent joinder is a heavy one. The removing party must prove that there is absolutely no possibility that the plaintiff will be able to establish a cause of action against the in-state defendant in state court, or that there has been outright fraud in the plaintiffs pleadings of jurisdictional facts.") (citations omitted), cert. denied, 464 U.S. 1039 (1984); Dodson v. Spiliada Maritime Corp., 951 F.2d 40, 42 (5th Cir. 1992) ("We do not decide whether the plaintiff will actually or even probably prevail on the merits, but look only for a possibility that he may do so. If that possibility exists, then a good faith assertion of such an expectancy in a state court is not a sham . . . and is not fraudulent in fact or in law.") (citations and internal quotations omitted); Good v. Prudential Insurance Company of America, 5 F. Supp.2d 804, 807 (N.D.Cal. 1998) ("[T]he defendant must demonstrate that there is no possibility that the plaintiff will be able to establish a cause of action in state court against the alleged sham defendant.").
Where jurisdiction depends on a finding of fraudulent joinder, the removing defendant "is entitled to present the facts showing the joinder to be fraudulent." Ritchey v. Upjohn Drug Co., 139 F.3d 1313, 1318 (9th Cir. 1998). In making its determination, however, the court must resolve all disputed of questions of fact and all ambiguities in the controlling state law in favor of the non-removing party. See Dodson, 951 F.2d at 42.
Under California law, "[a]n insurance agent has an obligation to use reasonable care, diligence, and judgment in procuring the insurance requested by an insured." Butcher v. Truck Ins. Exchange, 77 Cal.App.4th 1442, 1461 (2000) (internal quotation omitted). "The law is well established in California that an agent's failure to deliver the agreed-upon coverage may constitute actionable negligence and the proximate cause of an injury." Id. at 1464 (holding insurer and agent may be held liable for negligent misrepresentation, where insurer's agent misled insureds into believing policy provided coverage for malicious prosecution).
Equitable contends that plaintiffs complaint fails to state a cause of action against Sall because Sall procured the type of coverage requested by plaintiff, "total disability coverage." Equitable's argument is not persuasive. Plaintiff has pleaded that Sall negligently misrepresented the scope of the coverage being offered and her obligations under the policy. (See Compl. at 9-10, ¶ XXVI-XXVII.) Actionable negligence is not limited to a total failure to provide coverage for the claimed loss. See, e.g., Desai v. Farmers Ins. Exchange, 47 Cal.App.4th 1110 (1996) (holding agent may be held liable for agent's negligent representation that earthquake, fire and hazard insurance provided 100 percent replacement cost coverage); Free v. Republic Ins. Co., 8 Cal.App.4th 1726, 1729 (1992) (holding agent may be held liable for negligent representations regarding adequacy of coverage limits); Paper Savers, Inc. v. Nasca, 51 Cal.App.4th 1090, 1095 (1996) (holding agent may be held liable for negligently representing the meaning and effect of "replacement cost coverage" endorsement).
Equitable next contends that no cause of action lies against Sall because negligence actions can be maintained only against an insurance broker, and not an insurance agent. Generally, an agent, when acting in the name of the principal, is not personally liable for negligence committed within the scope of his or her employment. See Lippert v. Bailey, 241 Cal.App.2d 376, 382 (1966). California courts, however, have held "an insurance agent may assume a greater duty towards his insured by misrepresenting the policy's terms or extent of coverage." Paper Savers, 51 Cal.App.4th at 1097. See Butcher, 77 Cal.App.4th 1442 (holding agent may be held liable based on negligent misrepresentations by agent); Desai, 47 Cal.App.4th 1110 (same); Free, 11 Cal.App.4th 1726 (same).
Finally, Equitable contends that plaintiffs claim against Sall is barred by the statute of limitations. Equitable incorrectly asserts that the one-year limitations period provided in California Code of Civil Procedure § 340 is applicable. Under California law, plaintiffs claims against Sall are governed by the two-year statute of limitations provided in California Code of Civil Procedure § 339. See Butcher, 77 Cal.App.4th at 1467-68; 3 Witkin, Cal. Procedure, "Actions", §§ 449, 574 (4th ed. 1997). Defendant further argues plaintiffs claims against Sall are barred because the limitations period began upon the delivery of the policy to plaintiff on June 28, 1993. This argument fails as well. Plaintiffs cause of action did not accrue until such time as she had suffered appreciable damage. See e.g., Butcher, 77 Cal.App.4th at 1469-70 (holding insured's cause of action for negligence against agent and insurer began to accrue at the time the insurer denied coverage under the contract, since "the fact of any damage at all was completely uncertain until [the insurer] told [the insureds] it would not defend them. . . . Until the malicious prosecution action was filed and served, and appellants were required to defend, whether the omission of personal injury coverage would harm them at all was a mere possibility.").
Accordingly, Equitable has not met its burden of showing there is "no possibility that the plaintiff will be able to establish a cause of action against the in-state defendant in state court." See Green, 707 F.2d at 205. As a result, this Court lacks subject matter jurisdiction and the action must be remanded. See 28 U.S.C. § 1447 (c) ("If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.")
For the reasons stated, plaintiffs motion to remand is GRANTED and the action is hereby REMANDED to the Superior Court in and for the County of Contra Costa.
IT IS SO ORDERED.
JUDGMENT IN A CIVIL CASE
IT IS ORDERED AND ADJUDGED
plaintiff's motion to remand is GRANTED and the action is hereby REMANDED to the Superior Court in and for the County of Contra Costa.