§ 12.22 Removal - Realignment of Parties

• Library: Guide to South Carolina Liability and Property Insurance Law (SCBar) (2019 Ed.)

§ 12.22 Removal - Realignment of Parties

With regard to realignment of parties in a lawsuit, the federal district court has explained: "The guiding principal of the court's determination of whether realignment of parties is proper or not is practicality."¹⁵⁷ Further, "[t]he United States Supreme Court has long held that federal rather than state law 'determines who is a plaintiff and who is a defendant' for purposes of removal."¹⁵⁸ And, the Court "has likewise, long held that realignment should be based on the parties' interest with respect to the 'principal purpose of the suit, and the primary and controlling matter in dispute.'"¹⁵⁹

The Fourth Circuit, in addressing the practicalities undergirding the district court's reasoning in United States Fidelity & Guaranty Co. v. A&S Manufacturing Co.¹⁶⁰ determined that the district court properly realigned the parties and explained:

USF&G asserts that the district court improperly applied the principal purpose test. USF&G claims that the court must look at USF&G's principal purpose for bringing the suit[, which was to seek a declaration from the court regarding responsibility for the costs of contamination clean-up] and then determine if the parties are properly aligned with respect to that purpose. It maintains that its principal purpose in bringing the suit was to resolve its obligations and rights with respect to A&S[, the insured], Federal, and Hartford[, the other insurers for the insured]. It protests that the principal purpose test allows a district court to make arbitrary realignment decisions.
Antagonism between parties should be resolved by the pleadings and the nature of the controversy. Smith v. Sperling, 354 U.S. 91, 97, 1 L. Ed. 2d 1205, 77 S. Ct. 1112 (1957). The pleadings and the nature of the suit clearly manifest the proper alignment of the dispute. The district court found that the primary issue in the case was whether the insurers owe A&S a duty to defend against the underlying environmental lawsuits and a duty to indemnify for any liability assessed against A&S. The court found that any disputes existing among the insurers regarding contribution are ancillary to the primary issue of the duty to indemnify. It arranged the parties around this primary dispute, placing the insurers as plaintiffs and the insured as the defendant.
Practicalities undergird the district court's reasoning. A court trying the merits of this controversy would first have to decide whether the insurers were under any obligation to defend and indemnify A&S. If none, or only one, provided coverage, the question of the insurers' liability to each other would be moot. Only if two or more were liable to A&S, would the court have to allocate liability and costs.
The district court's findings and conclusions with respect to realignment were proper. The dispute among the insurers is secondary to whether the

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