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United Property and Casualty Insurance Co. v. Davis

United States District Court, S.D. Texas, Houston Division

April 25, 2019



          Lee H. Renthal Chief United States District Judge

         United Property and Casualty Insurance Company sued Charlene Davis and Robbin Holder, seeking a declaratory judgment that it has no duty under Davis's insurance policy to defend or to indemnify Davis in an underlying state-court lawsuit between Davis and Holder pending in the 234th Judicial District of Harris County, Texas. (Docket Entry No. 1). Davis moved to dismiss, and United Property responded. (Docket Entry Nos. 25, 27). After a careful review of the pleadings, the motion, response, and the applicable law, the court denies the motion to dismiss. The reasons for this ruling are detailed below.

         I. Background

         This dispute arises from a homeowner's insurance policy that United Property issued to Davis for her LaPorte, Texas residence. (Docket Entry No. 1 at ¶ 3.1). The policy period ran from September 28, 2016 to September 28, 2017. (Id. at ¶ 3.5). In 2016, Doug Longron lived with Davis and ran a car repair business on the insured property. (Id. at ¶ 3.4). On October 13, 2016, Robbin Holder had her vehicle towed to the property for repair. Longron gave Holder a ride to the car so she could retrieve her belongings. (Id.). Holder alleged in the underlying litigation that while she was on the property, Davis hit her with the butt of a handgun, which discharged, striking Holder. (Id.).

         United Property alleges that the homeowner's policy does not cover the injuries and legal costs arising from that incident, because the policy covers only “damages due to an ‘occurrence, '” including an accident resulting in bodily injury, but does not cover “expected or intended” bodily injury by the policyholder. (Id. at ¶¶ 4.2, 4.3). United Property alleges that Davis's actions were not accidental, excluding coverage. The policy also excludes from coverage bodily injuries “arising out of or in connection with a ‘business' conducted from an ‘insured location' or engaged in by an ‘insured.'” (Id. at ¶ 3.6). United Property alleges that because “Longron, a person living on the insured premises, had been operating an automobile repair shop out of the insured premises, ” the policy excludes coverage for the incident, the state-court case, and related claims. (Id. at ¶ 4.4). United Property alleges that the policy's exclusion of bodily injury arising from “physical or mental abuse” also applies because “Davis assaulted Holder.” (Id. at ¶ 4.5). United Property seeks a declaratory judgment that it has no duty to defend or indemnify in the underlying lawsuit. (Id. at ¶ 3.1).

         Davis argues in her motion to dismiss that the court lacks subject-matter jurisdiction over this case; that the court should decline to exercise jurisdiction because a related case is pending in state court; and that United Property has failed to state a claim for which the court can grant relief. (Docket Entry No. 25).

         II. The 12(b)(1) Motion

         A. The Legal Standard

         Federal Rule of Civil Procedure 12(b)(1) governs challenges to a court's subject-matter jurisdiction. “A case is properly dismissed for lack of subject[-]matter jurisdiction when the court lacks the statutory or constitutional authority to adjudicate the case.” Home Builders Ass'n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998) (quoting Nowak v. Ironworkers Local 6 Pension Fund, 81 F.3d 1182, 1187 (2d Cir. 1996)). “Courts may dismiss for lack of subject matter jurisdiction on any one of three bases: (1) the complaint alone; (2) the complaint supplemented by undisputed facts in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts.” Clark v. Tarrant Cty., 798 F.2d 736, 741 (5th Cir. 1986) (citing Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981)).

         B. Analysis

         1. Whether Diversity of Citizenship Exists for Jurisdiction Under § 1332

         Davis argues that the court should dismiss United Property's complaint for lack of subject-matter jurisdiction because there is not complete diversity of citizenship and the Declaratory Judgment Act, 28 U.S.C. § 2201, does not provide a basis for federal-question jurisdiction. (Docket Entry No. 25 at 1-3). Davis argues that because she has asserted third-party claims against Goosehead Insurance Agency, LLC, an alleged Texas citizen, [1] there is no longer complete diversity and dismissal is required. She also argues that she and Holder, both Texas citizens, should be realigned “on opposite sides of the litigation, ” which would destroy diversity. (Id. at 3).

         United Property responds that this court has subject-matter jurisdiction through diversity jurisdiction. (Docket Entry No. 1 at ¶ 2.1). United Property alleges that the parties are diverse because Davis and Holder are both citizens of Texas and United Property has its principal place of business in Florida. (Docket Entry No. ¶¶ 2.1, 1.1-1.2).

         While Davis is correct that complete diversity between the plaintiff and defendants is required, her claims against Goosehead assuming Texas citizenship, does not destroy diversity jurisdiction. Diversity of citizenship among parties is evaluated based on their citizenship when the action was filed. Smith v. Sperling, 354 U.S. 91, 93 (1957). Third-party defendants are evaluated under a different standard.

         A district court cannot exercise supplemental jurisdiction “over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 . . . when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of” 28 U.S. § 1332, ” the statutory grant of diversity jurisdiction. 28 U.S.C. § 1367(b). Davis is not a “plaintiff” under § 1367(b) because “‘plaintiff' in § 1367(b) refers to the original plaintiff in the action-not to a defendant that happens also to be a counter-plaintiff, cross-plaintiff, or third-party plaintiff.” State Nat'l Ins. Co. v. Yates, 391 F.3d 577, 579-80 (5th Cir. 2004). Because United Property has alleged complete diversity of the parties' citizenship and over $75, 000 in controversy, the court has subject-matter jurisdiction under § 1332.

         Davis argues that she and Holder should be realigned to opposite sides of this litigation, defeating diversity because both are both Texas citizens. (Docket Entry No. 25 at 3). While Davis and Holder are adverse in the underlying lawsuit, they have the same interest in United Property covering any judgment or settlement against Davis in that suit. Courts in this circuit have reached this conclusion and rejected arguments for realignment in similar declaratory judgment cases. See, e.g., Dawson v. Legion Idenm. Co., No. 3:99-cv-2772-H, 2000 WL 124813, at *2 (N.D. Tex. Feb. 1, 2000) (“[T]he normal alignment of parties in a suit seeking a declaratory judgment of non-coverage is Insurer versus Insured and Injured Party.” (quoting H o m e I n s . C o . o f I l l . v . A d c o O i l C o . , 154 F.3d 739 (7th Cir. 1998))); see also ...

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