Parties realigned in coverage dispute

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Where a man sued various defendants for personal injuries he allegedly suffered in an accident, the insurance carrier maintained it had no duty to defend or indemnify the defendants, and the man commenced this coverage action, the defendants were realigned as plaintiffs because they all would benefit from a finding that the carrier has an obligation to defend and indemnify.

Background

This is a declaratory judgment action removed from state court, seeking a determination of insurance coverage. The matter is before the court on a motion to realign the parties filed by defendant Builders Mutual Insurance Company and a motion for leave to amend complaint filed by plaintiff George Smallwood.

Motion to realign

The primary issue in dispute, according to Builders Mutual, is whether its policy provides coverage benefits, including an obligation to defend or indemnify, to any of the defendants named in the state court personal injury complaint. Builders Mutual contends that the interests of plaintiff and the insured defendants are aligned because they all would benefit from a finding that Builders Mutual has an obligation to defend and indemnify.

Plaintiff concedes that it is generally proper to realign the parties according to the actual issues in controversy as set forth in the pleadings. Because plaintiff’s proposed amended complaint seeks to assert a new claim and adds new parties, however, plaintiff contends that his “principal purpose in filing suit” may be changed. Plaintiff argues that it would be premature for this court to consider Builders Mutual’s motion to realign because the primary issue in controversy may change based on the amended complaint.

The court is unpersuaded by plaintiff’s argument that realignment is premature in light of the proposed amended complaint. The proposed amended complaint adds just a single count, and that count — just like the lone count in the original complaint — seeks declaratory judgment concerning insurance coverage (albeit coverage under the ACE policy, not the Builders Mutual policy). Accordingly, this does not change the principal purpose of plaintiff’s suit, which is to obtain a coverage decision from this court in order to effectively pursue tort relief in state court.

Turning to the merits of Builders Mutual’s motion to realign, in light of their common interest in a finding of coverage, the insured defendants are neither nominal nor aligned with Builders Mutual. Rather, Builders Mutual is the only defendant with an interest in proving that it has no duty to provide coverage to the insured defendants, while the insured defendants and plaintiff have a strong interest in establishing the opposite. Several other courts both within and without the Fourth Circuit have reached similar conclusions under parallel circumstances.

Having determined that the insured defendants should be treated as party-plaintiffs, the court accordingly finds that complete diversity exists between plaintiffs and Builders Mutual, and thus that the requirements of 28 U.S.C. §§ 1332 and 1441 are satisfied, establishing this court’s jurisdiction over the matter.

Motion to amend

Plaintiff seeks to add Alsop and ACE to his complaint because plaintiff was “using” an Alsop tractor trailer when plaintiff received his injuries and ACE allegedly provided commercial automobile coverage to Alsop. Further, plaintiff’s proposed amended complaint includes a new claim for declaratory judgment seeking coverage benefits under ACE’s policy for plaintiff’s injuries.

Builders Mutual opposes plaintiff’s motion for leave to amend because plaintiff seeks no relief against Alsop, rendering joinder improper under 28 U.S.C. § 1447(e). Builders Mutual argues that, absent any actual stated claim against Alsop, plaintiff’s “only reason” for adding Alsop would be to defeat diversity jurisdiction.

Although courts may deny leave to amend where doing so would add a fraudulently joined defendant, even where the amendment would otherwise be of right, the court finds that such a step is not required here because there is no fraudulent joinder. Instead, the court finds that Alsop is a nominal party whose inclusion as a defendant does not impact the diversity analysis.

In contrast to the insured defendants (now to be realigned as party-plaintiffs), Alsop does not presently face exposure or liability from pending personal injury claims, and thus there is no immediate exposure for Alsop should the court rule against plaintiff on the declaratory judgment claim against ACE.

Defendant’s motion to realign parties granted. Plaintiff’s motion for leave to file amended complaint granted.

Smallwood v. Builders Mutual Insurance Company, Case No. 3:23-cv-67, Aug. 10, 2023. EDVA at Richmond (Young). VLW 023-3-474. 11 pp.