Schubert v. Auto Owners Ins. Co.

Decision Date12 August 2011
Docket NumberNo. 10–2761.,10–2761.
Citation649 F.3d 817
PartiesCarolyn E. SCHUBERT, Personal Representative of the Estate of Thomas R. Schubert, deceased, Appellee,v.AUTO OWNERS INSURANCE COMPANY, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit


Kenneth Raymond Goleaner, argued, Robert L. Brady and Brandon B. Copeland, on the brief, St. Louis, MO, for appellant.James S. Manning, argued, Harrisonville, MO, Phillip S. Smith, on the brief, Kansas City, MO, for appellee.Before BYE, COLLOTON, and GRUENDER, Circuit Judges.BYE, Circuit Judge.

Auto Owners Insurance Company (Auto Owners) appeals the order granting summary judgment in favor of Carolyn Schubert and awarding her $124,500, the face value of the insurance policy sold to her by Auto Owners. Because Schubert owned a one-half interest in the dwelling covered by the policy, which was completely destroyed by fire, Auto Owners offered to pay her half of the policy value. Auto Owners cited a provision within the policy which limited recovery to [no] more than the insurable interest the insured has in the covered property at the time of loss.” The district court 1 declared this provision void as contrary to the public policy expressed in the Missouri valued policy statute, see Mo.Rev.Stat. § 379.140 (2000), and alternatively found its language ambiguous so as to allow Schubert to recover the face value of the insurance policy. Because we agree with the district court's conclusions as to both points, we affirm. We are also convinced, after initially questioning our jurisdiction over the matter, that the case satisfies the $75,000 amount-in-controversy requirement and jurisdiction is proper.

I. Underlying Dispute

The house covered by the Auto Owners policy at issue was located at 1100 Eastwood in Harrisonville, Missouri, and originally belonged to the first wife of Carolyn Schubert's late husband, Thomas Schubert. Thomas purchased the policy in 2004, after his first wife had died, and maintained it until his own death in 2006. Because Thomas died intestate, Carolyn Schubert, who had married him the previous year, was uncertain as to whether she would inherit the house. She told as much to an Auto Owners agent during a phone conversation in October 2006, when she notified the company of Thomas's death and transferred the policy into her own name. If she turned out not to inherit the property, Schubert predicted, she would stop paying the premiums. Since that conversation, she never updated Auto Owners on the status of the ownership dispute, but continued to make regular premium payments on the policy and renewed the policy at least twice after Thomas's death.

At the time of Thomas's death, the house was occupied by his stepdaughter from his first marriage, Deborah Lee Weiss. During the probate proceedings to determine the heirship of the house, Schubert stipulated with Weiss as to each owning fifty percent (50%) of the property. But the rapprochement was short-lived. Three months after entering into the stipulation, in March 2008, Weiss intentionally set the insured property on fire, which resulted in its complete destruction.

When Schubert made a claim on the policy shortly thereafter, Auto Owners refused to pay the policy face value of $124,500. It justified the refusal by reference to the clause within the policy which limited recovery to the insured's “insurable interest” in the property:



Subject to the applicable limit of insurance, we will not pay more than the insurable interest the insured has in the covered property at the time of loss.

JA at 121.

Since the company determined Schubert's insurable interest to be fifty percent of the value of the property, it sent her a check for half of the policy amount, or $62,250. Through her lawyer, Schubert rejected the tender and demanded the payment of the face value of the policy within seven days. Although she did not cash the check, she did not return it either, holding on to it purportedly until she got paid in full. With no payment forthcoming, Schubert filed the present lawsuit asserting a breach of contract and seeking damages for vexatious refusal to pay pursuant to Mo.Rev.Stat. § 375.296 in a Missouri state court. After Auto Owners removed the case to federal court, the district court granted summary judgment in favor of Schubert on her breach of contract claim and in favor of Auto Owners on Schubert's vexatious refusal to pay claim. In the district court's view, the contractual limitation on recovery based on the degree of the insured's insurable interest in the property was void as contrary to the Missouri valued policy statute and, even assuming the limitation was valid, the policy was ambiguous in its definition of “insurable interest” and could not be used to deny Schubert full recovery. Auto Owners appeals.

II. Subject–Matter Jurisdiction

Although neither party challenges the court's jurisdiction to hear the case, we have an independent obligation to evaluate it. Arbaugh v. Y & H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006). Acting on this obligation, the court ordered supplemental briefing on whether the case meets the $75,000 amount-in-controversy threshold the diversity jurisdiction statute requires. 28 U.S.C. § 1332(a). As an initial matter, the court was concerned that, with Auto Owners having conceded Schubert's entitlement to the first $62,250 of the policy, only the other half of the policy, or $62,250, remains in controversy in Schubert's breach-of-contract claim. The court's second concern was whether Schubert's vexatious refusal to pay claim was sufficient to bridge the value gap under this court's holding in Missouri ex rel. Pemiscot County v. Western Surety Co., 51 F.3d 170 (8th Cir.1995). We will consider each of these concerns in turn.


We first address the amount in controversy in Schubert's breach-of-contract claim. In this circuit, the amount in controversy is measured by “the value to the plaintiff of the right sought to be enforced.” Advance Am. Servicing of Ark. v. McGinnis, 526 F.3d 1170, 1173 (8th Cir.2008). Generally, the defendant's pre-suit concessions as to all or some portion of the plaintiff's claim do not diminish the value of that claim for the purposes of the diversity jurisdiction analysis as long as, for one reason or another, the claim remains unpaid. In re Reisenberg, 208 U.S. 90, 107–08, 28 S.Ct. 219, 52 L.Ed. 403 (1908). “Jurisdiction does not depend upon the fact that the defendant denies the existence of the claim made, or its amount or validity,” id. at 108, 28 S.Ct. 219, or else the court's ability to enter default or consent judgments would be seriously compromised.

Yet, the insurer's pre-suit concession of liability is not entirely inconsequential. For example, in a declaratory judgment action brought by an insurance company, the Sixth Circuit found the claim to be for $75,000 even, falling a penny short of the statutory threshold, where the insurer conceded the policy required a payment of $25,000 but disagreed with the insured who insisted he was entitled to $100,000 in coverage. Freeland v. Liberty Mut. Fire Ins. Co., 632 F.3d 250, 252–55 (6th Cir.2011). Similarly, where the insurer entered into a $50,000 settlement agreement with the insured prior to the filing of the case, but the insured sued insisting on $100,000 in coverage, the Third Circuit concluded the insurer's action seeking a declaration that the payment satisfied its obligations in full left only $50,000 in controversy. State Farm Mut. Auto. Ins. Co. v. Powell, 87 F.3d 93, 97 (3d Cir.1996). Reasoning along the same lines, another court has held, where the insurer already made partial payments on the claim, there was no diversity jurisdiction over the insured's action seeking to recover the remaining payments under the policy because these payments fell below the jurisdictional minimum. Boe v. State Farm Fire & Cas. Ins. Co., No. 09–780, 2009 WL 1707122, at *3 (E.D.La. June 16, 2009).

Returning to the facts of this case, Auto Owners not only conceded liability as to the first $62,250 of the policy amount, but also sent Schubert a check for that amount.2 These events had occurred before the commencement of the action, so the rule that the settlement during the pendency of the suit cannot reduce the amount in controversy does not apply. McCollum v. State Farm Ins. Co., 376 Fed.Appx. 217, 220 (3d Cir.2010). The case therefore seems to fit squarely within the factual pattern considered by the Sixth Circuit in Freeland, where the live dispute does not involve the entire value of the policy but only a part of it as to which the insurer disputed liability. Because, applying Freeland, only half of the face value remained in controversy, Auto Owners must rely on the vexatious refusal to pay count to reach the $75,000 threshold necessary to support jurisdiction.


In assessing the amount in controversy on the vexatious refusal to pay count, we start with the basics. As a party invoking the court's jurisdiction, Auto Owners has an obligation to show, by a preponderance of the evidence, facts supporting jurisdiction. McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135 (1936). In this case, Auto Owners has to show the amount in controversy in both counts exceeds the sum or value of $75,000, exclusive of interest and costs. See 28 U.S.C. § 1332(a). Although the sum claimed by the plaintiff in good faith is usually dispositive, it does not control where it appears to a legal certainty the plaintiff's claim is actually for less than the jurisdictional amount. St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289, 58 S.Ct. 586, 82 L.Ed. 845 (1938); Zunamon v. Brown, 418 F.2d 883, 886 (8th Cir.1969). The legal certainty standard is met where the “legal impossibility of recovery [is] so certain as virtually to negative the plaintiff's good faith in...

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