United States Fidelity and Guaranty Co. v. A & S Manufacturing Co.

A & S Manufacturing Co. (A & S) (defendant) contracted with United States Fidelity and Guaranty Co. (Fidelity) (plaintiff), Federal Insurance Company (Federal) (defendant), and Hartford Accident and Indemnity Company (Hartford) (defendant) for liability insurance. After environmental contamination at A & S sites, which was covered by the insurance contracts, the Environmental Protection Agency sued A & S to recover cleanup costs. A & S brought the insurance companies into the case for indemnity purposes. In response, Fidelity filed a lawsuit against A & S, Federal, and Hartford, seeking a declaration of the rights and duties of each party. Because complete diversity existed among the parties, Fidelity filed the lawsuit in federal district court through diversity jurisdiction. A & S filed a similar lawsuit against Fidelity, Federal, and Hartford in New Jersey state court. A & S also moved to realign the parties in the federal case. The district court applied the principal-purpose test, realigning the three insurance companies as plaintiffs and A & S as the defendant in the federal case. With the parties realigned, complete diversity no longer existed between the plaintiffs and defendants because A & S and Federal were both New Jersey citizens. The district court dismissed the case for lack of jurisdiction. Fidelity appealed, arguing that the district court erred in using the principal-purpose test for realignment instead of the substantial-controversy test.