Allison v. Security Ben. Life Ins. Co., 91-3488

• Decision Date: 03 December 1992
• Docket Number: No. 91-3488,91-3488
• Citation: 980 F.2d 1213
• Parties: J.E. ALLISON; Patricia Allison; E.C. Benton; Phyllis M. Bertsch; Jane Calloway; William R. Canino; Cecil Jean Chamness; Jessie Chamness; Terry Clowers; Charles Donham; Riley Donica; David Elms; Henry Ginger; Jimmy D. Hannah; Don Howard; Dorothy Landry; Billy Lenderman; McNeill Agency Inc.; Dennis McNeill; James McNeill; Patsy McNeill; Eudox Patterson; Bill D. Plunkett; Catherine Plunkett; Andrew Ponder; Charles Presher; Charlie W. Scarbrough; Claudia Sparrow; Martha H. Thompson; Jerry D. Tolliver; Frank Towery; Bill J. Wawak; Earlene T. Wawak; Hugh Williams, Plaintiffs-Appellants, v. SECURITY BENEFIT LIFE INSURANCE COMPANY, Defendant-Appellee, v. LIFE ASSURANCE COMPANY OF PENNSYLVANIA, Third Party-Defendant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1213

980 F.2d 1213

J.E. ALLISON; Patricia Allison; E.C. Benton; Phyllis M.

Bertsch; Jane Calloway; William R. Canino; Cecil Jean

Chamness; Jessie Chamness; Terry Clowers; Charles Donham;

Riley Donica; David Elms; Henry Ginger; Jimmy D. Hannah;

Don Howard; Dorothy Landry; Billy Lenderman; McNeill

Agency Inc.; Dennis McNeill; James McNeill; Patsy

McNeill; Eudox Patterson; Bill D. Plunkett; Catherine

Plunkett; Andrew Ponder; Charles Presher; Charlie W.

Scarbrough; Claudia Sparrow; Martha H. Thompson; Jerry D.

Tolliver; Frank Towery; Bill J. Wawak; Earlene T. Wawak;

Hugh Williams, Plaintiffs-Appellants, v. SECURITY BENEFIT LIFE INSURANCE COMPANY, Defendant-Appellee, v. LIFE ASSURANCE COMPANY OF PENNSYLVANIA, Third Party-Defendant.

No. 91-3488.

United States Court of Appeals,

Eighth Circuit.

Submitted April 14, 1992.

Decided Dec. 3, 1992.

Thomas M. Bramhall, Little Rock, Ark., argued, plaintiffs-appellants.

Byron Freeland, Little Rock, Ark., argued, for defendant-appellee.

Before McMILLIAN, WOLLMAN, and LOKEN, Circuit Judges.

LOKEN, Circuit Judge.

Plaintiffs appeal the district court's ¹ dismissal of their diversity action against Security Benefit Life Insurance Company ("SBL") for lack of subject matter jurisdiction because each plaintiff's amount in controversy is less than $50,000. We affirm.

The seeds of this dispute were sown in 1984 when SBL, a Kansas-based life insurer, acquired the stock of First Pyramid Life Insurance Company of America ("FPL"), an Arkansas-based life insurer, with the approval of the Arkansas Insurance Commissioner ("Arkansas Commissioner"). Following the acquisition, SBL sold off some FPL lines of business, integrated others into SBL's business, and separately administered many FPL policies.

At some point SBL applied to the Arkansas Commissioner for permission to sell SBL's block of FPL interest sensitive whole life policies to a small, Oklahoma-based insurer. McNeill Agency, Inc., a long-standing FPL agent in Little Rock that had marketed FPL's interest sensitive products in the early 1980's, objected to that sale, and it was eventually disapproved. Thereafter, McNeill Agency complained at length about SBL's administration of the FPL interest sensitive policies. In 1989, SBL terminated McNeill Agency. McNeill Agency and its principals, James and Dennis McNeill, subsequently sued SBL.

McNeill Agency's attorneys then commenced this class action in which thirty FPL policyholders, including McNeill Agency and its principals, seek compensatory and punitive damages for SBL's alleged fraud, bad faith, and conversion. The purported class consists of FPL policyholders whose policies were issued through McNeill Agency. Plaintiffs fall into two groups--interest sensitive life policyholders and annuity policyholders.

In their sixty-five page complaint, all plaintiffs allege that they were "denied their agent of choice" when McNeill Agency was wrongfully terminated. In addition, the interest sensitive plaintiffs allege a pattern of misconduct in SBL's administration of their policies, including erroneous annual reports, refusal to honor premium option provisions, ² erroneous lapse notices followed by conversions into less valuable policies, ³ unauthorized charges, and wrongful surrender charges. ⁴ The annuity plaintiffs allege that SBL failed to protect them when it sold this line of business to a weak Pennsylvania insurer which later sold it to a now-insolvent Arizona company.

Shortly after filing suit, plaintiffs moved for class certification and to consolidate this case with McNeill Agency's wrongful termination case. SBL moved to dismiss on the ground that no plaintiff's claim exceeded the diversity jurisdiction minimum of $50,000. See 28 U.S.C. § 1332(a). At the motion hearing, plaintiffs submitted documents, deposition testimony, and the live testimony of James and Dennis McNeill. SBL submitted deposition testimony and the McNeills' interrogatory answers in the McNeill Agency case.

At the close of the hearing the district court denied the class certification motion and dismissed the case. Regarding each of the interest sensitive plaintiffs, the court found little if any compensatory damage because the policies were still in existence; it found no basis for a claim of punitive damages under Arkansas law because plaintiffs alleged, at most, breaches of contract and negligence by SBL in the administration of the FPL policies. Regarding the eleven annuity plaintiffs, the court observed that they may never sustain a loss, depending upon the outcome of pending insurer receiverships; in addition, all of the issues raised by these plaintiffs can be litigated in a pending state court class action in which plaintiffs are members of the certified class. See Security Benefit Life Ins. Co. v. Graham, 306 Ark. 39, 810 S.W.2d 943 (1991). In response to plaintiffs' motion to reconsider, the district court amended its order to specify that the dismissal was without prejudice. Plaintiffs then appealed.

It is well settled that each plaintiff, even in a class action, must individually satisfy the $50,000 jurisdictional amount requirement. See Zahn v. International Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973). Punitive damages are included in determining the amount in controversy. See Bell v. Preferred Life Assur. Society, 320 U.S. 238, 240, 64 S.Ct. 5, 6, 88 L.Ed. 15 (1943). "While a plaintiff's good faith allegation is to be taken as true unless challenged, a plaintiff who has been challenged as to the amount in controversy has the burden of showing that the diversity jurisdiction requirements have been met." Burns v. Massachusetts Mut. Life Ins. Co., 820 F.2d 246, 248 (8th Cir.1987). The district court should dismiss for lack of jurisdiction when it appears to a "legal certainty" that the plaintiff cannot satisfy the jurisdictional amount. See St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938).

In this case, plaintiffs concede that they cannot satisfy the amount-in-controversy requirement without their claim for $7,500,000 in punitive damages. After carefully reviewing the record and considering the issues de novo, we agree with the district court that punitive damages are not recoverable on the facts alleged by plaintiffs. Therefore, plaintiffs' complaint was properly dismissed without prejudice.

Despite plaintiffs' elaborate attempt to convert their on-going contract disputes with SBL into a tort action, their allegations fail to meet the Arkansas standard for punitive damages. The fraud allegations are inadequate under Fed.R.Civ.Proc. 9(b). They fail to state with particularity critical elements of fraud...