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Virginia Electric & Power Co. v. Westinghouse Electric Corp.

Court of Appeals for the Fourth Circuit
485 F.2d 78 (1973)
ELI5:

Rule of Law:

When an insured party retains a pecuniary interest after its insurer has paid a portion of a loss (partial subrogation), the insured is a real party in interest under Fed. R. Civ. P. 17 and may sue for the entire loss. The insurer-subrogee is not an indispensable party under Fed. R. Civ. P. 19 whose non-joinder requires dismissal, especially when joinder would destroy diversity jurisdiction and the defendant is protected from multiple litigations.


Facts:

  • On January 22, 1967, a failure occurred at a power generating station owned by Virginia Electric and Power Company (VEPCO), resulting in approximately $2,200,000 in losses.
  • VEPCO was insured by the Insurance Company of North America (INA) under a policy with a $100,000 deductible.
  • INA initially paid VEPCO $1,900,000 for the loss.
  • Following a subsequent dispute and settlement, INA paid VEPCO an additional $50,000, leaving VEPCO with a final unreimbursed loss of $150,000.
  • VEPCO executed a subrogation agreement giving INA rights to recover against the alleged tortfeasors, Westinghouse Electric Corporation and Stone and Webster Engineering Corporation.
  • VEPCO and INA also entered into a cooperation agreement granting INA exclusive control over the litigation against the defendants to recover the full loss, including VEPCO's uninsured portion.

Procedural Posture:

  • Virginia Electric and Power Company (VEPCO) sued Westinghouse Electric Corporation and Stone and Webster Engineering Corporation in federal district court, invoking diversity jurisdiction.
  • The defendants filed a motion to dismiss.
  • Defendants argued that VEPCO's insurer, Insurance Company of North America (INA), was the real party in interest under Rule 17 and its joinder as a plaintiff was required, which would destroy diversity.
  • Alternatively, defendants argued that INA was an indispensable party under Rule 19(b), and the case must be dismissed in its absence.
  • The district court denied the defendants' motion to dismiss.
  • The district court certified the question for an interlocutory appeal, which the U.S. Court of Appeals for the Fourth Circuit granted.

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Issue:

Does Federal Rule of Civil Procedure 17 or 19 require dismissal of a diversity action brought by a partially-subrogated insured party when its insurer, who shares citizenship with a defendant, is not joined as a plaintiff?


Opinions:

Majority - Craven, Circuit Judge

No. The action is not required to be dismissed. An insured party that has been only partially reimbursed for a loss retains a sufficient pecuniary interest to be considered a real party in interest under Rule 17 and may sue for the entire loss. The critical inquiry then shifts from Rule 17 to Rule 19 to determine whether the non-joined insurer is an indispensable party. Here, joinder of the insurer is not feasible as it would destroy diversity jurisdiction. Applying the factors in Rule 19(b), the court found that the insurer was not indispensable because: (1) neither the insurer (who controlled the litigation) nor the defendants (who were protected by res judicata) would be prejudiced by non-joinder; (2) a judgment rendered in the insurer's absence would be adequate; and (3) the plaintiff might lack an adequate remedy in another forum. Therefore, in equity and good conscience, the action should proceed without the insurer.



Analysis:

This decision clarifies the relationship between Fed. R. Civ. P. 17 and 19 in diversity cases involving partial subrogation. It prevents defendants from using the real party in interest rule as a procedural weapon to force the joinder of a non-diverse insurer solely to destroy federal jurisdiction. The court subordinates the formalistic requirements of Rule 17 to the pragmatic, fairness-based analysis of Rule 19(b), focusing on protecting defendants from multiple suits rather than mandating the joinder of all interested parties. This precedent is significant for insurance litigation, as it preserves a federal forum for insureds even when their insurer is non-diverse from the defendant.

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