{"id":894658,"date":"2018-08-02T15:48:01","date_gmt":"2018-08-02T21:48:01","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=894658"},"modified":"2018-08-02T15:48:01","modified_gmt":"2018-08-02T21:48:01","slug":"insurance-reciprocal-exchanges-federal-diversity-jurisdiction","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/insurance-reciprocal-exchanges-federal-diversity-jurisdiction\/","title":{"rendered":"Insurance Reciprocal Exchanges and Federal Diversity Jurisdiction"},"content":{"rendered":"<p>Stephanie Poll | <a href=\"https:\/\/www.propertyinsurancecoveragelaw.com\/2018\/07\/articles\/insurance\/insurance-reciprocal-exchanges-and-federal-diversity-jurisdiction\/\" target=\"_blank\" rel=\"noopener\">Property Insurance Coverage Law Blog<\/a> | July 25, 2018<\/p>\n<p>Recently, a federal district court in Oregon clarified where one may sue an insurance reciprocal exchange. In the case of\u00a0<em>Staggs v. Farmers Insurance Exchange<\/em>,<sup>1<\/sup>\u00a0the homeowners were Oregon citizens who brought suit under a homeowners\u2019 policy issued by Farmers Insurance Exchange in a federal district court in Oregon. Farmers moves to dismiss, arguing that the court lacked subject matter jurisdiction because there was no diversity; that although its primary place of business was California, the Staggs were Oregon citizens.<\/p>\n<p>The court granted Farmers\u2019 motion, noting that in a reciprocal insurance exchange, individuals and businesses pool risk by agreeing to indemnify each other against particular kinds of losses. The policyholders are identified as \u201csubscribers\u201d who act through a common attorney-in-fact and are simultaneously both insurers and insureds. The court determined these insurance exchanges do not have a corporate existence. The court further determined that under California law, a reciprocal insurance exchange\u2019s subscribers were its members and that Farmers\u2019 citizenship had to be decided in relation to the citizenship of its members-subscribers.<\/p>\n<p>Using this rationale, the court concluded that the Staggs were Oregon citizens and Farmers\u2019 member-subscribers and therefore Farmers was an Oregon citizen, destroying diversity between the parties and resulting in the court lacking subject matter jurisdiction.<\/p>\n<p>There are differing decisions among the federal courts on whether subscribers to a reciprocal insurance exchange are members or customers of the exchange.<sup>2<\/sup>\u00a0One significant fact is that when Congress passed the Class Action Fairness Act of 2005, it amended the diversity of citizenship rule for specific class actions.<sup>3<\/sup>\u00a0The amendment stated that for a subset of class actions, \u201can unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized.\u201d<\/p>\n<p>The Senate Judiciary Committee remarked in its report on CAFA that the rule was frequently criticized because often an unincorporated association is, as a practical matter, indistinguishable from a corporation in the same business. Some insurance companies for example, are \u201cinter-insurance exchanges\u201d or \u201creciprocal insurance associations.\u201d For that reason, federal courts have treated them as unincorporated associations for diversity jurisdiction purposes. Since such companies are nationwide companies, they are deemed to be citizens of any state in which they have insured customers.<\/p>\n<p>Consequently, these companies can never be completely or even minimally diverse in any case. It makes no sense to treat an unincorporated insurance company differently from, say, an incorporated manufacturer for purposes of diversity jurisdiction. New subsection 1332(d)(10) corrects this anomaly.<br \/>\n_______________________________<br \/>\n<sup>1<\/sup>\u00a0<em>Staggs v. Farmers Ins. Exchange<\/em>, No. 3:15-cv-015020 (D. Ore. April 27, 2016).<br \/>\n<sup>2<\/sup>\u00a0<em>Garcia v. Farmers Ins. Exch.<\/em>, 121 F. Supp. 2d 667, 669 (N.D. Ill. 2000);\u00a0<em>James G. Davis Const. Corp. v. Erie Ins. Exchange<\/em>, 953 F. Supp. 2d 607 (D. Md. 2013);\u00a0<em>James River Ins. Co. v. Cast &amp; Associates, Inc.<\/em>, No. 4:11-CV-00730 (D. Ariz. Mar. 5, 2012);\u00a0<em>Nevada Capital Ins. Co. v. Farmers Ins. Exchange<\/em>, No. 2:12-cv-02166 (D. Nev. Dec. 4, 2014).<br \/>\n<sup>3<\/sup>\u00a028 U.S.C. \u00a7 1332(d)(10).<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Stephanie Poll | Property Insurance Coverage Law Blog | July 25, 2018 Recently, a federal district court in Oregon clarified where one may sue an insurance reciprocal exchange. In the case of\u00a0Staggs v. Farmers Insurance Exchange,1\u00a0the homeowners were Oregon citizens who brought suit under a homeowners\u2019 policy issued by Farmers Insurance Exchange in a federal&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/insurance-reciprocal-exchanges-federal-diversity-jurisdiction\/\">Continue reading <span class=\"screen-reader-text\">Insurance Reciprocal Exchanges and Federal Diversity Jurisdiction<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[9914],"tags":[9895,10547,10546,320],"class_list":["post-894658","post","type-post","status-publish","format-standard","hentry","category-insurance-coverage","tag-advise-consult","tag-federal-diversity-jurisdiction","tag-insurance-reciprocal-exchange","tag-oregon","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Insurance Reciprocal Exchanges and Federal Diversity Jurisdiction - Advise &amp; Consult, Inc.<\/title>\n<meta name=\"description\" content=\"Recently, a federal district court in Oregon clarified where one may sue an insurance reciprocal exchange in Staggs v. 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