The Continental Insurance Company v. Morrison Construction Company

Filing 27

OPINION AND ORDER DENYING 14 MOTION (First) to Dismiss Plaintiff's First Amended Complaint by Defendant Morrison Construction Company. Signed by Judge Rudy Lozano on 3/8/16. (cer)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
THE CONTINENTAL INSURANCE
COMPANY,

)
)
)
)
)
)
)
)
)
)

Plaintiff,
vs.
MORRISON CONSTRUCTION CO.,
Defendant.

NO. 2:15-CV-70

OPINION AND ORDER
This matter is before the Court on the Defendant’s 12(b)(1)
Motion to Dismiss for Lack of Subject Matter Jurisdiction, filed on
June 11, 2015.

For the reasons set forth below, the motion is

DENIED.

BACKGROUND
On

February

25,

2015,

The

Continental

Insurance

Company

(“Continental”) filed this declaratory judgment action against
Morrison Construction Co. (“Morrison”).

Continental requested a

declaratory judgment that an employer liability insurance policy
issued by Continental to Morrison does not provide coverage for a
suit brought against Morrison by Kenneth G. Wilkening and Betty Jo
Wilkening (“the Wilkenings”).

Continental alleged that this Court

had diversity jurisdiction over the suit pursuant to 28 U.S.C.
section 1332.

According to Continental’s declaratory judgment complaint, the
Wilkenings’

complaint

arose

from

Kenneth

Wilkening’s

alleged

exposure to asbestos while working for Morrison between 1966 and
1967.

Kenneth Wilkening alleged that he suffered “severe, painful

and disabling injuries and illnesses to his lungs and body and
other injuries and illnesses.”

(DE #1 at 2).

Continental’s

complaint stated that it believed that the Wilkenings were seeking
damages in excess of $50,000.
declaring

that

Continental

indemnify

Morrison

against

Continental asked for a ruling

has

no

obligations

the

Wilkening

to

defend

or

and

for

complaint

attorney’s fees and costs. (DE #1 at 8).
Morrison filed a motion to dismiss Continental’s declaratory
judgment suit for lack of subject matter jurisdiction, but that
motion became moot when Continental was granted leave to file an
amended complaint.

Continental’s amended complaint is similar to

its first complaint, except that it seeks reimbursement for certain
defense costs which Continental inadvertently paid to Morrison due
to a clerical error.

(DE ##9-10).

The amended complaint also

notes that, after the filing of the first complaint, Continental
advanced

Morrison

$214,000

to

settle

the

Wilkenings’

claims,

contingent upon its return upon the Court’s determination that
Continental did not have an obligation to defend and indemnify
Morrison against the Wilkenings’ claims.

(DE #10 at 4).

In response to the amended complaint, Morrison filed the
instant motion to dismiss. Morrison contends that this Court lacks
2

subject matter jurisdiction because Continental cannot demonstrate
that the amount in controversy exceeds $75,000. More specifically,
Morrison notes that the amount discussed in settlement negotiations
in the underlying claim, together with Morrison’s defense costs,
fell below the jurisdictional amount at the time Continental filed
this

action.

The

motion

is

fully

briefed

and

ripe

for

adjudication.

DISCUSSION
Pursuant to Federal Rule of Civil Procedure 12(b)(1)1, a
defendant may move to dismiss claims over which the federal court
lacks subject matter jurisdiction.
limited jurisdiction.
457

F.3d

675,

679

Federal courts are courts of

Hart v. FedEx Ground Package System Inc.,
(7th

Cir.

2006).

The

party

asserting

jurisdiction has the burden of establishing that the cause lies
within the federal court’s limited jurisdiction. Id. Furthermore,
this Court has an obligation to ensure that it has proper subject
matter jurisdiction over each lawsuit that is brought in this
Court.

See Wernsing v. Thompson, 423 F.3d 732, 743 (7th Cir.

2005).

1

Defendant’s motion, although titled as a “12(b)(1) Motion
to Dismiss for Lack of Subject Matter Jurisdiction,” references
12(b)(6) and requests dismissal with prejudice. This Court will
presume this was a mere typographical error, and Morrison,
consistent with its memorandum, seeks a without prejudice
dismissal based on Rule 12(b)(1).
3

In order to avoid dismissal for lack of subject matter
jurisdiction, a plaintiff must demonstrate that either diversity
jurisdiction or federal question jurisdiction exists.

Bovee v.

Broom, 732 F.3d 743, 744 (7th Cir. 2013). Continental alleges this
Court

has

diversity

jurisdiction

over

its

suit.

Diversity

jurisdiction, pursuant to 28 U.S.C. section 1332, requires complete
diversity of citizenship between the plaintiffs and the defendants
and the proper amount in controversy (more than $75,000).
Inc. v. AMP, Inc., 259 F.3d 864, 881 (7th Cir. 2001).

Neuma,

The parties

agree that the diversity of citizenship requirement is met, but
dispute whether the amount in controversy requirement is met.
In the Seventh Circuit:
[t]he amount in controversy is the
amount required to satisfy the
plaintiff's demands in full on the
day the suit begins, Hart v.
Schering-Plough Corp., 253 F.3d 272,
273 (7th Cir. 2001), or in the event
of removal, on day the suit was
removed,
BEM
I,
L.L.C.
v.
Anthropologie, Inc., 301 F.3d 548,
552 (7th Cir. 2002).
Oshana v. Coca-Cola Co., 472 F.3d 506, 510-11 (7th Cir. 2006).
This Court’s inquiry will be limited to the amount in controversy
on the day the suit was initially filed.

Because this is a

declaratory

in

determined

judgment
by

the

action,

value

of

“the
the

amount
object

of

controversy
the

is

litigation.”

America’s Moneyline Inc. v. Coleman, 360 F.3d 782, 786 (7th Cir.
2004).

4

The Wilkenings filed suit against Morrison and others on
December 31, 2013.

(DE #5-1).

The complaint alleged multiple

claims against Morrison, including unseaworthiness, negligence,
willful failure to conduct maintenance, and loss of consortium.
(Id.). For each count, the Wilkenings represented that they sought
compensatory damages in an amount to be proved at trial, but
believed to exceed $50,000.

(Id.).

In January 2014, Morrison notified Continental of the suit and
demanded defense and indemnity coverage.

(DE #12 at ¶9).

January, Continental denied the requested coverage.
¶10).

In late

(DE #12 at

Prior to August 8, 2014, Morrison filed a summary judgment

motion claiming that the Wilkenings’ only viable claim against
Morrison was through worker’s compensation.
to a letter drafted by one of
2014,

prior

to

the

(DE #5-2).

According

Morrison’s attorneys on August 8,

hearing

on

the

summary

Wilkenings’ attorney made a demand of $214,000.

judgment

motion,

(DE #5-2).

This

number was arrived upon by assessing the value of the potential
recovery

under

the

worker’s

compensation

system.

(Id.).

Morrison’s attorney speculated that the Wilkenings would accept a
considerably lower number.

(Id.).

On August 18, 2014, Donald Rutz (Morrison’s broker) sent an
email to Jenny Vanacker (Continental’s representative) and Ken
Novak (a Morrison employee) relaying the Wilkenings’ settlement
demand and requesting that Continental defend against the claim and
contact

Morrison’s

defense

attorney
5

to

further

discuss

the

resolution of the Wilkenings’ claim.

(DE #16-4 at 5).

Morrison

also indicated that, if Continental continued to deny the claim,
they would be forced to proceed with a declaratory judgment action.
(Id.).
On January 23, 2015, Morrison again demanded that Continental
defend against the Wilkenings’ claims. (DE #16-5). Morrison’s
attorneys represented that they had been authorized to file a
declaratory judgment action against Continental seeking defense,
indemnity, and all other available damages, including damages for
bad faith.

(Id.).

On February 6, 2015, Morrison’s attorneys provided an update
of the status of pending claims they were defending Morrison
against, including the Wilkenings’ claims.

That update provided

the following:
Morrison has filed a Summary Judgment Motion
which remains pending. We have been engaging
with
Plaintiff’s
counsel
concerning
a
resolution of this case. We are awaiting a
response from Plaintiff’s counsel concerning
whether or not his client intends to dismiss
Morrison and perhaps file a claim under
Indiana’s Workers Compensation or Occupational
Disease laws, or may request that Morrison
make a relatively small settlement offer.
(DE #5-4 at 3).
Jenny Vanacker, a Continental representative, was included in
this email.

In its reply brief, Morrison summarizes the above

statement as “stating that after Morrison filed its motion for
summary judgment, Plaintiff would either dismiss Morrison from the

6

case or settle with Morrison for a nominal amount.”

(DE #17 at 9).

That is, at best, a favorable interpretation of the above quote.
Matthew Vena, Safety Manager at Morrison, indicates that one
of Morrison’s attorneys (Attorney Smith) advised him sometime
before February 24, 2015 that the Wilkenings’ claims could be
settled for nuisance value.

(DE #5-5 at ¶¶1-5).

He further

indicates that, before February 24, 2015, he authorized Smith to
settle the Wilkenings’ claims for up to $20,000.

(Id. at ¶6).

After February 24, 2015, the Wilkenings responded to Morrison’s
initial settlement offer of $4,000 with a demand of $20,000. (Id.
at ¶7).
This declaratory judgment suit was initially filed on February
25, 2015.

(DE #1).

At or near that time, Continental also

advanced Morrison $214,000 to settle the Wilkenings’ claims, under
a reservation of rights continent upon the return of the money if
the Court determines Continental was not obligated to provide any
defense or indemnity coverage for the Wilkenings’ claims. (DE #166).
On April 24, 2015, the Wilkening action settled for $10,000.
(DE

#5-5).

Based

on

these

facts,

Morrison

contends

that

Continental’s potential liability at the time this action was filed
was no more than $20,000, and that its legal fees at the time were

7

approximately $32,940.942, for a combined total of $52,940.94.
Because

Morrison

has

called

Continental’s

allegations

regarding the amount in controversy into question, Continental must
prove its jurisdictional facts by a preponderance of the evidence.
Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 543 (7th Cir.
2006).

If Continental succeeds, then Morrison must demonstrate to

a legal certainty that the claim is really for less than the
jurisdictional amount to prevail on the instant motion.

Id. at

541; see also Back Doctors Ltd. v. Metro. Prop. & Cas. Ins., 637
F.3d 827, 830 (7th Cir. 2011) (“[U]nless recovery of an amount
exceeding the jurisdictional minimum is legally impossible, the
case belongs in federal court.”).
Morrison claims that Continental cannot meet its burden of
demonstrating that the jurisdictional amount is satisfied because
“it was aware the value of the underlying case was far below the
jurisdictional

amount.”

(DE

#15

at

4).

Based

presented, this Court respectfully disagrees.

on

the

facts

The Wilkenings’

complaint indicated they sought damages in excess of $50,000.

The

Wilkenings had made a demand of $214,000 shortly before this suit
was filed.

And, prior to the suit being filed, Morrison and its

attorney valued the case at no more than $20,000.

The status

update provided to Jenny Vanacker by Morrison’s attorneys does not

2

Morrison submitted a portion of these fees to Continental
for payment despite Continental’s indication that defense costs
would not be paid. Due to a clerical error, they were paid, and
Continental now seeks reimbursement of those amounts.
8

demonstrate that this case would, with any certainly, either be
dismissed or settle for nuisance value.

At best, the notes

establish

hopeful

that

Morrison’s

attorneys

were

they

could

convince the Wilkenings to either dismiss their claims or settle
for nuisance value.
What Continental knew at the time this suit was filed was that
the

Wilkenings

were

seeking

in

excess

of

$50,000,

that

the

Wilkenings had made a demand of $214,000, that Morrison and its
attorneys felt confident it would settle for a good deal less than
$214,000, and that substantial defense costs had been incurred and
would likely continue to accrue in the months to come.

This is

enough to satisfy Continental’s burden of demonstrating by a
preponderance of the evidence that the amount in controversy at the
time the suit was filed exceeded $75,000.
Morrison argues that the Court should nonetheless find subject
matter

jurisdiction

lacking

because,

as

a

matter

of

legal

certainty, the amount in controversy could not exceed $75,000.
According to Morrison, the amount in controversy was, at most,
$52,940.94 ($32,940.94 in defense costs and a maximum $20,000
settlement amount).

This argument is wholly unfounded - at the

time this suit was filed, Continental did not (so far as this Court
can determine) have information establishing that the settlement
value of the case was no more than $20,000 or even that Morrison’s
attorneys had so valued the case. And, Morrison’s valuation of the
case is only one factor to consider in determining the amount in
9

controversy at the time this suit was filed. It must be considered
together with the complaint itself, the Wilkenings’ settlement
demand, and Continental’s decision to advance $214,000 to Morrison
to settle the claim.

Neither continental nor Morrison knew with

any certainty that the case would settle in April, preventing
additional defense costs from accruing.

Accordingly, Morrison’s

argument fails.
Continental made other arguments to support its claim that the
amount in controversy is satisfied.

Namely, Continental argued

that the amount in controversy requirement is met because Morrison
placed the validity of certain policies in issue, and the amount in
controversy should be measured by the limits of the policy rather
than the value of the underlying claim.

Similarly, Continental

noted that Morrison threatened to bring a bad faith claim, and that
their declaratory judgment action would resolve any issues of bad
faith, so damages for bad faith are properly considered as part of
the amount in controversy.

Because the amount in controversy

requirement is satisfied even without considering either the limits
of the policy or damages associated with a possible bad faith
claim, this Court need not address these arguments.

A case filed

in federal court should remain there “unless it is legally certain
that

the

minimum.”

controversy

is

worth

less

than

See Meridian, 441 F.3d at 542.

motion fails.

10

the

jurisdictional

Accordingly, Morrison’s

CONCLUSION
For the reasons set forth above, the motion to dismiss is
DENIED.

DATED: March 8, 2016

/s/RUDY LOZANO, Judge
United States District Court

11