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Oshetski v. Allstate Insurance Co.

United States District Court, S.D. New York

July 6, 2017


          Anna Karin F. Manalaysay James M. Adrian ADRIAN & ASSOCIATES, LLC Attorneys for Plaintiffs.

          Daniel W. Coffey BOWITCH & COFFEY LLC Attorneys for Defendants.



         This matter is before the Court on plaintiffs' motion to remand the case to the New York Supreme Court, New York County, from which it was removed on the basis of diversity of citizenship. The motion presents the question whether this is a “direct action” against an insurance company within the meaning of Section 1332(c)(1) of the Judicial Code.[1]


         About a year ago, Pauline Oshetski asked her daughter, Lori Oshetski-Bacchia, to water the geraniums in Pauline's house in Rexford, New York, while Pauline was away. Lori accidentally left the water running in the sink, flooding at least part of the house. Pauline, perhaps thinking she was “in good hands with Allstate, ” made a claim on her insurance policy. The carrier denied coverage.

         Pauline and Lori then sued Allstate in the New York Supreme Court, New York County. The complaint contains claims by Pauline for breach of the insurance policy and breach of its implied covenant of good faith and fair dealing. Both Pauline and Lori sue also for negligent infliction of emotional distress and alleged violation of Section 349 of the New York General Business Law.

         Defendants removed, claiming jurisdiction based on diversity of citizenship. Plaintiffs move to remand. They argue that both defendants, though incorporated and having their principal places of business in Illinois, are deemed to be citizens also of the State of New York under the “direct action” provision of the diversity statute and that complete diversity is lacking because both plaintiffs also are citizens of New York. As plaintiffs accurately point out:[2]

The issue in this case is solely whether Plaintiffs' suit against Allstate is a direct action - Defendants claim it is not; Plaintiffs claim it is. The resolution of this issue will determine whether this Court has diversity jurisdiction . . .


         The rudiments of diversity jurisdiction should go without saying. The district courts have subject matter jurisdiction over any civil action in which all of the plaintiffs, on the one hand, and all of the defendants, on the other, are citizens of different states and the matter in controversy, exclusive of interest and costs, exceeds $75, 000.[3] As a general matter, a corporation is deemed to be a citizen of the State of its incorporation and of the State in which it has its principal place of business.[4] But there is an added fillip with respect to certain actions against insurance companies. Congress in 1964 amended the relevant statute “in response to a surge in diversity case filings against insurance companies in Federal courts in Louisiana . . . [t]hat followed adoption of a state statute there . . . allowing direct actions against insurance companies.”[5] The amendment expanded the “deeming” language of Section 1332(c)(1) to deem an insurer of a liability policy sued in a direct action a citizen not only of the state(s) of its incorporation and principal place of business, but also of the State of which the insured is a citizen. And while Congress revised the language modestly in 2011, the purpose and effect has remained. They are to eliminate diversity jurisdiction in direct actions against liability insurers unless the plaintiff(s) are of citizenship diverse from the insured, whether or not the insured is a defendant, not only from the insurer under the rule usually applicable to corporations. So the question is whether this is a “direct action” within the meaning of Section 1332(c)(1).[6]

         The answer is found in Rosa v. Allstate Insurance Co.[7] The issue there was whether an action brought against an insurer under New York's “no fault” statute was a “direct action” for purposes of Section 1332(c)(1). In answering that question in the negative, the Circuit articulated principles that govern this case:[8]

         The Senate Report accompanying the 1964 amendment to § 1332(c) that added the proviso sets forth the legislative purpose:

The purpose of the proposed legislation is to amend section 1332(c) of title 28, United States Code, so as to eliminate under the diversity jurisdiction of the U.S. district courts, suits on certain tort claims in which both parties are local residents, but which, under a State “direct action” statute, may be brought directly against ...

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