Western Maryland Railway Co. v. Harbor Insurance Co.

A torrent of lawsuits were filed against railroads by employees who developed asbestosis, a lung condition caused by exposure to asbestos fibers. The railroads had indemnity and liability-insurance policies through several insurance companies. In Chesapeake & Ohio Railway v. Certain Underwriters at Lloyd’s, London, three railroads (collectively, the Chesapeake railroads) (plaintiffs) sued 40 insurance companies (defendants) in federal district court based on diversity jurisdiction. In Western Maryland Railway Co. v. Harbor Insurance Co., one railroad (the Western Maryland railroad) (plaintiff) sued nine insurance companies (defendants) in federal district court based on diversity jurisdiction. The Western Maryland railroad was a subsidiary of a Chesapeake railroad, and all nine insurance companies in Western Maryland were defendants in Chesapeake. Both lawsuits revolved around the question of whether the railroad employees’ asbestosis claims were included among the occupational diseases covered by the railroads’ insurance policies. Western Maryland and Chesapeake were in front of the same federal district court judge. All the insurance companies moved to dismiss the cases. The insurance companies argued that the Western Maryland railroad was a necessary party to adjudicate Chesapeake under Federal Rule of Civil Procedure (FRCP) 19(a)(2)(ii) because the separate lawsuits created a risk that the insurance companies would be liable for multiple recoveries. However, because adding the Western Maryland railroad to Chesapeake would destroy diversity, the insurance companies argued that Chesapeake should be dismissed under FRCP 19. The insurance companies also argued that Western Maryland was initiated to create diversity of citizenship, and as a result, that case should also be dismissed for lack of proper jurisdiction. The district court granted both motions and dismissed both cases. The Western Maryland and Chesapeake railroads appealed.