AUGUST 2008 BAD FAITH CASES MOTION TO REMAND GRANTED BECAUSE THE INSURED PROPERLY LIMITED THE AMOUNT IN CONTROVERSEY TO AN AMOUNT BELOW THE JURISDICTIONAL LIMIT (Philadelphia Federal)
The insureds initiated a bad faith suit against the insurer arising from a property damage claim. The insureds suffered sudden and accidental, direct physical damage to their property. The insureds alleged that the insurer breached its contractual obligations, under the policy, to pay for the loss. The insureds filed a complaint against the insurer in the Philadelphia County Court of Common Pleas. The insureds’ Complaint alleged breach of contract and bad faith.
The insureds alleged that the amount in dispute for damages to their property was $39,733.51. They also contend that, as a result of the insurer’s failure and refusal to pay benefits and the insurer’s mishandling of their claim, they suffered losses and damages in an amount not in excess of $50,000.
The insurer removed the case to the United States District Court for the Eastern District of Pennsylvania on the basis of diversity jurisdiction. The insureds then moved to remand the case to the Philadelphia County Court of Common Pleas, on the basis that the amount in controversy did not exceed $75,000. The insureds argued, both counts of the Complaint specifically seek damages not in excess of $50,000 and the insurer has given no evidence to show that the insureds’ claims exceed the jurisdictional minimum.
The insurer argued that the case should not be remanded because it is “certainly possible” that the damages will meet or exceed the jurisdictional limit of $75,000. Also, the insurer argued that, even though damages in arbitration are capped at $50,000, the insureds may recover more than $75,000 by appealing the arbitration award.
In Morgan v. Gay, the Third Circuit established three main rules to apply in cases where the complaint expressly limits the amount in dispute to less than the jurisdictional minimum.
First, the party wishing to establish federal jurisdiction has the burden to prove, to a legal certainty, that the amount in controversy exceeds the statutory threshold.
Second, a plaintiff may limit her monetary claims to avoid the amount in controversy threshold.
Third, a plaintiff’s statement that her claims fall below the jurisdictional minimum is not dispositive; the court must look to see if the plaintiff’s actual monetary demands in the aggregate exceed the threshold.
Since the insureds specifically limited the amount in controversy to less than the jurisdictional minimum, Morgan applies to this case.
The insureds’ ad damnum clauses limiting their damages to $50,000 are permitted under Pennsylvania laws governing compulsory arbitration. Therefore, the Court found that the insureds properly limited the amount of damages in the ad damnum clauses to “an amount not in excess of $50,000,” below the jurisdictional minimum.
The Court found that the insurer’s argument that damages “could” exceed $75,000 or that it is “certainly possible” to exceed $75,000 does not prove it is legally certain that amount in controversy exceeds $75,000. Therefore, it found that the insurer did not show, to a legal certainty, that the amount in controversy exceeds $75,000. As a result, the Court granted the insureds’ motion for remand.