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TRAVELERS INDEM. CO. v. METROPOLITAN LIFE INS. CO.

July 8, 1992

THE TRAVELERS INDEMNITY COMPANY OF ILLINOIS, Plaintiff, against METROPOLITAN LIFE INSURANCE COMPANY and NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., Defendants. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA. Third-Party Plaintiff, -against- INTERNATIONAL INSURANCE COMPANY, Third-Party Defendant.

Leval


The opinion of the court was delivered by: PIERRE N. LEVAL

PIERRE N. LEVAL, U.S.D.J.

 This is an action for declaratory judgment brought by the Travelers Indemnity company of Illinois (Travelers), the issuer of comprehensive general liability insurance (CGL) covering Metropolitan Life Insurance Company (Met), to determine the obligations of Travelers to Met under the policies. Named as defendants are not only Met, the insured, but also National Union Fire Insurance company of Pittsburgh, PA (National), the issuer of an umbrella and excess policy covering Met. Defendant Met moves to dismiss the action under Rule 12 for lack of diversity among the parties or alternatively, on grounds of forum non conveniens. National joins Travelers in opposing the motion.

 Citizenship of the Parties

 Plaintiff Travelers is an Illinois corporation with its principal place of business in Connecticut. Defendant Met is a New York corporation with its principal place of business in New York. Defendant National is a Pennsylvania corporation with its principal place of business in New York. Thus, as the complaint is pleaded, there is complete diversity as between plaintiff and defendants. Met, however, contends that the parties have been misaligned. It contends National was improperly joined as a defendant, that National's interests are aligned with Travelers', and that National should therefore be realigned as a plaintiff. If this were done, the New York citizenship of plaintiff National and defendant Met would preclude diversity jurisdiction. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267, 2 L. Ed. 435 (1806).

 Background

 In 1989 and 1990, Travelers provided Met with CGL coverage up to a limit of $ 10,000,000 per occurrence with a yearly cap of $ 25,000,000. Travelers contends its policies expressly exclude Errors and Omissions (E&O) coverage, which is a form of professional malpractice insurance, as well as coverage for losses arising out of the conduct of Met's insurance and related financial services businesses. *fn1"

 For the year 1989 National provided Met with "excess" umbrella coverage with a limit of $ 10,000,000. National contends its policy also excludes E&O coverage. Insofar as pertains to this action, the scope of coverage and exclusion under the National policy are very similar to Travelers' although not written in identical words. *fn2"

 During 1990 and 1991, liabilities were asserted against Met by third parties in three Texas state court actions: Herzing, et al. v. Metropolitan Life Insurance Company, et al., No. C-1681-90-A, District Court of Hidalgo County, 92nd Judicial District; Bond, et al. v. Metropolitan Life Insurance Company, et al., No. C-2584-91-A, District Court of Hidalgo County, 92nd Judicial District; and Heward, et al. v. Metropolitan Life Insurance Company, et al., No. C-91-020325, District Court of Harris County, 190th Judicial District. The plaintiffs in these actions assert that in 1989 and 1990 a sales representative of Met, Donald Bryant, Jr., fraudulently promised that Met would arrange a series of "self-liquidating, non-recourse loans" for over $ 27,000,000 in return for the payment of commitment fees totaling approximately $ 82,000, that the commitment fees were paid but that the loans were never provided. The Texas suits allege claims in tort and contract, as well as violations of Texas statutes, and assert liability on the part of Met in the hundreds of millions of dollars.

 Met demanded that Travelers defend the Texas claims. Travelers first denied any coverage or obligation. Travelers then agreed to defend the Herzing action and to pay Met's defense costs in the other two suits, in each case under a reservation of rights.

 After providing the defense of the Herzing action for a substantial period of pretrial proceedings, Travelers filed this declaratory judgment action seeking adjudication of its disclaimer of obligations.

 One week later, Met filed an action in the Texas state court seeking declaratory judgment against Travelers, National, and International Insurance Company ("International"), the insurer that provided Met with umbrella coverage for 1990.


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