Freeland v. Liberty Mut. Fire Ins. Co.

• Decision Date: 04 February 2011
• Docket Number: No. 10–3038.,10–3038.
• Citation: 632 F.3d 250
• Parties: Betty FREELAND, Administratrix of the Estate of John L. Freeland, Jr., Deceased and the Estate of Tina M. Freeland, Deceased; John L. Freeland, Sr., Guardian of the Persons and Estate of J.M.F., a Minor, K.D.F., a Minor, and S.N.F., a Minor, Plaintiffs–Appellants,v.LIBERTY MUTUAL FIRE INSURANCE CO., Defendant–Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

632 F.3d 250

Betty FREELAND, Administratrix of the Estate of John L. Freeland, Jr., Deceased and the Estate of Tina M. Freeland, Deceased; John L. Freeland, Sr., Guardian of the Persons and Estate of J.M.F., a Minor, K.D.F., a Minor, and S.N.F., a Minor, Plaintiffs–Appellants,

v.LIBERTY MUTUAL FIRE INSURANCE CO., Defendant–Appellee.

No. 10–3038.

United States Court of Appeals, Sixth Circuit.

Argued: Jan. 20, 2011.Decided and Filed: Feb. 4, 2011.

ARGUED: Michael D. Rossi, Guarnieri & Secrest, P.L.L., Warren, Ohio, for Appellants. Jeffrey C. Gerish, Plunkett Cooney, Bloomfield Hills, Michigan, for Appellee. ON BRIEF: Michael D. Rossi, Guarnieri & Secrest, P.L.L., Warren, Ohio, for Appellants. Jeffrey C. Gerish, Plunkett Cooney, Bloomfield Hills, Michigan, for Appellee.Before: MARTIN and STRANCH, Circuit Judges; THAPAR, District Judge. ^*

OPINION

THAPAR, District Judge.

This insurance coverage case arises out of a tragic car accident. Despite the resources that have been invested in litigating this action, we must dismiss it to start anew in state court because the amount in controversy is one penny short of our jurisdictional minimum.

I.

The plaintiffs-appellants, John and Betty Freeland, loaned their Pontiac Trans Sport minivan to their son, John Freeland, Jr., and his family. On March 7, 2007, Freeland, Jr. was driving the minivan with his wife and three children in the car when he ran a red light and struck a police cruiser in the middle of an intersection. Freeland and his wife were killed in the accident. Their three children survived, but with serious injuries.

The Freelands insured their minivan with the defendant-appellee, Liberty Mutual Fire Insurance Co. The Freelands' policy provided coverage for bodily injuries up to a “single limit” of $100,000 as well as coverage for accidents caused by uninsured/underinsured motorists (“UM/UIM coverage”) up to a “split limit” of $12,500 per person and $25,000 per accident. Because the Freelands' deceased son did not have car insurance of his own, he was an uninsured motorist. Therefore, Liberty Mutual offered the Freelands the $25,000 per accident limit of their UM/UIM coverage. Dissatisfied with the offer, the Freelands filed a lawsuit against Liberty Mutual in Ohio state court. The complaint alleged that their selection of UM/UIM coverage in 1999 was invalid under the Ohio Supreme Court's decision in Linko v. Indemnity Insurance Co. of North America, 90 Ohio St.3d 445, 739 N.E.2d 338, 342 (2000), because the coverage selection form they signed did not contain certain required disclosures. Because of this invalid selection, the Freelands claimed that they had acquired UM/UIM coverage in an amount equal to their policy's bodily injury coverage by operation of law. The Freelands therefore sought a declaratory judgment establishing that their insurance policy provided $100,000 in UM/UIM coverage per accident, instead of the $25,000 per accident stated on the policy's face.

Liberty Mutual removed the case to the United States District Court for the Northern District of Ohio. In the notice of removal, Liberty Mutual asserted that the parties were completely diverse and that the amount in controversy was $100,000–the full amount of UM/UIM coverage to which the Freelands argued they were entitled. Neither party challenged the district court's jurisdiction. On January 5, 2010, the district court granted Liberty Mutual's motion for summary judgment, and the Freelands appealed to this Court.

II.

The penny is easily the most neglected piece of U.S. currency. Pennies tend to sit at the bottom of change jars or vanish into the cracks between couch cushions. Vending machines and parking meters will not accept them. Many people refuse to bend down to pick up a penny off the ground, deeming the reward not worth the effort. And a member of Congress even introduced legislation that would effectively eliminate the penny by requiring merchants to round their prices to the nearest nickel. See Currency Overhaul for an Industrious Nation (COIN) Act, H.R. 5818, 109th Cong. § 3(a) (2006). In this case, however, the penny gets a rare moment in the spotlight. The amount in controversy in this declaratory judgment action is exactly one penny short of the jurisdictional minimum of the federal courts.

Although the district court did not address it and the parties did not raise the issue in their briefs, this Court has “an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party.” Arbaugh v. Y & H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). Liberty Mutual removed this case to federal court under 28 U.S.C. § 1441(a), which allows removal of civil actions “of which the district courts of the United States have original jurisdiction.” Because this case presents no federal question, Liberty Mutual invoked the district court's diversity jurisdiction. Article III of the Constitution authorizes federal jurisdiction in all controversies where the parties are “citizens of different states.” U.S. Const. art. III, § 2. But Congress has always limited this grant of jurisdiction by also requiring that cases satisfy a minimum amount-in-controversy requirement. See Snyder v. Harris, 394 U.S. 332, 334, 89 S.Ct. 1053, 22 L.Ed.2d 319 (1969). When Congress first established the lower federal courts in the Judiciary Act of 1789, the required amount in controversy was $500. Id. That figure has increased over the years, and today “the matter in controversy [must] exceed[ ] the sum or value of $75,000, exclusive of interest and costs.” 28 U.S.C. § 1332.

Yet in this case the amount in controversy is $75,000 exactly—one penny short of the jurisdictional bar that Congress has set. The Freelands seek a declaratory judgment that their insurance policy provides UM/UIM coverage up to $100,000 per accident, instead of the $25,000 per accident maximum that appears on the policy's face. “In actions seeking declaratory or injunctive relief, it is well established that the amount in controversy is measured by the value of the object of the litigation.” Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S. 333, 347, 97 S.Ct. 2434, 53 L.Ed.2d 383 (1977). Applying this principle, this Court has said that, “[w]here a party seeks a declaratory judgment, ‘the amount in controversy is not necessarily the money judgment sought or recovered, but rather the value of the consequences which may result from the litigation.’ ” Lodal, Inc. v. Home Ins. Co. of Ill., No. 95–2187, 1998 WL 393766, at *2 (6th Cir. June 12, 1998) (quoting Beacon Constr. Co. v. Matco Elec. Co., 521 F.2d 392, 399 (2d Cir.1975)). If the Freelands prevail in this case, they will receive a declaration that their policy provides up to $100,000 in UM/UIM coverage. If they do not prevail, their policy will remain as-is, with only $25,000 in UM/UIM coverage. The “value of the consequences which may result from the litigation,” id.—that is, the monetary consequences that would result from a victory for the Freelands—is the difference between $100,000 and $25,000. That amount is $75,000 exactly.

This conclusion flows from the text of the jurisdictional statute itself. In order for the district court to have original jurisdiction, “the matter in controversy ” must “exceed[ ] the sum or value of $75,000.” 28 U.S.C. § 1332 (emphasis added). The words “in controversy” have to mean something. Congress could have written § 1332 to require only that “the matter exceed the sum or value of $75,000,” in which case jurisdiction might be appropriate here. But there is simply no controversy over the first $25,000 of coverage. If the Freelands lose, they will keep that amount of coverage. Indeed, as the Freelands acknowledged in their complaint in state court, Liberty Mutual has already offered the Freelands this amount. The dispute—the controversy—is only over the next $75,000.

Liberty Mutual's offer of $25,000 is not the same, of course, as a settlement offer. A party's offer to settle a case for a specified amount does not reduce the amount in controversy by that amount. If plaintiff sues defendant for $100,000, defendant cannot defeat federal jurisdiction simply by offering to settle the case for $40,000. Here, though, Liberty Mutual's offer is simply an acknowledgment that there is no dispute over the first $25,000 of coverage—the maximum under the Freelands' policy as it is currently written. That amount is the baseline level of coverage that the Freelands will keep even if they lose this lawsuit.

Although no other circuits appear to have addressed the precise jurisdictional issue that this case presents, the Third Circuit's decision in State Farm Mutual Automobile Insurance Co. v. Powell, 87 F.3d 93, 97 (3d Cir.1996), is quite similar. There, the insured had two policies, each providing $50,000 in coverage. The question was whether he could recover under both policies, or whether he was limited to recovering under only one. The insurance company sought a declaratory judgment that the insured could only recover $50,000 under one of his policies, while the insured argued that he could recover a total of $100,000 under both of them. Id. at 95–96. Because, “from the outset of [the] litigation [the insurance company] conceded that it owed [the insured] $50,000,” the Third Circuit held that the amount in controversy was not $100,000, but rather only $50,000—one penny shy of the jurisdictional threshold at the time. Id. at 97. Similarly in this case, Liberty Mutual has always conceded that the Freelands have $25,000 in UM/UIM coverage. That is what their policy provides on its face. The controversy is only over whether their policy provides $75,000 in additional coverage. See also State Farm Fire & Cas. Co. v. Sweat, 547 F.Supp....