Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_07-cv-00583/USCOURTS-caed-1_07-cv-00583-2/pdf.json

Parties Involved:
Gonzalo Antillon
Defendant
Bulmaro Sevilla Guerrero
Defendant
Infinity Insurance Company
Plaintiff
Ivan Sevilla
Defendant

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IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

INFINITY INSURANCE COMPANY, )

)

Plaintiff, )

v. )

)

BULMARO SEVILLA GUERRERO, )

IVAN SEVILLA, and GONZALO )

ANTILLON, )

)

Defendants. )

____________________________________)

CIV F 07-583 AWI TAG

ORDER ON DEFENDANT’S

MOTION TO DISMISS

This is a declaratory judgment action that is related to an automobile collision between

Ivan Sevilla (“Sevilla”) and Gonzalo Antillon (“Antillon”). Bulmaro Sevilla Guerrero

(“Guerrero”) owned the car driven by his son Sevilla and had an automobile insurance policy

with Infinity Insurance Company (“Infinity”). Antillon filed this Rule 12(b)(1) motion and

argues that the amount in controversy does not exceed $75,000. The Court will grant the motion.

 FACTUAL BACKGROUND

From the Complaint, on June 14, 2006, Infinity issued an automobile insurance policy

(“the Policy”) to Guerrero for three vehicles. On the same date, Guerrero signed a questionnaire. 

The questionnaire requested a list of all members in Guerrero’s household who were age 14 or

older, and asked whether he wished coverage for them. Guerrero listed only his wife and wrote

that he did not want coverage for her. The application for the Policy also requested that the

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applicant “complete for all persons age 15 and older, licensed or not, who reside with the

applicant, and any other drivers of the vehicles on this application.” Guerrero listed only himself. 

As part of the application, Guerrero certified that he listed all operators of the vehicles including

anyone who may operate the vehicle on a regular or frequent basis, all children away from home,

and all persons age 14 or older who live with Guerrero. Guerrero also certified that he would

notify Infinity of any changes in operators or licensing of any household residents.

On July 1, 2006, Guerrero’s son Sevilla was involved in an automobile accident with

Antillon. Sevilla was 24 years old and had been driving a vehicle covered by the Policy. 

Guerrero had not disclosed Sevilla on the application or questionnaire. On July 3, 2006, a claim

for defense and indemnity arising out of the accident was tendered to Infinity under the Policy. 

Infinity investigated and determined that Sevilla was not licensed at the time of the

accident, had lived in Guerrero’s household on June 14, 2006, had lived with Guerrero the

majority of his life, and that two other undisclosed drivers over the age of 14 lived in Guerrero’s

household on June 14, 2006. On August 15, 2006, Infinity wrote to Guerrero and rescinded the

Policy based on material misrepresentations. Infinity informed Guerrero that the Policy was

rescinded ab initio, a refund of premiums would be sent, and it would not be responsible for any

defense or indemnity. On September 7, 2006, Infinity mailed Guerrero a refund check.

On September 6, 2006, Antillon’s attorney sent to Infinity a hospital bill for Antillon

which exceeded $100,000. On October 20, 2006, Antillon filed a lawsuit against Sevilla and

Guerrero. On November 8, 2006, Guerrero’s attorney sent a copy of the summons and complaint

to Infinity and tendered the matter for defense and indemnification. On December 22, 2006,

Infinity responded that the Policy had been rescinded, but nevertheless assigned outside counsel

to the case under a reservation of rights. 

On April 16, 2007, Infinity filed this action based on diversity jurisdiction and attached a

copy of the Policy, questionnaire and application to its complaint. Infinity alleges that over

$75,000 is in controversy and seeks a declaration that the Policy was properly rescinded ab initio

and that it owes no duty to defend or indemnify Guerrero and Sevilla in the Antillon action. 

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 LEGAL FRAMEWORK

Rule 12(b)(1)

Federal Rules of Civil Procedure 12(b)(1)allows for a motion to dismiss based on lack of

subject matter jurisdiction. See Fed. R. Civ. Pro. 12(b)(1). It is a fundamental precept that

federal courts are courts of limited jurisdiction. Vacek v. UPS, 447 F.3d 1248, 1250 (9th Cir.

2006). Limits upon federal jurisdiction must not be disregarded or evaded. Owen Equipment &

Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). “It is presumed that a cause lies outside this

limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting

jurisdiction.” Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377 (1994); Vacek, 447 F.3d at

1250. The complaint must show “affirmatively and distinctly the existence of whatever is

essential to federal jurisdiction, and if [it] does not do so, the court, on having the defect called to

its attention or on discovering the same, must dismiss the case, unless the defect be corrected by

amendment.” Tosco Corp. v. Communities For A Better Env’t, 236 F.3d 495, 499 (9th Cir.

2001). Rule 12(b)(1) motions may be either facial, where the inquiry is confined to the

allegations in the complaint, or factual, where the court is permitted to look beyond the complaint

to extrinsic evidence. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004); Safe Air For

Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004); Savage v. Glendale Union High School

Dist. No. 205, 343 F.3d 1036, 1040 n.2 (9th Cir. 2003); White v. Lee, 227 F.3d 1214, 1242 (9th

Cir. 2000). When a defendant challenges jurisdiction “facially,” all material allegations in the

complaint are assumed true, and the question for the court is whether the lack of federal

jurisdiction appears from the face of the pleading itself. See Wolfe, 392 F.3d at 362; see also

Meyer, 373 F.3d at 1039. When a defendant makes a factual challenge “by presenting affidavits

or other evidence properly brought before the court, the party opposing the motion must furnish

affidavits or other evidence necessary to satisfy its burden of establishing subject matter

jurisdiction.” Meyer, 373 F.3d at 1039; Savage, 343 F.3d at 1039 n.2. The court need not

presume the truthfulness of the plaintiff’s allegations under a factual attack. Meyer, 373 F.3d at

1039; White, 227 F.3d at 1242. 

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Diversity Jurisdiction – 28 U.S.C. § 1332

In relevant part, 28 U.S.C. § 1332 provides that “district courts shall have original

jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of

$75,000, exclusive of interest and costs and is between . . . citizens of different States . . . .” 28

U.S.C. § 1332(a)(1). The amount in controversy is generally determined from the face of the

pleadings. See Crum v. Circus Circus Enterprises, 231 F.3d 1129, 1131 (9th Cir. 2000);

Pachinger v. MGM Grand Hotel-Las Vegas, Inc., 802 F.2d 362, 363 (9th Cir. 1986). As long as

the sum claimed by the plaintiff is made in good faith, that sum controls. See St. Paul Mercury

Indem. Co. v. Red Cab Co., 303 U.S. 283, 288 (1938); Crum, 231 F.3d at 1131. In cases brought

in federal court in which the plaintiff has a good faith complaint that alleges damages in excess

of $75,000, dismissal is appropriate when it appears to a legal certainty that the claim is really for

less than $75,000. Sanchez v. Monumental Life Ins. Co., 102 F.3d 398, 402 (9th Cir. 1996). A

district court’s “jurisdiction . . . depends on the amount that was in controversy when the federal

suit began.” Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 538 (7th Cir. 2006) (citing St.

Paul Mercury, 303 U.S. at 293); see Murphy v. Kodz, 351 F.2d 163, 167 (9th Cir. 1965). The

amount in controversy “is determined by the amount involved in the particular case, and not by

the contingent loss either of the parties may sustain by the probative effect of the judgment, or by

its collateral effect in another suit.” Hartford Fire Ins. Co. v. Bonner Mercantile Co., 56 F. 378,

383 (9th Cir. 1893); see Rapoport v. Rapoport, 416 F.2d 41, 43 (9th Cir. 1969).

 ANTILLON’S MOTION TO DISMISS

Defendant’s Argument

Defendant argues that in declaratory judgment actions where the suit seeks to rescind or

invalidate an insurance contract, the policy limits establish the amount in controversy. Since

Infinity seeks a declaration that the Policy was rescinded ab initio, the Policy limits determine the

amount in controversy. The Policy has a limit of $40,000. Thus, the policy limits in this case is

well below the $75,000 plus necessary for jurisdiction.

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Plaintiff’s Opposition

Infinity argues that this case is not simply about invalidating a contract, rather it is about

determining the duties to defend and indemnify. In such cases, the amount in controversy is the

amount of damages or the value of the property that is the subject of the action. Here, Antillon is

seeking $200,000 from Infinity to settle the case, the cost of defense including a possible appeal

is approximately $40,000, and there are potential attorneys fees and punitive damages in a bad

faith suit against Infinity that Defendants could file in order to compel payment of benefits. 

Accordingly, the amount in controversy easily exceeds $75,000.

Legal Standard

Declaratory Judgment

The Declaratory Judgment Act allows a federal court to “declare the rights and other legal

relations” of parties to a “case of actual controversy.” 28 U.S.C. § 2201; Spokane Indian Tribe v.

United States, 972 F.2d 1090, 1091 (9th Cir. 1992). “The purpose of the [§ 2201] is to relieve

potential defendants from the Damoclean threat of impending litigation which a harassing

adversary might brandish, while initiating suit at his leisure - or never.” Spokane Indian Tribe,

972 F.2d at 1091-92. “However, the Declaratory Judgment Act is not a jurisdictional statute”

and “does not create subject matter jurisdiction where none otherwise exists,” rather it “only

creates a particular kind of remedy available in actions where the district court already has

jurisdiction to entertain a suit.” Jarrett v. Resor, 426 F.2d 213, 216 (9th Cir. 1970); see also

Clark v. Busey, 959 F.2d 808, 811 (9th Cir. 1992). Stated differently, in order to obtain

declaratory relief in federal court, the basis for federal jurisdiction must be independent of the 

Declaratory Judgment Act itself. See Stock West, Inc. v. Confederated Tribes of Colville

Reservations, 873 F.2d 1221, 1225 (9th Cir. 1989).

In declaratory judgment actions where the independent basis for jurisdiction is diversity,

“the amount in controversy is measured by the value of the object of the litigation.” Hunt v.

Washington State Apple Adver. Comm’n, 432 U.S. 333, 347 (1977); Cohn v. Petsmart, Inc., 282

F.3d 837, 840 (9th Cir. 2002). In declaratory judgment cases involving “the applicability of an

insurance policy to a particular occurrence, the jurisdictional amount in controversy is measured

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by the value of the underlying claim – not the face amount of the policy.” Hartford Ins. Group v.

Lou-Con, Inc., 293 F.3d 908, 911 (5th Cir. 2002); see also Budget Rent-A-Car, Inc. v.

Higashiguchi, 109 F.3d 1471, 1473 (9th Cir. 1997); Jordan Ice Co. v. Grange Mut. Cas. Co.,

2006 U.S. Dist. LEXIS 87721, *7 (E.D. Ky. 2006); National Union Fire Ins. v. Maune, 2006 U.S.

Dist. LEXIS 10831, *5 (E.D. Mo. 2006); American Std. Ins. Co. v. Rogers, 123 F.Supp.2d 461,

463 (S.D. Ind. 2000); Darbet, Inc. v. Bituminous Casualty Corp., 792 F.Supp. 487, 488-89 (S.D.

W. Va. 1992); 14B Charles Alan Wright, Arthur R. Miller & Edward H. Cooper, Federal

Practice & Procedure § 3710 (3d ed. 1998) (hereinafter “Wright & Miller”); California Practice

Guide: Federal Civil Procedure Before Trial § 10:22.2 (The Rutter Group 2007) (hereinafter

“Federal Rutter”). However, if the substance of the declaratory judgment action seeks to

determine the validity of an insurance policy, then the policy limit is the amount in controversy. 

See Hawkins v. Aid Ass’n for Lutherans, 338 F.3d 801, 805 (7th Cir. 2003); Hartford, 293 F.3d

at 911; Higashiguchi, 109 F.3d at 1473; Home Ins. Co. of N.Y. v. Trotter, 130 F.2d 800, 803 (8th

Cir. 1942); Jordan Ice, 2006 U.S. Dist. LEXIS 87721 at *7; National Union, 2006 U.S. Dist.

LEXIS 10831 at *4; Rogers, 123 F.Supp.2d at 463; Darbet, 792 F.Supp. at 488-89; Button v.

Mutual Life Ins. Co., 48 F.Supp. 168, 171 (W.D. Ky. 1943); Wright & Miller at § 3710; Federal

Rutter at § 10:22.2. When the validity of the insurance contract is at stake, the “fact that a claim

presently exists against the insured is not relevant for the purposes of determining the amount in

controversy.” Wright & Miller at § 3710.

Rescission of Insurance Contract

California law “permits an insurer to rescind a policy when the insured has

misrepresented or concealed material information in connection with obtaining insurance.” TIG,

Ins. Co. of Mich. v. Homestore, Inc., 137 Cal.App.4th 749, 755-56 (2006) (citing Cal. Ins. Code

§ 331). To rescind an insurance policy, the insurer must follow requirements of California Civil

Code § 1691. Atmel Corp. v. St. Paul Fire & Marine, 426 F.Supp.2d 1039, 1044 (N.D. Cal.

2005). A rescission “effectively renders the policy totally unenforceable from the outset, so that

there never was any coverage . . . .” Atmel Corp., 426 F.Supp.2d at 1044; Cedars Sinai Med. Ctr.

v. Mid-West Nat'l Life Ins. Co., 118 F.Supp.2d 1002, 1011 (C.D. Cal. 2000); Imperial Cas. &

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Although Antillon’s motion appears to be a facial attack, given the attachment of the Policy to the 1

Complaint and the arguments of the parties, the result of Antillon’s motion is the same whether the Court treats this

as motion as either a facial or factual attack.

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Indem. Co. v. Sogomonian, 198 Cal.App.3d 169, 182 (1988); see also Akin v. Certain

Underwriters at Lloyd's London, 140 Cal.App.4th 291, 298 (2006). A rescission extinguishes an

insurance policy ab initio, “as though it never existed,” and those claiming to be insureds “in law,

never were insureds under [the] policy of insurance.” Atmel Corp., 426 F.Supp.2d at 1045;

Sogomonian, 198 Cal.App.3d at 184; see also Cedars Sinai, 118 F.Supp.2d at 1011. Thus, “there

is no duty to defend if an insurer has unilaterally rescinded a policy unless and until the rescission

has been set aside.” Atmel Corp., 426 F.Supp.2d at 1044-46; see also Sogomonian, 198

Cal.App.3d at 182-84. A rescission avoids liability even on claims pending at the time of

rescission. See Atmel Corp., 426 F.Supp.2d at 1044; Sogomonian, 198 Cal.App.3d at 182. A

rescission applies “to all insured under the contract, including additional insureds, unless the

contract provides otherwise.” Cal. Ins. Code § 650; TIG, Ins., 137 Cal.App.4th at 756; see also

United States Specialty Ins. Co. v. Bridge Capital Corp., 482 F.Supp.2d 1164, 1169 (C.D. Cal.

2007). 

Discussion1

The crux of Infinity’s opposition is that this case is not about the validity of the Policy,

but is about the duties to defend and indemnify. In other words, Infinity contends that this case is

about the application of the Policy to the occurrence of the automobile accident. The Court

cannot agree.

After alleging that Guerrero made material misrepresentations regarding the members of

his household on the Application, see Complaint at ¶¶ 25-28, Infinity alleges that it properly

rescinded the Policy ab initio on August 15, 2006, and shortly thereafter refunded the premiums

paid. See id. at ¶¶ 29-30. The Complaint then alleges:

By reason of the foregoing, there now exists an actual, justifiable controversy

among the parties within the meaning of 28 U.S.C. § 2201. Specifically, Infinity

contends, based on the facts, policy terms and California law, [that] it had more

than sufficient grounds for rescission of the Infinity Auto Policy based on Mr.

Guerrero’s material misrepresentations, and Infinity followed the proper

procedures for rescission of the Infinity Auto Policy. Accordingly, Infinity

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contends it has no duty to defend or indemnify Mr. Guerrero or Mr. Sevilla in the

Antillon Action. Infinity is informed and believes that Mr. Guerrero and Mr.

Sevilla, on the other hand, contend that Infinity did not have proper grounds for

rescission of the [Policy] and/or did not follow proper procedures for rescission,

and, accordingly, has a duty to defend and indemnify them in the Antillon Action.

. . .

Id. at ¶ 32.

The Complaint then prays for a declaration that: (1) “the [Policy] was properly rescinded ab

initio,” and (2) Infinity “has no duty to defend or indemnify Mr. Guerrero or Mr. Sevilla in the

Antillon Action.” Id. at Prayer. 

Although the Prayer asks the Court to find the rescission valid and that Infinity owes no

duties to Guerrero, the basis for requesting a declaration of “no duties owed” is the rescission. 

There is no other basis alleged in the complaint for declaring that Infinity owes no duties to

Guerrero and Sevilla. Because Infinity requests the Court to declare that the Policy was

rescinded ab initio, the request to declare that Infinity owes no duty to defend or indemnify

Guerrero and Sevilla is redundant. If the policy was properly rescinded, then it immediately

follows that the contract never existed and Infinity owes neither the duty to defend nor the duty to

indemnify Guerrero and Sevilla. Atmel Corp., 426 F.Supp.2d at 1044-46; Sogomonian, 198

Cal.App.3d at 182-84. Moreover, the plain language of Paragraph 32 of the Complaint clearly

shows that Infinity believes that it owes no duties to Guerrero and Sevilla because of the

rescission and the concomitant extinguishment of the Policy ab initio. Despite Infinity’s

arguments, the substance of this action is to determine the propriety of the rescission, and thus,

the validity of the Policy. 

 Where the substance of the declaratory judgment action seeks to determine the validity

of an insurance policy, the policy limit is the amount in controversy. See Hawkins, 338 F.3d at

805; Hartford, 293 F.3d at 911; Higashiguchi, 109 F.3d at 1473; Home Ins., 130 F.2d at 803;

Jordan Ice, 2006 U.S. Dist. LEXIS 87721 at *7; National Union, 2006 U.S. Dist. LEXIS 10831 at

*4; Rogers, 123 F.Supp.2d at 463; Darbet, 792 F.Supp. at 488-89; Button, 48 F.Supp. at 171;

Wright & Miler at § 3710; Federal Rutter at § 10:22.2. The Policy provides coverage up to

$15,000 per person, $30,000 per occurrence, and $10,000 for property damage. See Complaint at

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Exhibit A. Neither party contends that the Policy limit exceeds $40,000. Diversity jurisdiction

requires that more than $75,000 be in controversy. See 28 U.S.C. § 1392(a). The face amount of

the Policy, $40,000, is less than the $75,000 required for this Court to exercise diversity

jurisdiction. Thus, to a legal certainty, the amount in controversy is less than the jurisdictional

minimum despite Infinity’s allegation that more than $75,000 is in controversy. Given that this

case is based on and centered around rescission, the Court does not see how amendment could

cure the lack of jurisdiction. Cf. Tosco, 236 F.3d at 499. Accordingly, dismissal without leave

to amend is appropriate.

 CONCLUSION 

The substance of this case is about the validity of the Policy in light of a rescission by

Infinity, which means that the Policy limits determine the amount in controversy. Since the

policy limits ($40,000) is below the $75,000 threshold, the minimum jurisdictional amount in

controversy is not met to a legal certainty and this Court lacks jurisdiction. 

Accordingly, IT IS HEREBY ORDERED that:

1. Defendant Antillon’s Rule 12(b)(1) motion to dismiss is GRANTED; 

2. Plaintiff’s Complaint is DISMISSED without leave to amend; and 

3. The Clerk is directed to CLOSE this case.

IT IS SO ORDERED.

Dated: August 6, 2007 /s/ Anthony W. Ishii 

0m8i78 UNITED STATES DISTRICT JUDGE

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