Owners Insurance Company v. Frontier Housing, Inc. et al

Filing 13

MEMORANDUM OPINION & ORDER: The Court finds that the requirements for diversity have been met and it may properly assert jurisdiction over the case. Accordingly, IT IS HEREBY ORDERED that Defendant Frontier Housing Inc.'s Motion to Dismiss DE 8 be OVERRULED. Signed by Judge Henry R. Wilhoit, Jr on 3/21/17.(KSS)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
ASHLAND
Civil Action 16-40-HRW
OWNERS INSURANCE COMPANY,

v.

PLAINTIFF,

MEMORANDUM OPINION AND ORDER

FRONTIER HOUSING, INC.,
STEPHEN BURTON and PAMELA BURTON,

DEFENDANTS.

This matter is before the Court upon Defendant Frontier Housing, Inc. 's Motion To
Dismiss [Docket No 8]. The motion has been fully briefed by the parties [Docket Nos. 10, 11
and 12) and for the reasons stated herein, the Comt finds that this matter is not subject to
dismissal.
I.

This case arises from a constrnction contract between Defendants Frontier Housing, Inc.
("Frontier") and Stephen and Pamela Burton ("The Bmtons") for the constrnction of their home
in West Liberty, Kentucky. The original contract set the price of constriction around $200,000.
However, a result of alleged change orders and upgrades, the legitimacy of which are hotly
contested by the Burtons, the ultimate price of the constrnction was upwards of $400,000.
According to Frontier, the Burtons owe it $250,000. According to the Burtons, they owe
Frontier about $17,000. The matter resulted in litigation, to-wit, Frontier filed a mechanics lien
against the Burton's property as well as a Complaint in Morgan Circuit Court, styled Frontier

Housing Inc., v. Stephen Burton and Pamela Burton, Commonwealth of Kentucky, Morgan

Circuit Court, Civil Action No. 15-CI- 0062. In response to the Complaint filed against them,
the Burtons asserted a counterclaim against Frontier. In addition to the injunctive relief, the
Burtons seek damages for fraud, violations of the Kentucky Consumer Protection Act, breach of
contract, tortious breach of contract, intentional and/or negligent misrepresentation, intentional
and/or negligent infliction of emotional distress, abuse of process, and slander of title, as well as
punitive damages in conjunction with their claims. The counterclaim does not specify a dollar
amount in damages.
Owners Insurance Company ("Owners") issued a policy of general liability insurance
Policy No. 52454382, ("Policy") to Frontier. Pursuant to that policy, Owners instigated this
declaratory judgment action, seeking a judicial determination as to whether it owes a duty of
defense or indemnity to Frontier for the Burtons counterclaim.
Frontier argues that this action must be dismissed because this Court lacks jurisdiction.
Specifically, Frontier contends that this matter does not involve an amount in controversy
sufficient to establish federal subject matter jurisdiction.
II.

Federal courts are courts of limited jurisdiction. Subject matter jurisdiction in federal
court may be based upon either the asse1tion of a federal cause of action or a creature known as
"diversity jurisdiction." Setting forth the requirements of diversity jurisdiction, 28 U.S.C. §
1332 provides that federal jurisdiction may be based upon the fact the parties are from different
states, but only ifthe amount in controversy exceeds $75,000. 28 U.S.C. § 1332(a).
In this case, there is no dispute as to the diversity of citizenship of the parties. Frontier's
urging of dismissal for lack of jurisdiction, rests solely upon its argument that the amount in

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controversy does not meet the jurisdiction threshold of $75,000. Frontier maintains that the
amount in controversy in this instance is bourne of the Burton's counterclaim, which, in its
estimation, simply does not add up to $75,000.
The Court agrees that it is the counterclaim which is the touchstone of this case. In its
Complaint, Owners states quite plainly that it seeks a declaratmy judgement with regard to its
obligation to defend and/or indemnify Frontier with regard to the claims alleged by the Buttons.
However, the amount in controversy is not as apparent as Frontier suggests.
Difference of opinion as to the amount in controversy in Kentucky often arise in light of
Kentucky Rule of Civil Procedure 8.01 prohibiting ad damnum clauses which states:
In any action for unliquidated damages the prayer for damages in
any pleading shall not recite any sum as alleged damages other than
an allegation that damages are in excess of any minimum dollar
amount necessaiy to establish the jurisdiction of the court ....

C.R. 8.01.
The Burton's counterclaim is silent as to a dollar amount, which begs the question of how
to measure the amount in controversy. Futther complicating the issue is the fact that this a
declaratory judgment action, asking not whether the insurance policy issued by Owners to
Frontier in valid, but, rather, tasking this Court to determine the applicability of a policy of
insurance to a particular occurrence, in this case, Frontier's alleged misdeeds against the Burtons,
as set fo1ih in the counterclaim. A sticky wicket, indeed.
A similar situation was brought before the Coutt in Grange Mutual Casualty Co. V.

Safeco Insurance Co. Of America, 565 F.Supp. 2d 779 (E.D. Ky. 2008). In that case, an auto
liability insurer for a vehicle owner, Grange Mutual, sought a declaratory judgment seeking a

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dete1mination that it had no duty to defend or indemnify the driver of the insured vehicle in an
underlying lawsuit alleging that the driver's negligence while operating the insured vehicle
caused an accident. The uninsured and underisured insurer for the victim of the accident, Safeco,
filed a motion to dismiss the case for lack of jurisdiction.

In that regard, in its original Complaint, Grange Mutual indicated that the limits of its
policy were $50,000 of property damage per accident, $50,000 for bodily injury per person, and
$100,000 per accident. It subsequently amended these figures and stated that the limits of the
policy are $100,000 for prope1ty damage, $100,000 for bodily injury, and $300,000 per accident.
Id. at 784. Grange, however, did not argue that the Plaintiff in the underlying state case seeks the
policy limits. Safeco, on the other hand, submitted an affidavit from the Plaintiff in the
underlying state case stating that his damages do not exceed $75,000. Id. District Court Judge
Amul Thapar concluded that the requisite amount in controversy existed. He reasoned:
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.
Id.
Judge Thapar further noted:
Thus, the extent of damage Grange Mutual might suffer-its
potential loss-is not limited to the value of the state comt claim; it
also includes the costs it would incur in representing [Damron] in
the state comt action. Consequently, Safeco has failed to show 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 the cost of defense, it
very well could.

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Id. (emphasis added).

The same rational applies here. The onus is on Frontier to show that what is at stake for
Owners is less than $75,000. See generally, Gafford v. General Electric Co., 997 F.2d 150 (6th
Cir. 1993). Frontier has not demonstrated that the damages for the claims alleged in the
counterclaim combined with the cost of defending Frontier is less than $75,000. As Judge
Thapar mused, it ve1y well could exceed the jurisdictional minimum.

III.
The Comt finds that the requirements for diversity have been met and it may properly
assert jurisdiction over this case. Accordingly, IT IS HEREBY ORDERED that Defendant
Frontier Housing, Inc. 's Motion To Dismiss [Docket No 8] be OVERRULED.
This

d /~fMarch, 2017.
Signed By:

Henry R. Wiihoit. JI,
Unltod States Oletrlcl Judge

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