District Court Dismisses Cases Against Reinsurance Policyholder Sua Sponte For Lack Of Subject Matter Jurisdiction

Health Facilities of California Mut. Ins. Co., Inc. v. British American Ins. Grp., Ltd. et.al.(United States District Court, Central District of California, January 11, 2011)

This reinsurance dispute arises from claims involving the return of excess deposits and premiums from certain reinsurance contracts entered into by plaintiff, Health Facilities of California (HFC), an incorporated risk retention group.  Defendants, British American Insurance Group (BAIG) and Peter Myrtle, are Louisiana citizens acting as reinsurance intermediaries transmitting premiums payments, payments of return premium and collecting payments. 

HFC entered into a reinsurance contract with defendants; however, before BAIG calculated the precise premiums, HFC provided a deposit upon execution of the contract with the understanding that any excess deposit would be returned.  After the premiums on the reinsurance contract were calculated, HFC was allegedly owed $2.1 million in excess deposits.  When HFC demanded a return of same, BAIC instructed plaintiff to apply the money to further insurance premiums, against HFC’s wishes, who then brought suit.

Previously, the court issued an Order to Show Cause regarding the court’s subject matter jurisdiction and its concerns that HFC was not diverse from Defendants BAIG and Peter Myrtle.  The complaint alleged that HFC is a Nevada domiciled mutual insurance company organized and operated under the federal Liability Risk Retention Act of 1986.  However, the complaint was silent as to HFC’s principal place of business, stating only that HFC issued professional and general liability insurance policies to California health facilities and that all of HFC’s insurance transactions and risks are in California.  The court noted that while it was undisputed that HFC’s board of directors, President, Secretary and Treasurer directed and controlled the management of the corporation, the issue was from where did they primarily operate. 

Upon a detailed inquiry into the facts of the case, the court found a lack of diversity, dismissing the case for lack of subject matter jurisdiction.  Specifically, the court determined that the plaintiff failed to carry its burden in establishing a complete lack of diversity of the parties.  The board makes decisions, at least in part, on conference calls where four of the seven board members are physically in California and three are not.  Based on Hertz v. Friend, 130 S. Ct. 1181 (2010), the court noted that “‘a corporation shall be a citizen of any state by which it has been incorporated and of the state where it has its principal place of business’” thus providing dual citizenship to any corporation meeting this criteria.

Here the court was not persuaded that because the majority of the board of directors was located in California and because some board meetings have taken place in California via telephone that the principal place of business was, indeed, California.  On the contrary, defendants showed that HFC’s President, Secretary, and Director were located in Louisiana, which was also the only place identified as having an office and which was listed on the firm’s website.  The court further determined that plaintiff’s allegations as to the location of several board members and the concentration of there risks in California was unavailing and spoke to the corporation’s “‘center of gravity’ a diversity consideration dispensed with in Hertz.”

Consequently, plaintiff’s failure to carry its burden in identifying the single principal place of business was fatal to establishing diversity and federal subject matter jurisdiction.  Moreover, as plaintiff appeared to share citizenship in Louisiana with BAIG and Myrtle, the court’s basis for subject matter jurisdiction was destroyed.

For a copy of the decision click here 

Paul Steck and Tom Segalla

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Segalla.html

Leave a Reply

1 Comment

  1. Too often, we see companies forget to take care of the workers whose efforts and hard work keep things running. It isn’t fair when they endure an injury at the workplace and aren’t properly compensated. Our firm is dedicated to protecting your rights.
    http://www.compmanwc.com

Next ArticleReinsurer Files Declaratory Judgment Action to Disqualify Law Firm’s Representation of Insurer