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Myers v. State Farm Insurance Co.

filed: March 24, 1988.


On Appeal from the United State District Court for the Eastern District of Pennsylvania, D.C. Civil Action No. 86-5492.

Higginbotham and Becker, Circuit Judges, and Barry, District Judge.*fn*

Author: Higginbotham



This appeal concerns the legal status under Pennsylvania law of an insurance policy's limitations on underinsured motorist coverage. The district court after denying plaintiff's motion to dismiss a counterclaim for declaratory relief, entered an order granting summary judgment in favor of the defendant insurance company. We will affirm.


Appellant Kevin Myers was a passenger in an automobile owned and operated by Michael Joniec when that vehicle was involved in a single car collision on July 5, 1985. As a result, Myers sustained severe injuries. Prior to the collision, Joniec had been issued an automobile insurance policy by appellee State Farm Insurance Company ("State Farm"). This policy provided liability and underinsurance coverage, each in the amount of $15,000 for the claims of any one person arising out of any accident and $30,000 for injuries sustained by two or more individuals in any one accident. As a passenger, Myers was an "insured" under the terms of the policy. He was also an insured under a policy issued by Metropolitan Insurance Company, which contained first party medical coverage and underinsured motor vehicle coverage.

State Farm paid the full $15,000 in liability coverage to Myers,*fn1 but it refused to pay his claim for underinsurance benefits, arguing that such a claim was precluded by the terms of the policy. Thereafter, Myers cmmenced an action in the Pennsylvania Court of Common Pleas of Philadelphia County on July 9, 1986 by filing a petition for the appointment of arbitrators. State Farm responded by petitioning to remove Myers's action to the district court. This petition, which was based on diversity of citizenship between Myers and State Farm, was granted. Thereafter, Myers filed a motion to remand his action to state court. The district court denied this motion.

On October 8, 1986, State Farm filed an answer to Myers's petition for the appointment of arbItrators and a counterclaim seeking a declaratory judgment that State Farm was not obligated under the policy to pay Myers's claim for underinsurance benefits. Myers moved to dismiss the counterclaim on October 16, 1986. He alleged that State Farm had failed to state a claim upon which relief could be granted because the insurance policy provided for arbitration rather than judicial resolution of Myers's claims for benefits under the policy.

Although Myers had not answered the counterclaim, State Farm filed a motion for summary judgment on October 31, 1986, in compliance with the district court's directive that all motions for summary judgment be filed by that date. On December 31, 1986, the district court denied Myers's motion to dismiss the counterclaim and granted State Farm's motion for summary judgment. Myers appeals from the district court's order. This Court has jurisdiction pursuant to 28 U.S.C. § 1291 (1982).


We begin by addressing Myers's claim that there is no diversity of citizenship jurisdiction pursuant to the provisions of 28 U.S.C. § 1332(c) (1982).*fn2 As the district court properly determined, this lawsuit is not a direct action within the meaning of section 1332(c). Myers, as an injured third party, brings this suit based on State Farm's failure to settle within the policy limits and not, as contemplated by section 1332(c), as a result of State Farm's status as "payor of a judgment based on the negligence of one of its insureds." Velez v. Crown Life Ins. Co., 599 F.2d 471, 473 (1st Cir. 1979);*fn3 accord Fortson v. St. Paul Fire & Marine Ins. Co., 751 F.2d 1157, 1159 (11th Cir. 1985) ("unless the cause of action against the insurance company is of such a nature that the liability sought to be imposed could be imposed against the insured, the action is not a direct action"); Beckham v. Safeco Ins. Co. of Am., 691 F.2d 898, 901-02 (9th Cir. 1982). State Farm is incorporated and has its principal place of business in the state of Illinois. It therefore is deemed a citizen of that state for purposes of determining diversity. Since Myers is a citizen of Pennsylvania, federal subject matter jurisdiction exists over this action.


Myers also argues that the district court misconstrued the insurance contract when it granted State Farm's summary judgment motion rather than directing the parties to submit this matter to arbitration pursuant to the arbitration provision of the insurance policy.*fn4 State Farm claims in response that the plain language of this clause limits its applicability to disagreements ...

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