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Pugh v. AIG Property Casualty Co.

United States District Court, E.D. Kentucky, Southern Division, Pikeville

January 3, 2019

ROBERT PUGH, et al., Plaintiffs,



         This matter is before the Court on the plaintiffs' motion to reconsider (DE 18) the Court's order denying their motion to remand. In the order, the Court found that non-diverse defendants Virginia Goff and Durrett Insurance Agency had been fraudulently joined and, thus, this Court has diversity jurisdiction over the action.

         Also before the Court is Goff and Durrett's motion to dismiss (DE 17) them from this action. Finally, the plaintiffs move the Court to amend their complaint to add claims and allegations against Goff and Durrett.

         For the following reasons, the Court continues to find that the complaint at the time of removal fraudulently joined Goff and Durrett. Thus, the Court will deny the motion to reconsider and grant the motion to dismiss. As to the motion to amend the complaint, the Court will deny it.

         I. Background

         The plaintiffs (collectively, “Pugh”) filed this action in Letcher Circuit Court against their insurer - AIG Property Casualty Co. - and the insurance agency and agent who sold him the insurance policy at issue alleging that all three negligently failed to renew the policy. (DE 1-1, State Court Complaint.) Pugh made clear in his motion to remand that he asserts only a negligence claim in the state-court action. (DE 4, Mot. at 2, ¶2.)

         AIG removed the action to this Court, asserting that this Court has jurisdiction under 28 U.S.C. § 1332. That statute provides that district courts shall have original jurisdiction over all civil actions where the matter in controversy exceeds the sum or value of $75, 000 and is between citizens of different states. 28 U.S.C.A. § 1332(a)(1). In order for a defendant to remove a case to federal court based upon diversity jurisdiction, there must be complete diversity of citizenship. Jerome-Duncan, Inc. v. Auto-By-Tel, L.L.C., 176 F.3d 904, 907 (6th Cir.1999).

         Plaintiff Pugh is a Kentucky citizen, and defendants Virginia Goff (the insurance agent) and Durrett Insurance Agency are also Kentucky citizens. AIG argued in its notice of removal that removal was nonetheless proper here because the Court need not consider the citizenship of Durrett or Goff because they have been “fraudulently joined” as defendants in this action. “When a non-diverse party has been joined as a defendant, then in the absence of a substantial federal question the removing defendant may avoid remand only by demonstrating that the non-diverse party was fraudulently joined.” Id. (quoting Batoff v. State Farm Ins. Co., 977 F.2d 848, 851 (3d Cir.1992)).

         It is well established that the burden of proving fraudulent joinder of a non-diverse defendant is on the removing party. Alexander v. Electronic Data Systems Corp., 13 F.3d 940, 948-949 (6th Cir. 1994). “To prove fraudulent joinder, the removing party must present sufficient evidence that a plaintiff could not have established a cause of action against non-diverse defendants under state law.” Coyne v. American Tobacco Co., 183 F.3d 488, 493 (6th Cir. 1999). If there is a colorable basis for predicting that a plaintiff may recover against a non- diverse defendant, this Court must remand the action to state court. Id. The test is not whether the defendants were added to defeat removal but “whether there is arguably a reasonable basis for predicting that the state law might impose liability on the facts involved.” Alexander, 13 F.3d at 949 (citation and quotations omitted). All disputed questions of fact and all ambiguities in the controlling state law should be resolved in favor of the plaintiff. Id.

         In order to state a negligence claim under Kentucky law, a plaintiff must establish the following elements: “(1) a duty on the part of the defendant; (2) a breach of that duty; and (3) consequent injury.” Mullins v. Commonwealth Life Ins. Co., 839 S.W.2d 245, 247 (Ky.1992). In removing this action, AIG argued that Pugh has not asserted a colorable negligence claim against Goff or Durrett because neither the insurance agency nor the agent had a duty to renew Pugh's insurance policy or even the authority to do so.

         There is no dispute that AIG did not renew Pugh's insurance policy. The issue on the motion to remand was whether there is a reasonable basis for predicting that state law might impose liability upon Goff or Durrett for AIG's failure to renew the policy. In its prior opinion on the motion to remand, the Court noted that there is no dispute that neither Goff nor Durrett had even the ability to renew the AIG policy. The policy provides that AIG “may elect not to renew the policy.” (DE 1-2, Policy at CM-ECF pp. 45, 49.) It does not provide that either Goff or Durrett or any other insurance agent has any authority over renewing the policy.

         Lacking even the ability to renew the policy, neither Goff nor Durrett could be deemed under Kentucky law to have had a duty to renew the policy. Thus, in denying the motion to remand, the Court determined there was no colorable basis for predicting that a Kentucky court might impose liability on Goff or Durrett for failing to renew the policy.

         II. Motion to Reconsider

         In Pugh's motion to reconsider the Court's denial of his motion to remand, Pugh argues the Court's ruling erred in two ways. First, he argues that the Court failed to acknowledge that Durrett is an independent insurance agency and, thus, owes a duty of reasonable care to its insureds. This may be true, but the issue on this motion is whether Goff or Durrett owed Pugh a specific duty: the duty to renew the AIG policy. Again, Pugh does not dispute that AIG had the sole authority to ...

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