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February 18, 2019

Recently, I was speaking with a client, and we were discussing some of the unique issues subrogation professionals face on a regular basis. He stated that one of the things that new recovery adjusters are rarely familiar with is the concept of “diversity” for jurisdictional purposes in federal court litigation.

The United States Code – Title 28, Part 4, Chapter 85 – conveys original jurisdiction to federal district courts for all controversies in excess of $75,000.00, and where there is complete diversity between all plaintiffs and all defendants. When considering diversity for jurisdictional purposes, one must consider the citizenship of the parties: For individuals, citizenship is determined by his domicile; and a corporation is considered a citizen of the state in which it is incorporated and the state where it has its principal place of business.

In some cases, determining whether the parties are completely diverse for jurisdictional purposes can be challenging and unclear. However, analyzing diversity jurisdiction in the context of a subrogation case adds additional layers that must be considered prior to file a lawsuit.

These issues were recently highlighted in a federal district court opinion from the United States District Court in the Northern District of Indiana. In Am. Hallmark Ins. Co. of Texas v. Bohren Logistics Inc., 118CV00293WCLSLC, 2019 WL 351069, at *1 (N.D. Ind. Jan. 29, 2019), a lawsuit was brought by the Plaintiff in federal court alleging complete diversity of citizenship of the parties. The Court found that the allegations for diversity jurisdiction were deficient for a number of reasons. When specifically analyzing the “citizenship” of a subrogating insurer for jurisdictional purposes, the Court stated that its citizenship hinged on whether carrier’s subrogation interests were “total” or “partial.” 

The Court explained that total subrogation occurs when the insurer has paid the entire loss suffered by its insured. However, partial subrogation occurs when the insurer only pays for a portion of its insured’s damages. Examples of partial subrogation may include but are not limited to, instances where an insured’s loss exceeds the applicable policy coverage, or when the carrier negotiates a compromised settlement of the underlying first-party claim. Total subrogation results in focusing solely on the subrogating party’s citizenship for diversity purposes. In cases involving partial subrogation, however, the citizenship of both the subrogating carrier and its insured must be considered for diversity. 

Failure to prosecute your subrogation case in the proper forum may result in transfers, dismissals, delays, and/or a waste of financial resources. Be sure to confer with your subrogation counsel when determining if a case is appropriate for federal jurisdiction, through diversity or otherwise, and what the advantages and drawbacks might be of litigating a particular case in federal court.