Photo: Bigstock

This story is reprinted with permission from FC&S Legal, the industry’s only comprehensive digital resource designed for insurance coverage law professionals. Visit the website to subscribe.

A federal district court in Pennsylvania has remanded an insurance coverage case to state court after deciding that the defendant insurer should have known that the amount in controversy exceeded $75,000 from the insureds’ complaint and, therefore, that its removal months after the complaint was filed was untimely. The court’s reasoning may not be able to withstand close scrutiny.

The Case

Heather and David Hutchinson asserted that, on June 19, 2017, their living room ceiling collapsed, causing physical damage in the amount of $24,711.11.

The Hutchinsons’ insurance carrier, State Farm Fire & Casualty Co., denied their claim.

On Jan. 17, 2018, the Hutchinsons sued State Farm in a Pennsylvania state court for breach of contract, demanding damages in the amount of $24,711.11, plus costs and interest. The Hutchinsons’ complaint further alleged that State Farm’s denial constituted bad faith under Pennsylvania’s insurance bad-faith law, demanding “compensatory and punitive damages, together with interest, attorney’s fees, court costs, and such other relief as the court deems appropriate.”

Their complaint’s cover sheet listed the “amount in controversy” as “more than $50,000.”

On April 24, 2018, State Farm sent requests for admissions to the Hutchinsons. On May 23, 2018, the Hutchinsons responded, denying that their actual damages exceeded $75,000, but stating that once punitive damages, interest and attorney fees were factored in, “the total damages could very well exceed $75,000.” They added, however, that they could “not be certain,” as was “generally the case” when statutory bad faith was at issue.

On June 20, 2018, State Farm removed the case to federal court, asserting that there was diversity between the parties and that the amount in controversy exceeded the $75,000 threshold.

The Hutchinsons moved to remand, arguing that State Farm’s removal was untimely because it had known that the amount in controversy exceeded the $75,000 threshold since Jan. 17, 2018, when the complaint was filed.

For its part, State Farm contended that it did not know whether the amount in controversy exceeded the $75,000 threshold “with legal certainty” until the Hutchinsons responded to its requests for admissions May 23, 2018.

The District Court’s Decision

The district court granted the motion to remand, agreeing with the Hutchinsons that State Farm should have known in January 2018 that the amount in controversy exceeded the statutory threshold because the Hutchinsons sought a specified amount of actual damages for breach of contract (that is, $24,711.11) plus punitive damages and attorney fees under Pennsylvania’s bad-faith insurance law.

The district court was not persuaded by State Farm’s argument that it could not have known the damages to a “legal certainty” until it received the Hutchinsons’ responses to its requests for admissions. The district court ruled that the contract claim of $24,711.11 plus the bad-faith damages the Hutchinsons sought “without capping the amount” was sufficient to have alerted State Farm that the amount in controversy exceeded the $75,000 threshold on Jan. 17, 2018.

The case is Hutchinson v. State Farm Fire & Casualty. Attorneys involved include: for the plaintiffs, Mark F. Himsworth and Kevin M. McGrath of Hamburg, Rubin, Mullin, Maxwell & Lupin in Lansdale; for State Farm, Bonnie S. Stein of Curtin & Heefner in Yardley.

FC&S Legal Comment

Whether the district court’s decision in Hutchinson will withstand scrutiny remains to be seen. The district court gave determinative weight to the Hutchinsons’ decision not to “cap” their claim for bad-faith damages and attorney fees, which it distinguished from cases where plaintiffs sought contract damages “not in excess of $50,000” plus bad-faith damages in “an amount not in excess of $50,000.” It is not clear that the distinction stands up to critical analysis. (See, e.g., Dunfee v. Allstate Insurance; McGhee v. Allstate Insurance; Ofori v. AllstateLong v. Allstate.)

Steven A. Meyerowitz is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. As FC&S legal director, Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.