Grange Mut. Cas. Co. v. Safeco Ins. Co. of America, Civil Action No. 7:08-15-ART.

• Decision Date: 16 July 2008
• Docket Number: Civil Action No. 7:08-15-ART.
• Citation: 565 F.Supp.2d 779
• Parties: GRANGE MUTUAL CASUALTY CO., Plaintiff, v. SAFECO INSURANCE CO. OF AMERICA, Intervening Plaintiff, v. George C. Damron, Defendant, v. Grange Mutual Casualty Co., Intervening Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

565 F.Supp.2d 779

GRANGE MUTUAL CASUALTY CO., Plaintiff, v. SAFECO INSURANCE CO. OF AMERICA, Intervening Plaintiff, v. George C. Damron, Defendant, v. Grange Mutual Casualty Co.,

Intervening Defendant.

Civil Action No. 7:08-15-ART.

United States District Court, E.D. Kentucky, Southern Division, Pikeville.

July 16, 2008.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Sandra Spurgeon, William W. Tinker, III, Spurgeon & Tinker, Lexington, KY, for Plaintiff/Intervening Defendant.

C.V. Reynolds, Reynolds Law Offices, PSC, Lisa Stumbo, C.V. Reynolds Law Office, Prestonsburg, KY, for Intervening Plaintiff.

George Cecil Damron; Pikeville, KY, pro se.

MEMORANDUM OPINION & ORDER

AMUL R. THAPAR, District Judge.

I. Introduction

Intervening Plaintiff, Safeco Insurance Company of America, filed a Motion to Remand. See R. 15 (Motion), R. 36 (Supplemental Memorandum), and R. 43 (Reply). Petitioner Grange Mutual responded and opposed any remand/dismissal of this action. See R. 18 (Response), R. 34 (Supplemental Memorandum), and R. 42 (Additional Supplement). The Court held a hearing on June 10, 2008, to discuss the motion. R. 41.

At the outset, the Intervening Plaintiffs Motion to Remand is procedurally improper because the case is not in federal court pursuant to removal, and the Intervening Plaintiff should have instead moved to dismiss. In any event, everyone has treated Intervening Plaintiffs motion as one to dismiss based on jurisdictional grounds, and this Court does so here.

The pleadings present two questions for the Court. First, does the Court have jurisdiction to hear this case? Second, assuming the Court has jurisdiction, in its discretion under the Declaratory Judgment Act, should it exercise that jurisdiction?

II. The Court's Jurisdiction

Since federal courts are courts of limited jurisdiction, for a federal court to hear an action, it must have subject matter jurisdiction. Title 28 of the United States Code in Section 1332 provides that this jurisdiction can be based on the fact that the parties are from different states, but only if the matter in controversy exceeds $75,000 and the parties are completely diverse. 28 U.S.C. § 1332(a). Here no dispute exists regarding diversity of citizenship, but the parties disagree over whether the amount in controversy requirement has been met.

A. Amount in Controversy

The general rule is that the amount in controversy is the value to the petitioner of the rights he seeks to protect. Williamson v. Aetna Life Ins. Co., 481 F.3d 369, 376 (6th Cir.2007). The value of a right can be measured by the losses the party will incur if its right is not protected. Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S. 333, 347, 97 S.Ct. 2434, 53 L.Ed.2d 383 (1977).

To determine the value of the controversy, the Court relies on the amount alleged in the complaint. Klepper v. First Am. Bank, 916 F.2d 337, 340 (6th Cir.1990) ("In a federal diversity action, the amount alleged in the complaint will suffice unless it appears to a legal certainty that the plaintiff in good faith cannot claim the jurisdictional amount." (citing St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89, 58 S.Ct. 586, 82 L.Ed. 845 (1938))). The Court "examine[s] the complaint at the time it was filed" to determine whether the amount-in-controversy requirement has been satisfied, id. (citing Worthams v. Atlanta Life Ins. Co., 533 F.2d 994, 997 (6th Cir.1976)), and "[e]vents occurring subsequent to the institution of suit which reduce the amount recoverable below the statutory limit do not oust jurisdiction," St. Paul Mercury Indem. Co., 303 U.S. at 289-90, 58 S.Ct. 586.

For a case to be dismissed on amount in controversy grounds it must "appear[ ] that the plaintiffs assertion of the amount in controversy was made in bad faith." Schultz v. Gen. R.V. Ctr., 512 F.3d 754, 756 (6th Cir.2008) (internal quotation omitted) (quoting Gafford v. Gen. Elec. Co., 997 F.2d 150, 157 (6th Cir.1993)). "A showing of bad faith is made if the [opposing party] demonstrates `to a legal certainty[ ] that the original claim was really for less than the amount-in-controversy requirement.'" Id. (quoting Gafford, 997 F.2d at 157) (alteration in original). Furthermore, "[t]he inability of [a] plaintiff to recover an amount adequate to give the court jurisdiction does not show his bad faith or oust the jurisdiction." St Paul Mercury Indem. Co., 303 U.S. at 289, 58 S.Ct. 586.

B. Analysis

Grange Mutual argues that (1) the potential damages of the underlying suit, plus (2) the amount it will have to pay to defend its insured exceed the $75,000 minimum. The Court focuses on each of these in turn.

(1) In its original Petition for Declaration of Rights, Grange indicated that the limits of its policy were $50,000 of property damage per accident, $50,000 of bodily injury per person, and $100,000 per accident. R. 1 at 2. Grange Mutual subsequently amended these figures and stated that the limits of the policy are $100,000 for property damage, $100,000 for bodily injury, and $300,000 per accident. R. 42 at 3. Grange Mutual, however, does not argue that the Plaintiff in the underlying state case seeks the policy limits. And, Safeco has submitted an affidavit from the Plaintiff in the underlying state case stating that his damages do not exceed $75,000. R. 36, Attach. 1.

The Sixth Circuit has not decided whether in a declaratory judgment action courts should measure the amount in controversy by the policy limits or by the value of the underlying claim. The rule in other circuits has been that "the policy limits are controlling `in a declaratory action ... as to the validity of the entire contract between the parties,'" but that when the applicability of an insurance policy to a particular occurrence is the question, the amount in controversy is measured by the value of the underlying claim. Hartford Ins. Group v. Lou-Con, Inc., 293 F.3d 908, 911 (5th Cir.2002) (quoting 14B CHARLES ALAN WEIGHT, ARTHUR R. MILLER & EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3710 (3d ed. 1998)); see Budget Rentr-A-Car, Inc. v. Higashiguchi, 109 F.3d 1471, 1473 (9th Cir.1997) (finding the maximum liability under a rental agreement is "relevant to determining the amount in controversy only if the validity of the entire insurance policy is at issue"); Home Ins. Co. of N.Y. v. Trotter, 130 F.2d 800, 803 (8th Cir.1942) (finding that where the issue is the validity or invalidity of a policy, the value of the policy is the amount in controversy). It seems logical that the policy limits should not control when the entirety of the policy is not "in dispute," but rather only a claim on that policy. Thus, following this logic, the underlying Plaintiffs claim does not exceed $75,000.

(2) The fact that the underlying claim is not sufficient for this Court's jurisdiction is not fatal because the value of the rights Grange Mutual seeks to protect extend beyond merely the value of the underlying litigation. Grange Mutual seeks a declaration of its rights under an insurance liability policy that provides both for coverage and defense. While attorney's fees and/or defense costs are not normally considered when determining the amount in controversy, Williamson v. Aetna Life Ins. Co., 481 F.3d 369, 376 (6th Cir.2007), they are included in the amount in controversy (1) when provided by contract, (2) when provided by a statute that expressly mandates or allows the payment of such fees, and (3) when an insurance company will have to pay the underlying defense costs of the insured. See id.; Springstead v. Crawfordsville State Bank, 231 U.S. 541, 541-42, 34 S.Ct. 195, 58 L.Ed. 354 (1913) ("Could such an attorney's fee be considered in determining whether the jurisdictional amount was involved? We think so.... [T]he moment suit was brought the liability to pay the fee became a `matter in controversy,' and as such to be computed in making up the required jurisdictional amount...."); see also Pub. Funding Corp. v. Lawrence County Fiscal Court, No. 89-5486, 1989 WL 153970, at *2 (6th Cir. Dec. 21, 1989) (unpublished) (finding attorney's fees provided for in a lease to be part of the amount in controversy); Farmers Ins. Co. v. McClain, 603 F.2d 821, 823 (10th Cir.1979) (stating that insurer's potential losses can include the value of its obligation to defend its insured in an underlying suit); Stonewall Ins. Co. v. Lopez, 544 F.2d 198, 199 (5th Cir.1976) (finding the amount in controversy to include the "pecuniary value of the obligation to defend a separate lawsuit"). Here, under the policy, Grange Mutual must pay the defense costs of its insured. See Grange Mutual's Insurance Policy, R. 1, Ex. 2, at A-1 (indicating that Grange will settle or defend claims seeking damages against an insured). Thus, the extent of damage Grange Mutual might suffer — its potential loss — is not limited to the value of the state court claim; it also includes the costs it would incur in representing Mr. Damron in the state court action.

Consequently, Safeco has failed to show to a legal certainty that Grange Mutual's original claim could not meet the jurisdictional minimum. Indeed, it seems that when you combine the underlying damages and costs of defense, it very well could. Thus, the Court has jurisdiction to hear the action.

III. THE COURT'S DISCRETION TO EXERCISE ITS JURISDICTION

Though the Court has jurisdiction and could hear this declaratory judgment action, it must also determine whether it should do so. The Declaratory Judgment Act provides authority for "any court of the United States" to "declare the rights and legal relations of any interested party seeking such declaration...." 28 U.S.C. § 2201(a). The Supreme Court has made clear, however, that when a simultaneous state court claim has been undertaken, a district court's ability to hear an action under the Declaratory Judgment Act does not compel it to do so. E.g. Brillhart v. Excess Ins. Co. of Am., 316 U.S....