United States District Court, N.D. Illinois, Eastern Division
Pierre Camy and Jolene Vos, as assignees of Edward O'Hayer and Luisa Dones, Plaintiffs,
Triple-S Propiedad, Inc., Defendant.
MEMORANDUM OPINION AND ORDER
JOHN ROBERT BLAKEY, District Judge.
This is an insurance coverage action. Plaintiffs, who are assignees of the insureds, originally brought this action in the Circuit Court of Cook County based on Defendant's alleged breach of an insurance contract. Plaintiffs brought three claims against the Defendant insurer: (I) declaratory judgment; (II) breach of contract; and (III) bad faith breach of contract. Defendant removed this matter on March 24, 2015 based on diversity jurisdiction. . Plaintiffs now seek to remand  and Defendant moves to Transfer . Both motions are denied for the reasons explained below.
This matter has its origin in an armed attack on a beach house in Loiza, Puerto Rico. [1-1]. Plaintiffs, Pierre Camy and his wife Jolene Vos, had rented the beach house from Edward O'Hayer and Luisa Dones for a week in January 2011. [1-1] at ¶ 17. During their stay, local gang members violently attacked the beach house. Id. They shot and seriously injured Camy, whose severe injuries resulted in paraplegia. Id. at ¶ 18-19. Vos suffered extreme shock and mental anguish from the attack, in addition to loss of consortium from her husband. Id. at 20. Following that incident, Plaintiffs brought a tort action in Cook County Circuit Court against O'Hayer and Dones for landlord tenant liability, innkeeper liability, premises liability, negligent infliction of emotional distress and fraudulent misrepresentation. [29-6].
O'Hayer and Dones had an insurance policy (the "Policy") with the Defendant that covered personal property damage and personal liability. [29-1]. In response to Plaintiffs' tort action, O'Hayer and Dones initially retained counsel. That counsel alerted Defendant to the tort action and demanded that it provide a legal defense as required by the Policy. [1-1] at ¶ 24. Defendant refused, and denied any obligation to extend coverage under the Policy based on the "business-pursuits" exclusion. Essentially, Defendant claimed that the Policy did not require coverage for business pursuits operated by the insured or from the insured location ( i.e., renting the beach house). Id. at ¶ 26-29.
After the denial of defense, counsel withdrew. Id. at ¶ 32. O'Hayer and Dones could not find replacement counsel or adequately defend themselves and, as a result, the circuit court entered a $5, 750, 000 Default Judgment against them on January 22, 2013. Id. at ¶ 33-35. On October 30, 2014, O'Hayer and Dones assigned all rights and claims they had against Defendant to Plaintiffs, including those rights and claims arising under the Policy. Id. at ¶ 14. Based on the assignment of those rights, Plaintiffs then filed a Complaint with the Circuit Court of Cook County asserting the following causes of action against the Defendant:
Count I: Declaratory Judgment - The attack constitutes a covered "occurrence" under the Policy triggering Defendant's duties to defend and indemnify.
Count II: Breach of Contract/Failure to Defend - Defendant breached the Policy in four ways: (1) by refusing to defend O'Hayer and Dones; (2) by failing to defend O'Hayer and Dones under a reservation of rights; (3) by failing to conduct a proper investigation; and (4) by failing to promptly file a declaratory action to determine the existence of coverage.
Count III: Bad Faith Breach of Contract in Violation of 215 ILCS 5/155 - Defendant's breach of its duty to provide a legal defense was vexatious and unreasonable.
II. Motion to Remand
On March 24, 2015, Defendant removed the case from Cook County, , and the parties now dispute the proper location for adjudication. Plaintiffs have filed a motion to remand , and Defendant has requested a transfer to the District Court of Puerto Rico. . The Court will address each motion in turn.
A. Legal Standard
A case originating in state court is removable to federal court only if it could have originally been brought there. 28 U.S.C. § 1441(a). Under 28 U.S.C. § 1332, a case is properly brought before this Court sitting in diversity jurisdiction if: (1) the parties are completely diverse, and (2) the amount in controversy exceeds $75, 000. Additionally, a removing defendant in a diversity case must satisfy the requirements of 28 U.S.C. § 1441(b)(2), known as the "forum defendant rule." Under the forum defendant rule, a diversity case "shall be removable only if none of the parties in interest properly joined and served as defendants is a citizen of the State in which such action is brought." Id. Plaintiffs, relying on the "direct action" provision of 28 U.S.C. § 1332(c)(1), claim that Defendant is a citizen of Illinois and therefore this matter should be remanded pursuant to the forum defendant rule.
Remand is inappropriate because this Court has diversity jurisdiction and the forum defendant rule does not apply. Based on the notice of removal, the parties are diverse under Section 1332. . Plaintiffs do not appear to dispute this fact. Instead, they argue that this matter was improperly removed under the forum defendant rule, because Defendant is an Illinois citizen under 28 U.S.C. § 1332(c)(1).
According to Section 1332(c)(1), a corporation is deemed "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... to which action the insured is not joined as a party-defendant, such insurer shall be deemed a citizen of - (A) every State and foreign state of which the insured is a citizen." Plaintiffs argue that this lawsuit is a "direct action" and therefore Defendant should be deemed a citizen of Illinois. If considered a citizen of Illinois, the state in which this case was originally filed, removal to federal court was improper under the forum defendant rule. This matter turns, then, on whether the present litigation is a "direct action."
While the statute and Seventh Circuit case law do not expressly address the issue, the courts in this District and throughout the nation have adopted a nearly uniform definition of "direct action." According to those courts, a direct action is where a party who suffered damage for which the insured is legally responsible brings suit against the insured's "liability insurer without joining the insured or first obtaining judgment against the legally responsible party." Camelback Properties v. Phoenix Ins. Co., No. 10 C 01467, 2010 WL 2402929, at *2 (N.D. Ill. June 15, 2010). By comparison, "[a] suit by an insured against his or her own insurer is denominated a first-party action. The direct-action rule of Section 1332(c) does not apply to a first party action, whether the action is based on denial of coverage or bad-faith insurance practices." Id. 
This lawsuit is not a direct action because: (1) Plaintiffs obtained judgment against O'Hayer and Dones before filing suit against their insurer, and (2) it is a first party action between the Plaintiffs ...