As discussed before, litigating cases in Federal Court is what an insurance company prefers to do. Ans as discussed before, there are ways to keep this from happening in the right circumstances. The United States 5th Circuit issued an opinion issued an opinion in 1998, that is worth knowing about as it relates to calculating damages and how that calculation effects whether or not a case will be litigated in Federal Court. The opinion is styled, St. Paul Reinsurance Co., LTD. v. Greenberg.
This declaratory judgment action is a case wherein the insurance company won their fight to have the case litigated in Federal Court because the amount in controversy requirement for diversity jurisdiction under 28 U.S.C., section 1332, was not satisfied.
Greenberg had a homeowners policy with St. Paul. Greenberg’s home was destroyed by arson. Greenberg filed a sworn proof of loss for $35,000, which was the policy limits. St. Paul denied the claim for three reasons.
On September 20, 1996, Greenberg’s attorney wrote St. Paul demanding coverage and threatening to sue for the damages plus all other damages including penalties that may apply. This was re-stated in an October 10 letter.
St. Paul this this declaratory judgment action a week later.
Greenberg responded by filing a Rule 12(b)(1) motion to dismiss stating his claim was for the policy limits of $35,000 plus a maximum of $10,500 in attorney fees and arguing the case should be dismissed due to the amount in controversy being below the minimum requirements for federal jurisdiction, which was $50,000 at the time.
St. Paul contends that the amount in controversy should also include penalties and treble damages.
In removal practice, when a complaint does not allege a specific amount of damages, the party invoking federal jurisdiction must prove by a preponderance of the evidence that the amount in controversy exceeds the jurisdictional amount. The district court must first examine the complaint to determine whether it is “facially apparent” that the claims exceed the jurisdictional amount. If it is not thus apparent, the court may rely on “summary judgment-type” evidence to ascertain the amount in controversy. Importantly, the jurisdictional facts must be judged as of the time the complaint is filed; subsequent events cannot serve to deprive the court of jurisdiction once it has attached.
Applying this test solely to the facts pleaded by St. Paul in its complaint for declaratory relief, we cannot conclude that the amount in controversy will likely exceed $50,000. St. Paul sets out its reasons for denying coverage under the policy, but asserts neither that Greenberg has expressly threatened to seek statutory penalties or punitive damages nor that St. Paul has acted with bad faith or intent. Similarly, St. Paul’s complaint contains no prayer for a declaration of nonliability under the DTPA or the Texas Insurance Code. Conclusional allegations are insufficient to establish jurisdiction.
In addition to the complaint itself, the Court must look as well to other evidence relevant at the time St. Paul filed its complaint for declaratory relief.
The only pre-complaint evidence of Greenberg’s potential claim against St. Paul are the letters from Greenberg’s attorney, demanding coverage under the policy and threatening to seek “all damages available to Greenberg under the various common laws or statutes relative to this case” and “any penalties and interest to which Mr. Greenberg may be entitled.” One such penalty is found in Section 542.060 of the Texas Insurance Code, which provides for statutory “damages” in the amount of “18 percent per annum” for failure timely to pay an insurance claim. The district court and Greenberg summarily concluded that “a statutory penalty that requires no adjudication cannot be used to establish threshold jurisdiction.” But this is simply an incorrect statement of the law in this circuit.
If Greenberg is successful in recovering under the St. Paul policy, he will automatically recover 18 percent per annum damages.
Compared to the highly conjectural element of punitive damages, late settlement damages under the Texas Insurance Code, with no exception for excusable neglect or justifiable delay, is a lay down hand. It would be ludicrous, then, to include something as speculative as punitive damages-which all agree is properly includible, while excluding the automatic penalty provided in the insurance code. Given the policy’s limits of $35,000, attorney’s fees, and the 18 percent per annum statutory damages which have been accruing ever since March 12, 1996, the Court concluded that Greenberg’s claim-and St. Paul’s potential liability under the policy-would likely exceed $50,000, exclusive of costs and interest.