Allstate v. Hughes
358 F.3d 1089 (9th Cir. 2003)
The Hugheses sold a home in Washington to the Ellstroms, who insured it with Allstate. As part of the sale contract, the Hugheses were to replace the home's siding. They hired Phil's Painting to do the work. While the siding was being painted, the home was damaged by fire caused by the masking of an exterior halogen light.
Allstate brought a subrogation action against the Hugheses in the federal court for the Western District of Washington, pursuant to the Court's diversity jurisdiction. It alleged that it was a citizen of Illinois and the Hugheses were citizens of Washington. Neither party addressed the Court's subject matter jurisdiction in the District Court. On appeal, the Ninth Circuit reviewed the matter of the District Court's jurisdiction sua sponte to fulfill its "continuing obligation to assess its own subject matter jurisdiction even if the issue is neglected by the parties."
The Ninth Circuit considered Rule 17(a) of the Federal Rules of Civil Procedure that requires every action to be prosecuted in the name of the real party in interest. It then looked to Washington law to determine whether Allstate was a real party in interest and a proper party to be the plaintiff. It found that under Washington law, the insured, not the insurer, is the real party in interest. Even if a subrogation action is filed, the insured remains the real party in interest.
Thus, the Ellstroms, and not their insurer, were the real parties in interest and their citizenship, not that of Allstate, was determinative of the Court's subject matter jurisdiction. Because the Ellstroms and the Hugheses were both citizens of Washington, there was no diversity between the parties. In the absence of diversity, the District Court did not have subject matter jurisdiction, requiring the whole case to be dismissed.