Nonparty Insurers in Federal Civil Actions: the Need for New Written Civil Procedure Laws

Publication year2001


Creighton Law Review

Vol. 36



Written laws guiding civil actions in the federal district courts chiefly address the presentation, preparation and resolution of claims involving parties. However, the courts often also consider claims involving nonparties as well as nonclaim matters involving parties and nonparties alike. Guidelines here mainly appear in federal precedents and, to a lesser extent, in local court rules. They often follow in-state court practices. The absence of written general laws for nonparty claims and nonclaim matters often leads to unnecessary confusion and unfair procedures.(fn1) New, generally applicable written guidelines could help reduce uncertainty and promote fairness.(fn2)

To exemplify, we shall particularly explore possible reforms in settlement conference settings where the interests of nonparty insurers are at stake, as well as in adjudicatory settings where nonparty insurers seek recoveries from proceeds obtained by their insureds as party claimants. Before doing so, we will review briefly the major forms of adjudicatory and ancillary powers over nonparty claims and nonclaim matters not only to illustrate the absence of nonparty insurers in written civil procedure laws, but also because any possible reforms must take account of these limited powers. We then shall examine several settlement conference and adjudicatory authority cases involving nonparty insurers that have prompted confusion and unfairness. We conclude with suggestions on promoting fuller recognition and participation of nonparty insurers in federal civil actions, as well as with some thoughts on other nonparty claims and on nonclaim matters.


Written general federal civil procedure laws treat claims between parties and both nonparty claims and nonclaim matters differently. These differences, and the resulting difficulties, are illustrated by the guidelines for the federal district courts on initial and subsequent adjudicatory subject matter jurisdiction and on ancillary authority.(fn3)

There are significant differences in the statutes on the subject matter jurisdiction of the federal district courts over claims between parties and over nonparty claims. Such jurisdiction encompasses the power to hear and resolve civil claims on the merits, at times with juries. While such adjudicatory power exists over both claims between parties and over nonparty claims, federal statutes typically address in detail only initial adjudicatory power over claims between parties. As well as by resolution through adjudication, claims in federal civil actions may be resolved with or without judicial assistance by settlements. Where settlements are reached, they may involve not only pending civil claims, but also civil claims that were never (and could never have been) presented for adjudication. Jurisdiction to facilitate settlements involving nonparty claims and to enforce any later breaches (a form of subsequent adjudicatory power) typically is unaddressed in statute. In fact, statutes fail to speak much even to settlement facilitation and enforcement proceedings involving claims between named parties. Finally, many written civil procedure laws speak to federal district court ancillary authority over nonclaim matters, such as sanctions for civil litigation misconduct, without differentiating between the authority over parties and the authority over nonparties, even though such distinctions often are crucial in determining the bounds of ancillary power.

As noted, initial adjudicatory power over claims between parties is addressed almost wholly in statutes.(fn4) Original (or independent or freestanding) subject matter jurisdiction typically takes one of two forms - diversity or federal question.(fn5) These forms are described separately in general statutory provisions, though there also exist special and separate statutes for each.(fn6) Supplemental (or pendent or depen-dent) subject matter jurisdiction over claims between parties is also addressed in general statutory provisions.(fn7) Here, adjudicatory powers over chiefly American state law claims are reliant upon some preexisting or simultaneous original jurisdiction.

Federal district court subject matter jurisdiction to resolve nonparty claims and federal district court authority over nonclaim matters is addressed, for the most part, in federal case precedents. The United States Supreme Court's 1994 decision in Kokkonen v. Guardian Life Insurance Co. of America(fn8) establishes the basic guidelines.(fn9) Here the Court said that in the absence of a statutory basis, a federal district court could exercise "ancillary jurisdiction . . . for two, separate, though sometimes related purposes: (1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent . . . and (2) to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority and effectuate its decrees."(fn10)

After Kokkonen, federal subject matter jurisdiction over factually interdependent nonparty claims was only partially addressed in the general statutory provisions on supplemental jurisdiction. The provisions seemingly permit jurisdiction over both claims between parties and over nonparty claims, as they authorize "supplemental jurisdiction" over "all" claims that are "so related" to the claims presented in the civil action under diversity or federal question "original jurisdiction that they form part of the same case or controversy."(fn11) Further, the provisions do not demand expressly either that all supplemental claims that are heard and that are capable of being joined actually be pleaded or otherwise formally presented or that all supplemental claims that are heard actually be capable of being joined.(fn12)

Little else is addressed in the supplemental jurisdiction provisions. For example, they do not recognize United States Supreme Court precedents indicating that the ancillary adjudicatory power, always discretionary in nature, operates differently for "related" nonparty claims and for "related" claims between parties. The Court has said that ancillary power over "factually interdependent" claims is less available when the claims involve "parties not named in any claim that is independently cognizable by the federal court" because such claims are "fundamentally different."(fn13) Beyond necessary relatedness, as well as the considerations of "the convenience of the litigants" and "judicial economy" that underlie all exercises of ancillary jurisdiction, adjudicatory power over nonparty claims as well as over claims against parties only joined through ancillary jurisdiction also require "an examination of the posture" in which the claims were asserted and of the specific statutes that confer original jurisdiction over claims between parties.(fn14)

The supplemental jurisdiction statute specifically speaks to posture and a specific jurisdictional statute when it addresses at least one type of claim joined against a party who is not subject to original jurisdiction. It disallows a plaintiff the opportunity to seek exercise of adjudicatory power involving a third-party defendant under the Federal Rules of Civil Procedure ("Fed. R. Civ. P.") where original jurisdiction over the plaintiff's claim against the defendant is founded on the general diversity statute.(fn15) Any such joinder under Fed. R. Civ. P. 14 seemingly would involve a "factually interdependent" claim under Kokkonen.(fn16)

By contrast, the supplemental jurisdiction statute does not speak at all to posture or to the preexisting original jurisdiction when subse-quent ancillary adjudicatory power is exercised over nonparty claims, such as claims between prevailing plaintiffs and their attorneys. Ancillary adjudicatory power over such nonparty claims is seemingly appropriate, under Kokkonen, where the claims are "factually interdependent" and, similarly, under the supplemental jurisdiction statute, where the nonparty claims are "so related" to the claims pending between parties "that they form part of the same case or controversy."(fn17) While such nonparty claims often are adjudicated, there are no written laws guiding federal district court discretion to adjudicate nonparty claims involving fee and other (e.g., malpractice) disputes between attorneys and their clients who are prevailing claimants.(fn18)

As well, the supplemental jurisdiction provisions do not address, and the original (federal question and diversity) jurisdiction provisions are usually not read to encompass, civil claims usually thought to be outside traditional joinder (and thus pleading) rules, as they are presented later in the case, often after all initial adjudicatory power has disappeared. For example, subsequent adjudicatory power involving civil claims arising from breaches of settlement agreements were recognized in Kokkonen as within the federal district court ancillary jurisdiction under certain circumstances, presumedly embodying "disposition . . . of claims that are, in varying respects and degrees, factually interdependent." Adjudicatory power over...

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