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Grinnell Select Insurance Co. v. Glodo

February 23, 2009

GRINNELL SELECT INSURANCE COMPANY, A CORPORATION, PLAINTIFF,
v.
BRIA GLODO AND LARRY KEOWN, DEFENDANTS.
LARRY KEOWN, PLAINTIFF,
v.
BRIA GLODO AND GRINNELL SELECT INSURANCE COMPANY, A CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: J. Phil Gilbert District Judge

MEMORANDUM AND ORDER

This matter comes before the Court on Grinnell Select Insurance Company's (Grinnell) Motion to Realign Parties (Doc. 7) filed in case 09-cv-004-JPG, and on Larry Keown's (Keown) Motion to Dismiss or in the Alternative Stay (Doc. 7) filed in case 08-cv-871-JPG. Keown also filed a Motion for Remand (Doc. 8) in case 08-871, although presumably he intended to have filed that motion in case 09-004, as that is the case number for the removed case.

BACKGROUND

The procedural posture of these two mirror-image cases is a bit confusing, but none of the facts are in dispute. Keown and Brett Glodo (Brett) were involved in an auto collision that resulted in Keown being seriously injured. At the time of the accident, Brett was driving a pickup truck owned by his father-in-law, Terry Ernsting (Ernsting). Ernsting had allowed his daughter, Bria Glodo (Bria), to use the truck. Bria, in turn, allowed her husband, Brett, to use it. Brett did not have a valid driver's license at the time of the accident. Keown brought an action in tort against Bria, Brett, and Ernsting in the Circuit Court for Jackson County, Illinois (the underlying action). On December 5, 2008, Keown obtained a jury verdict in his favor in the underlying action in the amount of $600,000 against Bria and Brett. The jury found Ernsting was not liable. The jury found that Bria had negligently entrusted her father's vehicle to Brett.

Grinnell had issued an automobile insurance policy on the truck to Ernsting. Grinnell had obtained a declaratory judgment that it had no duty to defend or indemnify Brett, however, Grinnell agreed to defend Bria in the underlying action under a reservation of rights.

After the jury returned its verdict against Bria, on December 17, 2008, Grinnell filed suit against Keown and Bria in case number 08-871 in this Court seeking a declaratory judgment that it has no duty under Ernsting's policy to indemnify Bria nor any duty to Keown, her judgment creditor. Jurisdiction was based on 28 U.S.C. § 1332, because Bria and Keown are both citizens of Illinois and Grinnell is a citizen of Iowa and more that $75,000 is in controversy.

Two days prior to Grinnell's filing, on December 15, 2008, Keown had filed suit against Grinnell and Bria in Jackson County Circuit Court seeking a declaratory judgment that Grinnell owed a duty to indemnify Bria under Ernsting's policy. Grinnell timely removed the Jackson County case to this Court, where it was assigned case number 09-004. Simultaneously with its notice of removal, Grinnell filed the motion to realign parties presently before the Court. The cases are virtual mirror images of one another. In 08-871 Grinnell asks for a declaratory judgment that Bria is not a covered individual under the policy. In 09-004, Keown asks for a declaratory judgment that she is.

The question before the Court is whether Bria's interests are properly aligned with Keown's, thus resulting in complete diversity of citizenship and federal jurisdiction, or whether Bria's interests are properly aligned with Grinnell's, thus destroying complete diversity and federal jurisdiction. Should the Court align Bria with Keown, case numbers 08-891 and 09-004 will be consolidated. Should the Court align Bria with Grinnell, case number 08-891 will be dismissed for lack of jurisdiction and case number 09-004 will be remanded to Jackson County Circuit Court.

In essence, Grinnell contends that the interests of Bria and Keown are identical, that is, to obtain indemnification for Bria from Grinnell in the policy limit of $300,000 so that she may partially satisfy the judgment debt she owes Keown. For his part, Keown contends that his interests are adverse to Bria's because she owes him $600,000 and the policy limit, assuming Grinnell has a duty to pay it, is only $300,000, and that he and Bria have a history of antagonistic interests which culminated in the underlying action.

ANALYSIS

"Where jurisdiction is based on diversity of citizenship, the court may ascertain whether the alignment of the parties as plaintiff and defendant conforms with their true interests in the litigation. Realignment is proper when the court finds that no actual, substantial controversy exists between parties on one side of the dispute and their named opponents." American Motorists Ins. Co. v. Trane Co. 657 F.2d 146, 149 (7th Cir.1981) (citing Indianapolis v. Chase National Bank, 314 U.S. 63, 62 S.Ct. 15, 86 L.Ed. 47 (1941)).

Here, there is no question but that Bria's interests align with those of Keown. As the Seventh Circuit has pointed out, "the normal alignment of parties in a suit seeking a declaratory judgment of non-coverage is Insurer versus Insured and Injured Party." Home Ins. Co. of Illinois v. Adco Oil Co., 154 F.3d 739, 741 (7th Cir.1998). This is so because any finding that the insurer owes a duty to indemnify an insured mutually benefits the insured party and the injured party. The insured party is relieved of having to pay the judgment out of his own pocket, at least to the extent of the policy limit. At the same time, the injured party is assured that he will be able to collect at least a portion of the judgment owed him. What is true in the usual case, is true here. The singular interest of both Bria and Keown is in obtaining a declaration that Grinnell must pay at least part of the judgment that Bria owes Keown. The fact that the judgment exceeds the policy limits does nothing to diminish this fact, nor to make Bria's interests in the instant case adverse to Keown's. And, while it is true that Bria and Keown had adverse interests in the underlying case, that case has proceeded to judgment, at which point their legal adversity came to an end. Therefore, the Court will realign the parties accordingly.*fn1*fn2

Keown also contends that even after realignment, diversity jurisdiction is still lacking. Keown points to 28 U.S.C. § 1332(c)(1) which states:

For the purposes of this section and section 1441 of this title--(1) a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the 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 the State of which the insured is a ...


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