Schaefer v. Aetna Life & Cas. Co.

• Decision Date: 04 January 1996
• Docket Number: Civil No. K-95-2294.
• Parties: John Michael SCHAEFER v. AETNA LIFE & CASUALTY COMPANY, et al.
• Court: U.S. District Court — District of Maryland

910 F. Supp. 1095

John Michael SCHAEFER v. AETNA LIFE & CASUALTY COMPANY, et al.

Civil No. K-95-2294.

United States District Court, D. Maryland.

January 4, 1996.

John M. Schaefer, pro se.

V. Timothy Bambrick, George E. Reede, Jr., and Niles, Barton & Wilmer, Baltimore, Maryland, for defendants.

FRANK A. KAUFMAN, Senior District Judge.

This case arises out of a dispute between plaintiff, John Michael Schaefer (Schaefer),¹ a citizen of Nevada,² and defendant Aetna Life and Casualty Company (Aetna), a Connecticut corporation with its principal place of business in Connecticut, regarding Aetna's handling of an insurance claim. The relevant facts—particularly those related to the issues of subject matter jurisdiction and availability of punitive damages—are essentially undisputed. The Aetna insurance policy at issue covered the Schaefer Hotel located, in Baltimore, Maryland owned by Schaefer. Defendant Provident Bankshares (Provident) apparently held a mortgage on that hotel property and therefore purchased fire insurance on that property from Aetna.³ While Provident and Aetna negotiated the insurance contract, Schaefer paid the policy premiums.⁴ A fire occurred at the hotel on November 9, 1991. Schaefer seemingly unsuccessfully pursued a claim against Aetna,⁵ and this litigation followed.

Schaefer contends that Aetna stalled in making payment regarding his claim, in the hope of avoiding any payment at all. Examples of Aetna's alleged stalling include asking for documentation supporting repair costs, a fire department report confirming the date of loss, and a hotel log indicating who stayed in the room in which the fire occurred and could potentially be held responsible for the loss. Schaefer asserts that Aetna should have made its own estimation of the damage at the hotel, rather than requiring Schaefer, then a resident of California, to obtain the requested records. He further states that Aetna was not serious in seeking the identity of the occupant of the room in which the fire occurred because, according to Schaefer, no resident of the low-income Schaefer Hotel would be susceptible to judgment.

Schaefer has set forth three causes of action in his complaint: breach of implied covenant of good faith, breach of contract and negligence. He originally claimed compensatory damages of $5,000 for each of his three claims,⁶ but is apparently now seeking only $1,500 in interest in connection therewith.⁷ However, whether or not plaintiff is seeking $15,000 of total compensatory damages, plus interest in the amount of $1,500, plaintiff cannot establish the required jurisdictional amount of $50,000 unless plaintiff can, as a matter of Maryland case law, under any circumstances, meritoriously be awarded punitive damages. With regard thereto, Schaefer is asking for punitive damages of $1,000,000 for his first claim only, namely breach of implied covenant of good faith.

In this case, Schaefer bases federal subject matter jurisdiction upon 28 U.S.C. § 1332(a), i.e. diversity of citizenship. Aetna has moved for summary judgment. However, before reaching that summary judgment motion, this Court, sua sponte, see Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites, 456 U.S. 694, 702, 102 S.Ct. 2099, 2104, 72 L.Ed.2d 492 (1982); 13 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure: Jurisdiction 2d § 3522 at 69-70 & n. 2 (1984), will consider whether subject matter jurisdiction is present, i.e. specifically whether the jurisdictional amount of $50,000 can possibly, as a matter of law, be established by Schaefer.

Generally, a "plaintiff's allegation that the matter in controversy exceeds the jurisdictional amount requirement is sufficient to meet the amount in controversy test, unless challenged." 14A C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure: Jurisdiction 2d § 3702 at 17 (1985). However, in this case, if punitive damages are not recoverable, than the complaint itself discloses that the small total amount of compensatory damages sought falls far below the jurisdictional amount. "The party seeking to invoke the jurisdiction of the federal courts has the burden of proving its existence by showing that it does not appear to a legal certainty that its claim is for less than the jurisdictional amount." Id. at 19. This is known as the legal certainty test. Schaefer, herein, has confined himself to claiming, at most, a total of $15,000 compensatory damages plus $1,500 of interest, in connection with all of his claims; plus punitive damages of $1,000,000 for breach of implied covenant of good faith. Accordingly, plaintiff's claims for damages do not reach the $50,000 requirement of 28 U.S.C. § 1332(a) unless, as a matter of law, plaintiff may be able to obtain the punitive damages he seeks. It is because plaintiff cannot so do that this Court will hold in this opinion that subject matter federal jurisdiction on the grounds of diversity of citizenship is lacking. See Cadek v. Great Lakes Dragaway, Inc., 58 F.3d 1209, 1212 (7th Cir.1995), quoting in part from Risse v. Woodard, 491 F.2d 1170, 1173 (7th Cir.1974). In addition, it is to be noted that "claims for punitive damages proffered for the purpose of achieving the jurisdictional amount should be carefully examined." Saval v. BL Ltd., 710 F.2d 1027, 1033 (4th Cir.1983).

Here, a determination in a summary judgment context of the jurisdictional amount first requires a determination of the punitive damages issue, on the merits, in so far as plaintiff's breach of implied covenant of good faith claim is concerned. Therefore, as to the latter, summary judgment is appropriate, but only as to it, not as to any other issue raised by plaintiff's complaint.⁸

Accordingly, this Court will, in a separate order of today's date, grant partial summary judgment as to that one claim for punitive damages by plaintiff, and will dismiss, without prejudice, for want of federal subject matter jurisdiction, all liability and all other damages claims stated or raised by plaintiff's complaint.

I. SUMMARY JUDGMENT

Summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56. "A defendant moving for summary judgment has the burden of showing the absence of any genuine issue of material fact and that he is entitled to judgment as a matter of law.... Once a defendant makes the necessary showing, the plaintiff must go forward and produce evidentiary facts to support his contentions." Barwick v. Celotex Corp., 736 F.2d 946, 958 (4th Cir.1984). In fact, the non-movant "may not rest upon the mere allegations or denials of the adverse party's pleading, but ... must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). However, the non-movant is entitled to have all reasonable inferences drawn in his favor. Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 1608-10, 26 L.Ed.2d 142 (1970).

II. PUNITIVE DAMAGES

As an initial matter, this Court looks to the law of the forum, i.e. Maryland, to determine what state law is applicable. Klaxon Co. v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941). Maryland applies the principle of lex locus contractus. Eastern Stainless Corp. v. American Protection Ins. Co., 829 F.Supp. 797, 799 (D.Md. 1993). In the within case the insurance contract was countersigned, delivered, and paid for in Maryland on or about the date the insurance policy became effective.⁹ Thus, while "the determination of the amount in controversy is a federal question to be decided under federal standards," Novosel v. Northway Motor Car Corp., 460 F.Supp. 541, 544 (N.D.N.Y.1978), Maryland law is applicable in so far as any issues of contract law are involved. As to all tort claims, Maryland follows the rule of lex locus delicti, i.e. where the alleged tort occurred. Ward v. Nationwide Mutual Auto Insurance Co., 328 Md. 240, 244 n. 2, 614 A.2d 85 (1992), Hauch v. Connor, 295 Md. 120, 123-25, 453 A.2d 1207 (1981). However, the issues involved herein, respecting tort law, concern availability to plaintiff herein of punitive damage claims, not to a tort liability issue as such. Under choice of law principles, both this Court and a Maryland court would seemingly look to Maryland law as governing the question of whether or not Schaefer has stated or can state any viable claim for punitive damages. See Saval v. BL Ltd., 710 F.2d 1027, 1033 (4th Cir.1983). See also Restatement (Second) of Conflict of Laws §§ 145, 171 (1971). "The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties. . . ." Id. at § 145. "The law so selected ... determines the measure of damages." Id. at § 171. In this case, the parties seem to agree that the contract was "countersigned, delivered and paid for" in Maryland.¹⁰ Where each of the alleged tortious acts discussed supra in this opinion¹¹ took place is not specified by either of the parties, but nothing in the record indicates that any of them, if they in fact occurred, did not take place in Maryland, or that the law of Maryland is not the law to which such acts, or lack of them, bear "the most significant relationship." Thus, Maryland governs the availability vel non of punitive damages in this case.

Citing to Maryland law, defendants argue that Schaefer cannot recover punitive damages from Aetna because no contract exists between Aetna and Schaefer. However, Maryland recognizes the doctrine of third-party beneficiary which "permits a person for whose benefit a contract is made to maintain an action on it without any...