SOUTHERN DISTRICT OF TEXAS REFUSES TO EXTEND THE SUBSIDIARY RULE TO UNINCORPORATED DIVISIONS OF A PARENT COMPANY IN DIVERSITY ACTIONS

January 24, 2013

Last week, Judge Ellison of the District Court for the Southern District of Texas denied a Plaintiff’s Motion for Remand against her insurer Blue Cross Blue Shield (“BCBS”) in Coghlan v. Blue Cross Blue Shield of Texas, Civil Action No. H-12-2703, 2013 WL 150711 (S.D. Tex Jan. 14, 2013).  Plaintiff’s health insurance policy did not provide coverage for routine maternity procedures, but did cover maternity care in case of “emergency” or “complication of pregnancy”.  During Plaintiff’s pregnancy, the doctors performed a Cesarean operation.  Afterward, Plaintiff requested BCBS cover the cost of her pregnancy because of her operation. BCBS denied coverage for the cost associated with her pregnancy, and Plaintiff sued BCBS in Texas  state  court  alleging  numerous  violations  of  the  Texas  Insurance  Code,  Texas  Deceptive  Trade Practices Act, and breach of contract.

 BCBS removed the lawsuit to federal court on the basis of diversity jurisdiction.  Plaintiff moved to remand the case and alleged no diversity existed between BCBS and herself.  Specifically, Plaintiff argued that BCBS maintains its principal place of business in Texas—BCBS maintains a large office in Richmond, Texas.  BCBS argued in its response that it is an unincorporated division of HCSC, its parent company located in Illinois, and where it conducts business, principally or otherwise, is irrelevant in light of its parent company’s citizenship.

 The Court’s analysis addressed the subsidiary rule, whereby a subsidiary corporation which is incorporated as a separate entity is considered to have its own principal place of business.  The Court, however, refused to extend the subsidiary rule to unincorporated divisions of parent companies. Since BCBS was an unincorporated division of HCSC rather than a subsidiary, the Court determined its principal place of business was in Illinois. As such, diversity existed between the parties, and plaintiff’s motion to remand was denied.