Suing An Insurance Company – Federal Or State Court?

It is well known among insurance lawyers that an insurance company always wants to have its lawsuit contested in Federal Court.

The U.S. Southern District, Corpus Christi Division, issued an opinion in 2018, that deals with the subject of which court a case should be litigated.  The style is, La Mirage Homeowners Association, Inc. v. Colony Insurance Company, et al.

La Mirage sustained hurricane damage and eventually sued its insurance companies, Colony and AXIS Surplus Insurance Company in State Court.  The insurers removed the case to Federal Court and La Mirage promptly filed a motion to remand back to the State Court arguing that diversity of citizenship did not exist.

The 5th Circuit has determined that the removing party bears the burden of showing that federal jurisdiction exists and that removal was proper.  28 U.S.C. Section 1332(a) requires that the amount in controversy exceed $75,000 and that the parties be citizens of different states.  Here, the amount in controversy is conceded.  The diversity of citizenship is contested.

The concept of complete diversity requires that all persons on one side of the controversy be citizens of different states than all persons on the other side.  Where evidence  creates a question of fact, the Court may decide the question for purposes of determining its jurisdiction.

All parties in this action are corporations.  A corporation is a citizen of the state in which it is incorporated and in the state where it has its principal place of business.  The facts at issue and the gist of the arguments are as follows:

Colony is a Virginia Corporation attesting that its principal place of business is in Virginia.  Because it maintains a post office box in Texas, La Mirage contends that its principal place of business is actually Texas.  Colony counters that the insurance policy lists the Texas post office box for limited purposes — service of process and as a “collection point” for various subsidiaries of Colony’s parent company.  The same policy designates Virginia as Colony’s central location for administration and management, where all corporate decisions are made.  Colony does not maintain any offices in Texas.

The citizenship status of AXIS is not in dispute.

According to the Supreme Court, a corporation’s “principal place of business” is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities.  It is the place that Courts of Appeals have called the corporations “nerve center.”  And in practice it should normally be the place where the corporation maintains its headquarters — provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center,” and not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion).

Colony has adequately shown that its corporate activities are conducted in Virginia.  Simply having a mailing address in Texas is insufficient to show that decisions are made or business is conducted there.

The Court found that Colony’s principle place of business is in Virginia, not Texas.