Pepper v. State Farm Mutual Automobile Insurance Company
Filing
48
ORDER denying Plaintiff's 6 MOTION to Remand to Circuit Court. Signed by Judge John T. Copenhaver, Jr. on 12/14/2012. (cc: attys) (tmr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF WEST VIRGINIA
AT CHARLESTON
LARRY W. PEPPER, JR.,
Plaintiff,
v.
Civil Action No. 2:12-cv-01459
STATE FARM MUTUAL AUTOMOBILE INSURANCE CO.,
Defendant.
MEMORANDUM OPINION AND ORDER
Pending is the motion by plaintiff Larry Pepper, Jr. to
remand, filed June 4, 2012.
For the reasons explained herein, the
court finds that defendant State Farm Mutual Automobile Insurance
Company (“State Farm”) has adequately established that the action
is subject to this court‟s diversity jurisdiction.
Pepper‟s motion
is therefore denied.
I. Background
On May 28, 1998, Pepper, a resident of Ravenswood, West
Virginia, was involved in an automobile accident with Timothy B.
Elkins.
Compl. ¶¶ 1, 5.
At the time of the incident, Elkins
maintained a State Farm automobile liability insurance policy, which
provided liability coverage of up to $100,000 per person and $300,000
per accident.
Compl. ¶ 7.
Pepper settled his claims against Elkins
in exchange for payment of Elkins‟ per person liability coverage
limit of $100,000.
Id. ¶ 12.
Pepper contends, however, that the
Elkins settlement did not fully compensate him for his loss.
Pepper was also insured by State Farm.
His policy
included liability insurance coverage of up to $100,000 per person,
$300,000 per accident, and $50,000 for property damages.
Id. ¶ 8.
Pepper‟s policy did not provide underinsured motorist (“UIM”)
coverage.
Id.
Under West Virginia law, insurers are required to
make a commercially reasonable offer of UIM coverage in an amount
equal to the liability limits of the underlying policy.
§ 33-6-31(b).
W. Va. Code
They must use the offer form “prepared and made
available” by the West Virginia Insurance Commissioner.
33-6-31d(a).
Id. §
Pepper alleges that State Farm‟s mandatory offer was
defective because State Farm did not use the prescribed forms.
When an insurer fails to make a valid offer of UIM coverage,
the policy is reformed to include UIM coverage by operation of law.
See Riffle v. State Farm Mut. Auto. Ins. Co., 186 W.Va. 54, 55, 410
S.E.2d 413, 414 (1991).
Accordingly, on March 16, 2012, Pepper filed
suit against State Farm in the Circuit Court of Kanawha County, West
Virginia seeking recovery under a reformed contract.
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He alleges
breach of contract (Count I) and common law bad faith (Count II)
arising from State Farm‟s refusal to pay UIM coverage.
In relief for the alleged breach of contract, Pepper seeks
a UIM coverage payment equal to the excess of Pepper‟s accident
damages over the $100,000 Elkins settlement.
Compl. ¶ 23.
Because
UIM coverage is limited to the value of the policy holder‟s liability
coverage, reformed UIM coverage would have a $100,000 limit.
Pepper
also requests recovery of “other economic and non-economic damages”
that stem from State Farm‟s breach, including “compensatory
damages . . . for net economic loss, attorney fees, and consequential
damages.”
Id. ¶¶ 26-27.
For his common law bad faith claim, Pepper seeks damages
as outlined by the Supreme Court of Appeals of West Virginia in
Hayseeds, Inc. v. State Farm Fire & Casualty.
S.E.2d 73 (1986).
177 W.Va. 323, 352
These include attorney fees in an amount
“[p]resumptively . . . one-third of the face amount of the policy,”
plus recovery for the “net economic loss caused by the delay in
settlement, as well as an award for aggravation and inconvenience.”
Id. at 329-30, 352 S.E.2d at 80.
Finally, Pepper seeks pre-judgment
and post-judgment interest and such further damages as the court may
deem just and proper.
Compl. 6.
On May 9, 2012, State Farm removed the action, invoking
this court‟s diversity jurisdiction.
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On June 4, 2012, Pepper filed
the pending motion to remand, asserting that State Farm has not
demonstrated by a preponderance of the evidence that Pepper‟s claims
exceed the jurisdictional amount.
II. The Governing Standard
“Except as federal law may otherwise provide, when a
defendant removes a state civil action to federal district court,
federal removal jurisdiction exists if the action is one „of which
the district courts of the United States have original
jurisdiction.‟”
In re Blackwater Sec. Consulting, LLC, 460 F.3d
576, 583 (4th Cir. 2006) (quoting 28 U.S.C. § 1441(a)).
Because
removal jurisdiction implicates significant federalism concerns, it
is strictly construed, and if federal jurisdiction is doubtful, the
case must be remanded.
See Palisades Collections LLC v. AT&T
Mobility LLC, 552 F.3d 327, 336 (4th Cir. 2008); Mulcahey v. Columbia
Organic Chems. Co., 29 F.3d 148, 151 (4th Cir. 1994).
The party
seeking removal bears the burden of establishing federal
jurisdiction.
See Mulcahey, 29 F.3d at 151.
Pursuant to 28 U.S.C. § 1332(a)(1) diversity jurisdiction,
district courts possess original jurisdiction over all actions
between citizens of different states “where the matter in controversy
exceeds the sum or value of $75,000, exclusive of interest and costs.”
If a diversity jurisdiction case is initially filed in federal court,
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the court will consider the amount in controversy requirement
satisfied unless it “appear[s] to a legal certainty that the claim
is really for less than the jurisdictional amount.”
St. Paul Mercury
Indem. Co. v. Red Cab Co., 303 U.S. 283, 289 (1938).
When a defendant
removes a case with unspecified damages from state court, however,
the defendant “must prove by a preponderance of the evidence that
the value of the matter in controversy exceeds the jurisdictional
amount.”
Landmark Corp. v. Apogee Coal Co., 945 F. Supp. 932, 935
(S.D. W. Va. 1996); see also Bartnikowski v. NVR, Inc., 307 F. App‟x.
730, 734 n.7 (4th Cir. 2009) (applying a preponderance standard that
“sister circuits have explicitly adopted,” but reserving the right
to consider “whether a more stringent standard would be
appropriate”).
The court considers the entire record and makes an
independent evaluation of whether the amount in controversy has been
satisfied.
Weddington v. Ford Motor Credit Co., 59 F. Supp. 2d 578,
584 (S.D. W. Va. 1999).
The court must conduct that evaluation “on
the basis of the record existing at the time the petition for removal
is filed.”
Landmark Corp., 945 F. Supp at 936.
Important factors
include the type and extent of the plaintiff‟s injuries and the
possible damages recoverable from those injuries.
McCoy v. Norfolk
S. Ry. Co., 858 F. Supp. 2d 639, 649 (S.D. W.Va. 2012).
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A court can
also consider as a factor a plaintiff‟s settlement demands prior to
removal.
Id.
III. Discussion
The diversity of citizenship between Pepper and State Farm
is not disputed.
The lone issue is whether State Farm has shown by
a preponderance of the evidence that the amount in controversy
exceeds the jurisdictional amount.
Central to the dispute is the question of how to valuate
the amount in controversy when a plaintiff seeks to enforce an
insurance claim via reformation of a policy.
Pepper asserts that
the amount in controversy is the value of his UIM claim, which he
contends falls far below the $75,000 statutory threshold.
State
Farm, in contrast, contends that the amount in controversy is the
$300,000 face value of the UIM coverage that a reformed policy would
create.1
Both parties rely on this district‟s decision in Darbet,
Inc. v. Bituminous Casualty Corp., 792 F. Supp. 487, 488-89 (S.D.
W. Va. 1992).
Darbet divides insurance policy claims for our
purposes into two categories.
In the first, “a declaratory judgment
1
State farm bases its assertion on the $300,000 accident limit for
UIM coverage. The limit implicated in this action, however, is the
$100,000 individual limit. Since both values surpass the $75,000
jurisdictional threshold, the court need not consider which
constitutes the appropriate “face value” of the policy for this case.
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action call[s] into question the validity of a contract of insurance
such as when the insurer contends the policy is lapsed for nonpayment
of premiums,” in which case “the amount in controversy is the face
amount of the policy.”
Id. at 488-89; see also Hawkins v. Aid Ass'n
for Lutherans, 338 F.3d 801, 805 (7th Cir. 2003); Budget Rent-A-Car,
Inc. v. Higashiguchi, 109 F.3d 1471, 1473 (9th Cir. 1997).
In the
second, “the question is the applicability of the policy to a
particular occurrence,” in which case “the amount in controversy is
the value of the underlying claim, not the face amount of the policy.”
Darbet, 792 F. Supp. at 489; see also Budget Rent-A-Car, Inc., 109
F.3d at 1473.
State Farm asserts that Pepper‟s requested
reformation to include UIM coverage makes this action fall within
the first category.
Pepper contends that valuation under the second
category is appropriate since his claim is based on a particular
occurrence.
Because validity is the central issue in this case, the
face value of the UIM coverage is the proper measure for the amount
in controversy.
Before Pepper can apply UIM coverage to a particular
occurrence, he must seek reformation of his contract -- that is, prove
the validity of the UIM coverage.
This case is thus analogous to
the declaratory judgment action described in Darbet.
This is not
an action challenging the “applicability of the policy to a
particular occurrence.”
Here, even if the policy were reformed to
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include UIM coverage, there would still be no question as to the
applicability of the policy to a particular occurrence; UIM coverage
by definition applies to the excess costs in an automobile accident
such as Pepper‟s.
Inasmuch as the issue here is the viability of
the UIM policy, the proper measure of the amount in controversy is
the face value of the claimed coverage.
This result is supported by Bell v. Philadelphia Life
Insurance Co., 78 F.2d 322 (4th Cir. 1934), a case relied on for the
distinction made in Darbet.
Darbet, 792 F. Supp. at 489.
In Bell,
the plaintiff sought $600 in disability pay from a $10,000 life
insurance policy, which the defendant insurance company alleged had
lapsed.
78 F.2d at 323.
Although the plaintiff claimed only the
sum owed from the occurrence of his disability, the court found that
the then $3,000 jurisdictional amount was met because “the policy
itself is directly in controversy and its value determines the value
in suit.”
Id. at 323.
Here, Pepper seeks an entirely new form of
insurance, not the application of existing coverage to a contested
occurrence.
As in Bell, the policy itself is directly in
controversy, and the amount in controversy must be the face value
of the UIM coverage.
As such, the jurisdictional amount is met, and
the case is properly within the diversity jurisdiction of this court.2
2
In view of this determination, State Farm‟s alternative ground that
Pepper‟s damage claims independently establish the jurisdictional
amount need not be addressed.
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IV.
For the reasons set forth, it is accordingly ORDERED that
Pepper‟s motion to remand be, and it hereby is, denied.
The Clerk is directed to forward copies of this written
opinion and order to all counsel of record.
ENTER: December 14, 2012
John T. Copenhaver, Jr.
United States District Judge
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