New York Marine And General Insurance Company v. Ohio Security Insurance Company

Background

The plaintiffs sought a declaratory judgment concerning insurance coverage for an underlying personal-injury action brought by Edgar Alvarez. They asked the court to declare that Ohio Security Insurance Company had a duty to defend and indemnify HSRE-EB York, LLC, Bedford Arms Construction, LLC, and EB Construction Group, LLC—the three “Construction Plaintiffs”—and that Ohio Security’s policy was primary to New York Marine’s policy. The Construction Plaintiffs also sought damages.

Two of the Construction Plaintiffs had contracted with Carben Contracting Construction, Inc. (Carben) to perform construction work. The contract required Carben to indemnify the Construction Plaintiffs, obtain insurance, and name them as additional insureds. Carben obtained an Ohio Security policy that named Carben as the insured and the Construction Plaintiffs as additional insureds. After Alvarez allegedly suffered injuries arising from the construction work and sued the Construction Plaintiffs in state court, the Construction Plaintiffs brought Carben into that action as a third-party defendant.

The plaintiffs then filed this insurance action in New York Supreme Court. Ohio Security removed it to the Southern District of New York based on diversity jurisdiction. The plaintiffs moved to remand, arguing that complete diversity was absent because Carben was a New York citizen and was named as a defendant, while plaintiffs included New York citizens.

Jurisdictional standard

Federal diversity jurisdiction generally requires that the plaintiffs and defendants be citizens of different states and that more than $75,000 be in controversy. Complete diversity means that no plaintiff shares citizenship with any defendant. A federal court may look beyond the pleadings and realign a party according to its actual interests, placing the party on the side of the dispute where its interests belong.

Court’s analysis

The court concluded that Carben’s interests were aligned with those of the Construction Plaintiffs. Carben and the Construction Plaintiffs both faced potential liability and defense costs in the Alvarez Action. They also both had potential coverage under the Ohio Security policy: Carben as the named insured and the Construction Plaintiffs as additional insureds. All sought an interpretation of the policy that would provide coverage for the underlying action.

The court also noted that success by the Construction Plaintiffs would eliminate potential claims against Carben for indemnification or for breaching its contractual obligation to obtain insurance. Based on these shared interests, the court realigned Carben as a plaintiff. That realignment created complete diversity, so the court had subject-matter jurisdiction. Because of this conclusion, the court did not decide whether Carben was also a nominal defendant.

Ruling and case status

Judge Lorna G. Schofield denied the plaintiffs’ motion to remand the case to New York Supreme Court. The parties were directed to file an updated proposed case-management plan by May 18, 2021. The scheduled telephonic conference was canceled, the stay imposed by docket entry 11 was lifted, and the clerk was directed to close the motion at docket entry 12.