GEICO Casualty Company v. Hollandsworth et al
Filing
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ORDER denying 17 motion to dismiss for lack of jurisdiction. Signed on January 18, 2019, by District Judge Greg Kays. (Law Clerk)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
GEICO CASUALTY COMPANY,
Plaintiff,
v.
PATRICIA HOLLANDSWORTH and
RICHARD AGUILAR,
Defendants.
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No. 4:18-cv-00197-DGK
ORDER DENYING DEFENDANTS’ MOTION TO DISMISS
This declaratory judgment action concerns insurance coverage for an automobile accident.
Plaintiff GEICO Casualty Company (“GEICO”) seeks a declaration that the policy it issued to
Daniel and Deborah Clymens does not cover an accident between Defendants Patricia
Hollandsworth and Richard Aguilar. Hollandsworth was driving a U-Haul truck rented by Daniel
Clymens when it hit a motorcycle ridden by Aguilar, leaving Aguilar severely injured. Now before
the Court is Defendants’ Joint Motion to Dismiss for Lack of Subject Matter Jurisdiction (Doc.
17). Defendants argue that the amount in controversy does not exceed the jurisdictional threshold
of $75,000 because the policy limits are $25,000 per person and $50,000 per occurrence. The
Court DENIES this motion because the amount in dispute includes the policy limits plus the
potential cost of defense, which, combined, could exceed $75,000.
Background
GEICO issued an insurance policy to Daniel and Deborah Clymens for a 2005 Toyota
Sienna XLE. The policy has an “each person” bodily injury liability limit of $25,000 and an “each
occurrence” bodily injury liability limit of $50,000. The policy extends coverage to relatives of
the named insureds who reside in the insureds’ household and, under certain circumstances, to
insureds operating non-owned autos. It also obligates GEICO to defend the insured in any suit for
damages payable under the policy.
On July 14, 2013, Daniel Clymens rented a Ford E450 U-Haul truck.1 The next day,
Hollandsworth drove the U-Haul truck2 while intoxicated and hit Aguilar as he was riding his
motorcycle, severely injuring him. His injuries led to the amputation of his right arm and lowerleft leg. He also suffered a left-arm fracture, multiple rib fractures, and a closed-head injury
causing cognitive deficits. Aguilar sued Hollandsworth in Missouri state court on August 25,
2017, alleging damages including medical expenses, lost income, pain and suffering, costs, and
interest. Hollandsworth sought indemnification from GEICO under the Clymens’ policy. On
February 2, 2018, GEICO faxed Hollandsworth a letter denying coverage and offering to defend
her subject to a reservation of rights.
On February 15, unbeknownst to GEICO, Hollandsworth entered into an agreement with
Aguilar pursuant to Mo. Rev. Stat. § 537.065 (“the 537 Agreement”). In the 537 Agreement,
Hollandsworth acknowledged fault for causing the accident, agreed not to dispute liability, and
agreed to submit the issue of damages “to a judge.” 537 Agmt. ¶ 1 (Doc. 31-1). She also agreed
to pursue all claims against GEICO
for extra-contractual damages or bad faith and/or for [GEICO’s] failure to settle
and/or for negligence or breach of fiduciary duty (or however the claim may be
denominated) arising out of [GEICO’s] failure to earlier settle the claim brought
against her.
Id. ¶ 3. Hollandsworth further stated that she would “fully cooperate in any claim or cause of
action” against GEICO, including being named as a party plaintiff, and she assigned to Aguilar
1
The insurer for U-Haul, Rep West, also declined to provide coverage. Although its name arises in various documents
in this case, its actions are not relevant to the pending motion.
The record is silent as to how Hollandsworth, who did not have a valid driver’s license, came to be driving the UHaul. Defendants allege that she was a permissive driver.
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“all interests, causes of action, and rights of action” against GEICO. Id. ¶¶ 4-5. In exchange,
Aguilar agreed to limit his recovery to the proceeds of any applicable insurance policies and to not
execute any judgment upon Hollandsworth’s personal assets. Id. ¶ 5.
On February 22, Hollandsworth informed GEICO that she was rejecting GEICO’s defense
under a reservation of rights. She also requested that counsel retained by GEICO withdraw from
her defense. The next day, GEICO replied that it was considering whether to withdraw its
reservation of rights and defend her unconditionally. On February 28, Hollandsworth notified
GEICO that she had not been advised of GEICO’s position. She gave GEICO until 5:00 p.m. that
evening to withdraw its reservation of rights. GEICO chose not to do so.
On March 3, Hollandsworth informed GEICO of the 537 Agreement. Shortly thereafter,
on March 7, GEICO moved to intervene as a matter of right in the state court lawsuit. On March
15, at 1:13 p.m., Aguilar dismissed without prejudice his state-court action against Hollandsworth.
One hour and ten minutes later, GEICO filed this federal action seeking a declaratory judgment
that it owed no duty to indemnify or defend Hollandsworth for the July 14, 2013, accident.
On March 28 and April 2, Aguilar and Hollandsworth filed separate motions to dismiss
this case, arguing that the dismissal of the state-court action rendered the declaratory action moot.
The Court denied the motion on July 23, holding that “Hollandsworth’s demand for defense from
GEICO in the dispute between her and Aguilar is enough to create an actual controversy and gives
GEICO the right file a declaratory judgment action to determine whether coverage exists under the
GEICO policy.” Order at 4 (Doc. 14).
Defendants entered into an agreement on May 4 to submit their dispute to binding
arbitration. As part of the agreement, Hollandsworth agreed not to accept representation at the
arbitration from any attorney or firm selected by GEICO, or to “file any post-arbitration motions
challenging the award, any post-trial motions after the court enters judgment, or any notice of
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appeal.” Arbitration Agmt. ¶¶ 20-21 (Doc. 21-3). The agreement reiterated that Aguilar would
seek to recover only from the GEICO policy proceeds and any potential claim against GEICO,
including GEICO’s “failure to defend or indemnify Hollandsworth.” Id. ¶ 21. Hollandsworth also
reaffirmed that she would “pursue all potential claims against her insurance companies including
claims for the insurance companies’ failure to defend her, failing to settle her case and failure to
indemnify her.” Id. ¶ 25.
The arbitrator heard evidence on June 4, and, on July 16, issued his decision awarding
Aguilar approximately $8 million in economic damages, $20 million in non-economic damages,
and $7 million in punitive damages against Hollandsworth.3 Aguilar filed an application in state
court on August 8 to confirm the award. GEICO moved unsuccessfully to intervene in this
proceeding, and, on October 24, the state court entered judgment confirming the $35 million
award. GEICO appealed this decision, while Aguilar filed a separate state garnishment action
against GEICO, alleging that GEICO acted in bad faith and breached its duty to defend. In that
suit Aguilar seeks garnishment of the policy proceeds, as well as compensatory and punitive
damages. Aguilar also states that GEICO’s actions render it liable for the entire underlying
judgment.
Legal Standard
Federal district courts have subject matter jurisdiction over all civil actions where the
parties possess diversity of citizenship and “the matter in controversy exceeds . . . $75,000,
exclusive of interest and costs.” 28 U.S.C. § 1332(a). These requirements must be satisfied at the
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The arbitration does not appear to have been particularly adversarial. For example, the arbitrator observed that
Aguilar’s life-care costs and future medical expenses did not reflect lesser amounts which Medicare, Medicaid, or a
private insurance carrier would negotiate. “However, no evidence was presented to prove lesser amounts. Thus, the
life care plan which was introduced at the hearing is the only evidence pertaining to the costs and expenses of his
future needs and medical care.” Arbitration Award at 11 (Doc. 21-1).
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time of filing. Schubert v. Auto Owners Ins. Co., 649 F.3d 817, 822 (8th Cir. 2011) (citations
omitted). The Court must dismiss the case if at any time it determines that it lacks jurisdiction.
Fed. R. Civ. P. 12(h)(3).
“A complaint that alleges the jurisdictional amount in good faith will suffice to confer
jurisdiction, but the complaint will be dismissed if it appears to a legal certainty that the claim is
really for less than the jurisdictional amount.” Scottsdale v. Universal Crop Prot. Alliance, 620
F.3d 926, 931 (8th Cir. 2010) (quoting Kopp v. Kopp, 280 F.3d 883, 884 (8th Cir. 2002)). Where
a defendant challenges the amount in controversy, the plaintiff must establish jurisdiction by a
preponderance of the evidence. Id. (citing Kopp, 280 F.3d at 884-85). In other words, to survive
dismissal, GEICO needs to prove “by a preponderance of the evidence that it [does] not appear to
a legal certainty that the amount in controversy [is] less than what it alleged.” Id. (citing Kopp,
280 F.3d at 885).
Discussion
The parties are completely diverse. The only question before the Court is whether the
amount in controversy exceeds $75,000. “In actions seeking declaratory or injunctive relief, it is
well established that the amount in controversy is measured by the value of the object of the
litigation.” Hunt v. Wash. State Apple Advert. Comm’n, 432 U.S. 333, 347 (1977). GEICO claims
that the case exceeds the jurisdictional threshold because it includes the policy limits, the potential
cost of defending Hollandsworth, and any potential damages resulting from Defendants’ 537
Agreement.
Defendants argue that only the policy limits are in controversy because
Hollandsworth refused GEICO’s defense. Defendants also argue that the Court should not
consider in controversy any asserted damages arising from their claims in the state garnishment
proceeding, since these claims were not pending when GEICO filed this suit.
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There is no dispute that in declaratory actions concerning insurance coverage for a
particular occurrence, the maximum policy limit is included in “the amount in controversy if the
value of the underlying claim exceeds the policy limit.” Schafer v. MacMillan, No. 4:14-cv-1053DGK, 2015 WL 4715247, at *4 (W.D. Mo. Aug. 7, 2015) (citing, among other cases, Scottsdale,
620 F.3d at 932). Such is the case here, and so the amount in controversy is at least $25,000, the
per-person limit of the policy.
The parties contest whether GEICO’s probable defense costs are also in controversy.
Where an insurer sues an insured to determine its obligation to defend and indemnify, the amount
in controversy includes the probable cost of defending the insured in the underlying litigation.
Scottsdale, 620 F.3d at 932. Here, the underlying litigation is a personal-injury action involving a
grievously injured plaintiff seeking millions of dollars in past and future medical expenses, noneconomic damages, and punitive damages. The cost to defend against such claims is not cheap.
Drawing from its experience reviewing fee requests and billing statements, the Court finds that
GEICO’s potential cost of defending the state-court action could have exceeded the jurisdictional
threshold.
Defendants’ assertion that defense costs were not in dispute when GEICO filed suit—
because by that point Hollandsworth had rejected GEICO’s defense and Aguilar had dismissed the
state court action—is unavailing. At that time, Hollandsworth had made a demand on GEICO
under the policy, GEICO’s position was that it did not owe Hollandsworth indemnification or a
defense, and Hollandsworth had not retreated from her position. Thus, the “lines were drawn, the
parties were at odds, and the dispute was real.” Exec. Risk Indem., Inc. v. Asurion Prot. Servs.,
LLC, No. 06-cv-00904-HFS, 2007 WL 1378376, at *2 (W.D. Mo. May 7, 2007) (citing Capitol
Indem. Corp. v. Miles, 978 F.2d 437, 438 (8th Cir. 1992)). In fact, the parties are still litigating
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whether GEICO owed Hollandsworth a defense.
And even though Aguilar dismissed the
underlying case against Hollandsworth, the dismissal was without prejudice. He could re-file his
claims at any time. Thus, the amount in dispute when GEICO filed this case includes not only the
policy limits, but also the potential costs of defense. Together, these could exceed $75,000. The
case therefore satisfies the amount-in-controversy requirement.4
Conclusion
Between the policy limits and defense costs, the Court is convinced that “the value of the
object of this litigation could exceed $75,000.” Encompass Ins. Co. v. Am. States Ins. Co., No.
5:12-cv-6059-SOW, 2012 WL 12903771, at *2 (W.D. Mo. Oct. 31, 2012).
Accordingly,
Defendants’ motion to dismiss (Doc. 17) is DENIED.
IT IS SO ORDERED.
Date: January 18, 2019
/s/ Greg Kays
GREG KAYS, JUDGE
UNITED STATES DISTRICT COURT
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Having so concluded, the Court need not decide whether to include in its consideration the potential damages
Defendants seek in their equitable garnishment action against GEICO. The Court nonetheless notes that these amounts
would likely also establish jurisdiction. Although Defendants had not brought the claims at the time of filing, they
had already contracted to do so in their 537 Agreement. They have since filed them, moreover, and subsequent events
may be relevant “to prove the existence or nonexistence of diversity jurisdiction at the time of filing.” Scottsdale, 620
F.3d at 931 (citing Grinnell Mut. Reins Co. v. Shierk, 121 F.3d 1114, 1116 (7th Cir. 1997)). This case therefore differs
from those where potential claims were deemed wholly speculative. See, e.g., Unitrin Dir. Prop. & Cas. Co. v. Munar,
No. 4:12-cv-01043-GAF, 2013 WL 12146383, at *3 (W.D. Mo. Jan. 31, 2013) (holding that an insurer’s allegation
that fees may be at issue “nothing more than speculation”).
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