State Farm Mut. Auto. Ins. Co. v. Powell

Decision Date23 May 1996
Docket NumberNo. 95-3530,95-3530
Citation87 F.3d 93
PartiesSTATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY v. Herbert POWELL, Appellant. . Submitted Under Third Circuit LAR 34.1(a)
CourtU.S. Court of Appeals — Third Circuit

Thomas A. McDonnell, Summers, McDonnell, Walsh & Skeel, Pittsburgh, PA, for State Farm Mutual Automobile Insurance Company.

Dallas W. Hartman, Richard R. Morelli, Dallas W. Hartman, P.C., New Castle, PA, for Herbert Powell.

Before: SLOVITER, Chief Judge, and SAROKIN and OAKES *, Circuit Judges

OPINION OF THE COURT

SAROKIN, Circuit Judge.

Appellee State Farm Mutual Automobile Insurance Company ("State Farm"), an Illinois corporation, filed an action for a declaratory judgment in federal district court, seeking a declaration regarding its obligations to appellant Herbert Powell ("Powell") under insurance policies it had issued to him for underinsured motorist coverage. The district court ultimately granted summary judgment in favor of State Farm.

On appeal, we dismiss this matter for lack of jurisdiction. While State Farm alleged diversity jurisdiction under 28 U.S.C. 1332(a) we conclude that the amount in controversy does not exceed $50,000.

I.

On May 11, 1991, Powell was struck by a vehicle owned by Kenneth Wagner, sustaining personal injuries. He received $25,000 from Wagner's insurance company, which was the maximum amount of coverage under Wagner's policy.

Powell then sought coverage under policies he had purchased from State Farm. Under Pennsylvania law, an insured may "stack" his coverage for uninsured or underinsured motorist coverage; that is "[t]he limits of coverages available ... shall be the sum of the limits for each motor vehicle as to which the injured person is an insured." 75 Pa. Cons.Stat. Ann. § 1738(a). At the time he sought coverage, both Powell and State Farm believed that Powell had purchased three policies from State Farm which could be applied to the accident, each of which provided for $50,000 coverage per person. Powell thus sought $150,000 from State Farm to compensate him for his injuries from the accident.

State Farm refused to provide him with the requested coverage because Powell had executed a waiver of his stacking rights in exchange for a reduction in his monthly premiums from $18 to $11. The language of the waiver signed by Powell reads as follows:

By signing this waiver, I am rejecting stacked limits of underinsured motorist coverage under the policy for myself and members of my household under which the limits of coverage available would be the sum of limits for each motor vehicle insured under the policy. Instead, the limits of coverage that I am purchasing shall be reduced to the limits stated in the policy. I knowingly and voluntarily reject the stacked limits of coverage. I understand that my premiums will be reduced if I reject this coverage.

Appendix at 51-52. 1 State Farm believed that, based upon the language, Powell was entitled to a total of only $50,000 from State Farm, and it entered into a settlement with Powell to pay this amount on November 4, 1993. 2 Powell, however, maintained that his signature on the waiver did not bar him from stacking separate insurance policy coverage.

State Farm eventually filed an action in federal district court for declaratory judgment on April 13, 1994 in order to determine its responsibilities under the policy. In its complaint, it alleged that although Powell had three insurance policies in effect at the time of the Wagner accident, Powell had executed a valid waiver of his stacking rights and it requested the district court to declare "that the plaintiff, State Farm Mutual Automobile Insurance Company, is only obliged to provide underinsured motorists coverage in the instant case in an amount of $50,000...." App. at 15-16. State Farm subsequently discovered that one of the three policies it issued to Powell was not purchased until after the accident at issue here, and it thus filed a motion to amend its complaint accordingly, which was granted.

Both parties moved for judgment on the pleadings, and Powell moved for partial summary judgment. All three motions were denied by the district court. See State Farm Mut. Auto. Ins. Co. v. Powell, 879 F.Supp. 538 (W.D.Pa.1995). The court rejected Powell's theory that the waiver he signed barred stacking only in cases where a single policy insured more than one car, not when an insured purchased separate policies for separate cars. Id. at 541. However, it also stated that disputed factual questions remained as to how many policies were in effect at the time of the Wagner accident and whether Powell received any consideration for his waiver. Id. Thus, it also denied State Farm's motion.

Powell subsequently filed another motion for summary judgment, in which he stated that two policies were in effect at the time of the accident and that he received a $7.00 savings per policy as a result of executing the waivers at issue. However, he took issue with the district court's previous analysis of the meaning of the waivers he had signed and requested that the court enter a declaratory judgment that he was entitled to a total of $100,000 in underinsured motorist coverage.

State Farm also filed a new motion for summary judgment, requesting that the court enter a declaration that Powell was barred from stacking his underinsured motorists coverage on his two policies, and that State Farm "is only obliged to provide motorist coverage of the instant case in the amount of $50,000...." App. at 206-7.

This time the district court granted summary judgment in favor of State Farm, entering a declaration stating:

(1) 75 Pa.Cons.Stat.Ann. § 1738 bars Defendant, Herbert Powell, in the instant case from stacking UIM coverage on the two vehicles in his household insured with Plaintiff, State Farm Mutual Automobile Insurance Company;

(2) Plaintiff, State Farm Mutual Automobile Insurance company, is only obliged to provide underinsured motorist coverage in the instant case in the amount of $50,000.

Powell appeals from this order.

II.

As an initial matter, Powell argues that diversity jurisdiction is lacking under 28 U.S.C. § 1332(a) because the amount in controversy does not exceed $50,000, 3 and that the judgment below thus should be dismissed. Although Powell did not raise this jurisdictional issue below, we may address it for the first time on appeal "[b]ecause the limited subject matter jurisdiction of the federal courts is so fundamental a concern in our system." Page v. Schweiker, 786 F.2d 150, 153 (3d Cir.1986) (citing Mitchell v. Maurer, 293 U.S. 237, 244, 55 S.Ct. 162, 165, 79 L.Ed. 338 (1934)).

In St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 58 S.Ct. 586, 82 L.Ed. 845 (1938), the Supreme Court announced the following rule regarding the requisite amount in controversy for purposes of diversity jurisdiction:

[U]nless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal.

Id. at 288-89, 58 S.Ct. at 590. See also Jumara v. State Farm Ins. Co., 55 F.3d 873, 877 (3d Cir.1995).

In the instant matter Powell does not claim that State Farm alleged its amount in controversy in bad faith. Rather, he explains in his brief before this court that when this action was originally filed, both parties mistakenly believed that three separate insurance policies, each providing $50,000 coverage, were in effect on the date of Powell's injury. However, when the parties later discovered that one of the policies was purchased after the accident occurred, and the complaint was amended to reflect that discovery, it became clear that only two policies, valued at $100,000 total, formed the subject matter of the litigation.

Powell asserts that with only two policies applicable to the accident, it is clear "to a legal certainty" that the actual amount in controversy is only $50,000--a penny shy of the jurisdictional minimum. He explains that at the time State Farm filed its declaratory judgment action in federal court, it had already entered a settlement to pay him $50,000 under one policy. Thus, all that remained in dispute at the time the suit was filed was $50,000 from the other policy.

State Farm counters with three alternative arguments in support of jurisdiction. First, it asserts that because diversity jurisdiction was proper when the complaint was filed, it should not be disturbed by subsequent events. Second, it argues that even if the third policy is not considered, its "total potential exposure" of $100,000 (the sum of the remaining two policies) is the actual amount in controversy. Appellee's Brief at 14. Third, it contends that even if only one policy is "at issue," the arbitration costs provided for in the policy should be considered in determining the amount in controversy. Id. at 14-15. We will consider each of these arguments in turn.

A.

State Farm first argues that the federal courts retain jurisdiction over this matter because, at the time that it filed its complaint, it believed that three $50,000 insurance policies were at issue, totalling $150,000, and subsequent events cannot destroy jurisdiction if jurisdiction was proper when the complaint was filed. It is true that a federal court's jurisdiction ordinarily depends upon "the facts as they exist when the complaint is filed," Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 830, 109 S.Ct. 2218, 2222, 104 L.Ed.2d 893 (1989), and thus subsequent events that reduce the amount in controversy below the statutory minimum do not require dismissal. See Jones v. Knox Exploration Corp., 2 F.3d 181, 182-83 (6th Cir.1993). However, "[a] distinction must be made ... between subsequent events that change the amount in controversy and subsequent revelations that, in fact, the required amount was or was not in...

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