Greg E. Searles v. Cincinnati Insurance Company

Greg Searles, a resident of Arizona, brought an action in the Central District of California against Cincinnati Insurance Company (“Cincinnati”), which has its principal place of business in Cincinnati, Ohio. Searles alleged that Cincinnati breached its insurance contract when it failed and refused in bad faith to indemnify Searles for damages and costs of defense resulting from an action brought against Searles for libel, slander, unfair competition and malicious prosecution. Before Cincinnati filed its answer, the district court sua sponte dismissed the action without prejudice for lack of diversity jurisdiction under 28 U.S.C. § 1332 (c)(1). Because a bad faith insurance action is not a “direct action” under § 1332(c)(1), we reverse and remand for further proceedings.

DISCUSSION

Section 1332(e)(1), 28 U.S.C., provides:

(Emphasis added).

In Beckham v. Safeco Ins. Co., 691 F.2d 898, 902 (9th Cir.1982), we held that a bad faith action against a plaintiffs own in surer is not a “direct action” within the meaning of § 1332(c)(1). We concluded that § 1332(c)(1) applies to

Thus, “unless the cause of action urged against the insurance company is of such a nature that the liability…