United States District Court, C.D. Illinois
ORDER AND OPINION
E. SHADID CHIEF UNITED STATES DISTRICT JUDGE.
before the Court is a Motion to Dismiss for Lack of
Jurisdiction (Doc. 22) by Defendants Charles and Jean Swanson
and a Motion to Stay (Doc. 23) by Defendants Goeke and West
Bend Mutual Insurance Company. For the reasons set forth
below, the Motion to Dismiss for Lack of Jurisdiction (Doc.
22) is DENIED and the Motion to Stay (Doc. 23) is GRANTED.
The Parties are to file a status report informing the Court
of the status of the underlying litigation on or before
September 1, 2018.
declaratory judgment action was filed by Plaintiff, Catlin
Indemnity Company (“Catlin”), and names as
Defendants Karl A. Goeke (“Goeke”), Jean and
Charles Swanson (“the Swansons”), McLean County
Unit District No. 5 (“the District”), and West
Bend Mutual Insurance Company (“West Bend”). Doc.
1. In October 2017, the Swansons filed a complaint against
Goeke and the District in the Circuit Court of the Eleventh
Judicial Circuit in McLean County, Illinois, alleging that
they suffered personal injuries when Goeke negligently
operated his 2007 Toyota Prius and crashed into the Swansons.
Jean Swanson and Charles Swanson v. Karl Goeke and McLean
County Unit District No. 5, Case No. 2017 L 122 (McLean
Cnty Cir. Ct. filed Oct. 17, 2017).
to Catlin's Complaint, Goeke previously taught for the
District, but at the time of the accident he was employed
solely as President of the Unit Five Education Association.
Doc. 1, at 4. At the time of the accident, the District had
in place a commercial automobile policy (“the
Policy”) issued by Catlin. The Policy provided coverage
for anyone using the District's automobiles, but excluded
coverage for automobiles owned by employees. Id. at
5. However, the Policy also contained an endorsement which
appears to provide coverage for District employees when they
use their own vehicle while performing the District's
business or personal affairs. Id. Finally, the
Policy provided that coverage for automobiles not owned by
the District was excess over any other collectible insurance.
Goeke and his wife were insured under a West Bend personal
automobile policy that covered their 2007 Prius. Id.
filed this declaratory judgment action based on this
Court's diversity jurisdiction under 28 U.S.C. §
1332(a)(1). Catlin alleges in its Complaint that, for the
purposes of diversity jurisdiction, it is a citizen of
Delaware and Georgia, that Goeke is an Illinois citizen, the
Swansons are Illinois citizens, the District is an Illinois
citizen, and West Bend is a Wisconsin citizen. Id.
at 1-2. Catlin alleges in its Complaint that Goeke does not
qualify as an insured under the Catlin Policy because at the
time of the accident he was either not an employee of the
District, or he was not using his vehicle in the
District's business or personal affairs. Second, Catlin
alleges that its Policy is excess to West Bend's policy.
Id. at 7-12.
April 2, 2018, the Swanson Defendants filed a Motion to
Dismiss for Lack of Jurisdiction. Doc. 22. Therein, the
Swansons argue that they should be realigned in this action
as a plaintiff with Catlin because the Swansons are adverse
to Goeke and the District in the underlying litigation.
Id. at 4. The Swansons also argue that Catlin's
duty to defend is at issue in this Court, and thus the
Swansons and Goeke will have adverse interests until judgment
has been reached in the underlying litigation. Because
realignment of the Swansons as plaintiffs would destroy
diversity, the Swansons argue that this action should be
dismissed for lack of subject matter jurisdiction. Catlin
responded to the Swansons' Motion, arguing that
realignment of the Swansons as plaintiffs is improper because
Catlin and the Swansons have directly adverse interests as to
whether Goeke qualifies as an insured under the Policy. Doc
26, at 5-10. Further, Catlin argues that realignment is not
warranted in this case because West Bend is providing a
defense in the underlying litigation and therefore the duty
to defend is not at issue. Id. at 10-12. Also
pending is an unopposed Motion to Stay by the Goeke and West
Bend Defendants. Doc. 23.
principal federal statute governing diversity jurisdiction,
28 U.S.C. § 1332, gives federal district courts original
jurisdiction of all civil actions ‘between ... citizens
of different States' where the amount in controversy
exceeds $75, 000.” Lincoln Prop. Co. v. Roche,
546 U.S. 81, 89 (2005). “Ordinarily, a court will not
interfere with the consequences of a plaintiff's
selection in naming parties, unless the plaintiff has
impermissibly manufactured diversity or used an unacceptable
device to defeat diversity.” Lincoln Prop.
Co., 546 U.S. at 93 (quoting 16 J. Moore et al.,
Moore's Federal Practice § 107.14[c], p. 107-67
(3d ed. 2005)). However, “[w]here 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.”
American Motorists Ins. Co. v. Trane Co., 657 F.2d
146, 149 (7th Cir. 1981) (quoting Indianapolis v. Chase
National Bank, 314 U.S. 63 (1941)). “Realignment
is proper when … no actual, substantial controversy
exists between parties on one side of the dispute and their
named opponents, although realignment may destroy diversity
and deprive the court of jurisdiction.” Id.
their Motion to Dismiss for Lack of Jurisdiction, the Swanson
Defendants argue that they should be realigned in this action
with Plaintiff Catlin because the Swansons are adverse to
Goeke and the District in the underlying litigation. Doc. 22,
at 4. Although the Swansons acknowledge that “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), they argue
that this rule is inapplicable when the issue involves a duty
to defend prior to judgment in the underlying litigation.
Id. at 5-6. In support of their argument, the
Swansons cite to Preferred Chiropractic, an opinion
from the Southern District of Illinois, and Nath, an
opinion from this District, for the proposition that, unlike
the post-judgment determination of an insurer's duty to
indemnify a purported insured, “[i]n the actions
underlying declaratory judgment actions regarding duties to
defend, the insured and injured often have adverse
interests-an adversity which does not end until after a
judgment.” Preferred Chiropractic, LLC v. Hartford
Cas. Ins. Co., No. 10-CV-972-DRH, 2011 WL 2149091, at *3
(S.D. Ill. May 31, 2011) (citing Grinnell Select Ins. Co.
v. Glodo, No. 08-CV-891-JPG, 2009 WL 455126, at *2 (S.D.
Ill. Feb. 23, 2009)); Nath v. Lexington Ins. Co.,
No. 17-cv-2147-CSB-EIL, 2017 WL 4276642, at *1 (C.D. Ill.
Sept. 11, 2017), report and recommendation adopted,
2017 WL 4270625 (C.D. Ill. Sept. 26, 2017).
Catlin points out in its Response, nothing in the present
declaratory judgment action justifies deviating from the
normal rule that “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, 154 F.3d at 741. Although the Swansons and
Goeke have directly adverse interests in the underlying
litigation, at issue in this declaratory judgment action is
whether Goeke is an insured under the Catlin Policy and, if a
judgment is entered against the state court defendants in the
underlying litigation, whether Goeke must look first to the
West Bend policy to satisfy that judgment. Catlin's
interest in this litigation is to absolve itself of any
potential liability to the Swansons. In contrast, the
Swansons, Goeke, and the District all have an interest in
making sure Catlin foots the bill for any judgment in excess
of West Bend's policy limits. Therefore, an actual,
substantial controversy exists between Catlin and the named
Defendants. Indianapolis v. Chase National Bank, 314
U.S. 63, 69 (1941). A finding that Catlin owes a duty to
indemnify Goeke mutually benefits Goeke and the Swansons;
Goeke would be relieved of having to pay the judgment out of
his own pocket, at least to the extent of the policy limit,
and the Swansons would be assured that they will be able to
collect at least a portion of the judgment owed them. See,
e.g., Grinnell Select Ins. Co. v. Glodo, No.
08-CV-891-JPG, 2009 WL 455126, at *2 (S.D. Ill. Feb. 23,
2009) (“[A]ny finding that the insurer owes a duty to
indemnify an insured mutually benefits the insured party and
the injured party.”); Hulliung Gymnastics, Inc. v.
Philadelphia Indem. Ins. Co., No. 13-CV-1279-JPG-DGW,
2014 WL 3400549, at *2 (S.D. Ill. July 9, 2014) (“[I]n
a declaratory judgment action such as the instant case, the
insurance company is really the adversary of the insured and
the insured's victim.”).
Swanson Defendants attempt to distinguish this case from the
normal rule on alignment of parties by insisting that
Catlin's duty to defend is at issue, and therefore Goeke
and the Swansons will have adverse interests that will not
end until a final judgment is reached in the underlying
litigation. Doc. 22, at 7. True, the Swansons' interest
in the underlying litigation is to obtain a quick, large
judgment against Goeke and the District. The provision of
a defense to Goeke and the District will likely
impede that goal, thus running counter to the Swansons'
interests. But West Bend is already providing a defense to
the District and Goeke in the underlying action, and West
Bend appears to concede that Catlin's policy is excess to
West Bend's obligations under its own policy. See Answer,
Doc. 13, at ¶ 57. The Swansons do not attempt to explain
why they should have any say in whether Catlin or West Bend
provides that defense.
the issue of who provides a defense to Goeke further
justifies the current alignment of the Parties. Assume that
Goeke qualifies as an insured under the Catlin Policy, and
the Swansons obtain a judgment well in excess of the West
Bend policy limits. As far as West Bend is concerned, there
is no difference between a judgment against Goeke for the
policy limits and a judgment against Goeke for triple the
policy limits. The same does not hold true for Catlin, who
may later wish to provide Goeke a defense so that it can
control the litigation and limit its potential exposure.
Again, the Swansons and Catlin have adverse interests.
Therefore, “the normal alignment of parties in a suit
seeking a declaratory judgment of non-coverage”-i.e.,
“Insurer versus Insured and Injured
Party”-applies, and the Parties are properly aligned.
Home Ins. Co. of Illinois, ...