The U.S. Eleventh Circuit Court of Appeals held that an assignment from an insured to a claimant of its causes of action against a liability insurer does not create a direct action for federal diversity jurisdiction purposes.  Kong v. Allied Prof’l Ins. Co., 750 F.3d 1295 (11th Cir. May 9, 2014).

A claimant sued a massage therapy center after a masseuse allegedly broke the claimant’s ankle during a therapy session.  The insurer denied the claim.  The insured and the claimant agreed to a stipulated judgment in favor of the claimant, as a part of which the insured assigned to the claimant its claim against its insurer and the claimant agreed to take no action against the insured to collect on the judgment.  The claimant sued the insurer to collect on the judgment.  The insurer removed the action to federal court on the basis of diversity jurisdiction.  The claimant moved to remand, arguing that diversity jurisdiction did not exist because the lawsuit was a direct action between a claimant and a liability insurer, requiring the liability insurer to assume the insured’s Florida citizenship.  The district court denied the motion for remand.  The claimant appealed.

On appeal, the Eleventh Circuit held that the district court did not err in denying the motion to remand because the claimant’s action against the insurer was not a direct action under federal law.  However, the Eleventh Circuit concluded that courts have uniformly defined “direct action” to refer to cases where the claimant is entitled to bring suit against an insurer without first joining the insured or obtaining a judgment against the insured.  Florida law precludes direct actions between a claimant and an insurer and requires a claimant first to obtain a settlement or verdict against an insured as a condition precedent to maintaining a cause of action against an insurer.  Here, the claimant first agreed to a stipulated judgment with the insured before bringing the action against the insurer.  Therefore, the removal was appropriate because diversity jurisdiction existed between the claimant and the insurer, as they were completely diverse and the lawsuit was not a direct action under federal law.