1996 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-24-1996

State Farm Auto v. Powell

Precedential or Non-Precedential:

Docket 95-3530

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Recommended Citation

"State Farm Auto v. Powell" (1996). 1996 Decisions. Paper 157.

http://digitalcommons.law.villanova.edu/thirdcircuit_1996/157
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 

 No. 95-3530 

 

 STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY 

 

 v. 

 HERBERT POWELL, 

 Appellant 

 

 

 Appeal from the United States District Court 

 for the Western District of Pennsylvania 

 (Civil Action No. 94-604) 

 

 

 Submitted Under Third Circuit LAR 34.1(a) 

 May 23, 1996 

 

 Before: SLOVITER, Chief Judge, 

and SAROKIN and OAKES, Circuit Judges 

 (Filed June 24, 1996) 

 

 OPINION OF THE COURT 

 

Thomas A. McDonnell, Esq. 

Summers, McDonnell, Walsh 

& Skeel 

707 Grant Street 

2400 Gulf Tower 

Pittsburgh, PA 15219 

Attorney for State Farm Mutual Automobile 

Insurance Company 

Dallas W. Hartman, Esq. 

Richard R. Morelli, Esq. 

Dallas W. Hartman, P.C. 

2815 Wilmington Road 
New Castle, PA 16105 

 

Attorneys for Herbert Powell 

SAROKIN, Circuit Judge. 

 Appellee State Farm Mutual Automobile Insurance Company 

("State Farm"), an Illinois corporation, filed an action for a 

declaratory judgment in federal district court, seeking a 

declaration regarding its obligations to appellant Herbert Powell 

("Powell") under insurance policies it had issued to him for 

underinsured motorist coverage. The district court ultimately 

granted summary judgment in favor of State Farm. 

 On appeal, we dismiss this matter for lack of jurisdiction. 

While State Farm alleged diversity jurisdiction under 28 U.S.C. 

1332(a), we conclude that the amount in controversy does not 

exceed $50,000. 

 I. 

 On May 11, 1991, Powell was struck by a vehicle owned by 

Kenneth Wagner, sustaining personal injuries. He received 

$25,000 from Wagner's insurance company, which was the maximum 

amount of coverage under Wagner's policy. 

 Powell then sought coverage under policies he had purchased 

from State Farm. Under Pennsylvania law, an insured may "stack" 

his coverage for uninsured or underinsured motorist coverage; 

that is "[t]he limits of coverages available . . . shall be the 

sum of the limits for each motor vehicle as to which the injured 

person is an insured." 72 Pa. Cons. Stat. Ann.  1738(a). At the 

time he sought coverage, both Powell and State Farm believed that 

Powell had purchased three policies from State Farm which could 

be applied to the accident, each of which provided for $50,000 

coverage per person. Powell thus sought $150,000 from State Farm 

to compensate him for his injuries from the accident. 

 State Farm refused to provide him with the requested 

coverage because Powell had executed a waiver of his stacking 

rights in exchange for a reduction in his monthly premiums from 

$18 to $11. The language of the waiver signed by Powell reads as 

follows: 

 By signing this waiver, I am rejecting stacked limits 

 of underinsured motorist coverage under the policy for 

 myself and members of my household under which the 

 limits of coverage available would be the sum of limits 

 for each motor vehicle insured under the policy. 

 Instead, the limits of coverage that I am purchasing 

 shall be reduced to the limits stated in the policy. I 

 knowingly and voluntarily reject the stacked limits of 

 coverage. I understand that my premiums will be reduced if I reject 

this coverage. 

Appendix at 51-52. State Farm believed that, based upon the 

language, Powell was entitled to a total of only $50,000 from 

State Farm, and it entered into a settlement with Powell to pay 

this amount on November 4, 1993. Powell, however, maintained 

that his signature on the waiver did not bar him from stacking 
separate insurance policy coverage. 

 State Farm eventually filed an action in federal district 

court for declaratory judgment on April 13, 1994 in order to 

determine its responsibilities under the policy. In its 

complaint, it alleged that although Powell had three insurance 

policies in effect at the time of the Wagner accident, Powell had 

executed a valid waiver of his stacking rights and it requested 

the district court to declare "that the plaintiff, State Farm 

Mutual Automobile Insurance Company, is only obliged to provide 

underinsured motorists coverage in the instant case in an amount 

of $50,000. . . ." App. at 15-16. State Farm subsequently 

discovered that one of the three policies it issued to Powell was 

not purchased until after the accident at issue here, and it thus 

filed a motion to amend its complaint accordingly, which was 

granted. 

 Both parties moved for judgment on the pleadings, and Powell 

moved for partial summary judgment. All three motions were 

denied by the district court. See State Farm Mut. Auto. Ins. Co. 

v. Powell, 879 F. Supp. 538 (W.D. Pa. 1995). The court rejected 

Powell's theory that the waiver he signed barred stacking only in 

cases where a single policy insured more than one car, not when 

an insured purchased separate policies for separate cars. Id. at 

541. However, it also stated that disputed factual questions 

remained as to how many policies were in effect at the time of 

the Wagner accident and whether Powell received any consideration 

for his waiver. Id. Thus, it also denied State Farm's motion. 

 Powell subsequently filed another motion for summary 

judgment, in which he stated that two policies were in effect at 

the time of the accident and that he received a $7.00 savings per 

policy as a result of executing the waivers at issue. However, 

he took issue with the district court's previous analysis of the 

meaning of the waivers he had signed and requested that the court 

enter a declaratory judgment that he was entitled to a total of 

$100,000 in underinsured motorist coverage. 

 State Farm also filed a new motion for summary judgment, 

requesting that the court enter a declaration that Powell was 

barred from stacking his underinsured motorists coverage on his 

two policies, and that State Farm "is only obliged to provide 

motorist coverage of the instant case in the amount of $50,000 . 

. . ." App. at 206-7. 

 This time the district court granted summary judgment in 

favor of State Farm, entering a declaration stating: 

 (1) 75 Pa.Cons.Stat.Ann.  1738 bars Defendant, 

 Herbert Powell, in the instant case from stacking UIM 

 coverage on the two vehicles in his household insured 

 with Plaintiff, State Farm Mutual Automobile Insurance 

 Company; 

 (2) Plaintiff, State Farm Mutual Automobile Insurance 

 company, is only obliged to provide underinsured 

 motorist coverage in the instant case in the amount of 

 $50,000. 

 

 Powell appeals from this order. 
 II. 

 As an initial matter, Powell argues that diversity 

jurisdiction is lacking under 28 U.S.C.  1332(a) because the 

amount in controversy does not exceed $50,000, and that the 

judgment below thus should be dismissed. Although Powell did not 

raise this jurisdictional issue below, we may address it for the 

first time on appeal "[b]ecause the limited subject matter 

jurisdiction of the federal courts is so fundamental a concern in 

our system." Page v. Schweiker, 786 F.2d 150, 153 (3d Cir. 1986) 

(citing Mitchell v. Maurer, 293 U.S. 237, 244 (1934)). 

 In St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 

283 (1937), the Supreme Court announced the following rule 

regarding the requisite amount in controversy for purposes of 

diversity jurisdiction: 

 [U]nless the law gives a different rule, the sum 

 claimed by the plaintiff controls if the claim is 

 apparently made in good faith. It must appear to a 

 legal certainty that the claim is really for less than 

 the jurisdictional amount to justify dismissal. 

Id. at 288-89. See also Jumara v. State Farm Ins. Co., 55 F.3d 

873, 877 (3d Cir. 1995). 

 In the instant matter Powell does not claim that State Farm 

alleged its amount in controversy in bad faith. Rather, he 

explains in his brief before this court that when this action was 

originally filed, both parties mistakenly believed that three 

separate insurance policies, each providing $50,000 coverage, 

were in effect on the date of Powell's injury. However, when the 

parties later discovered that one of the policies was purchased 

after the accident occurred, and the complaint was amended to 

reflect that discovery, it became clear that only two policies, 

valued at $100,000 total, formed the subject matter of the 

litigation. 

 Powell asserts that with only two policies applicable to the 

accident, it is clear "to a legal certainty" that the actual 

amount in controversy is only $50,000 -- a penny shy of the 

jurisdictional minimum. He explains that at the time State Farm 

filed its declaratory judgment action in federal court, it had 

already entered a settlement to pay him $50,000 under one policy. 

Thus, all that remained in dispute at the time the suit was filed 

was $50,000 from the other policy. 

 State Farm counters with three alternative arguments in 

support of jurisdiction. First, it asserts that because 

diversity jurisdiction was proper when the complaint was filed, 

it should not be disturbed by subsequent events. Second, it 

argues that even if the third policy is not considered, its 

"total potential exposure" of $100,000 (the sum of the remaining 

two policies) is the actual amount in controversy. Appellee's 

Brief at 14. Third, it contends that even if only one policy is 

"at issue," the arbitration costs provided for in the policy 

should be considered in determining the amount in controversy. 

Id. at 14-15. We will consider each of these arguments in turn. 
 A. 

 State Farm first argues that the federal courts retain 

jurisdiction over this matter because, at the time that it filed 

its complaint, it believed that three $50,000 insurance policies 

were at issue, totalling $150,000, and subsequent events cannot 

destroy jurisdiction if jurisdiction was proper when the 

complaint was filed. It is true that a federal court's 

jurisdiction ordinarily depends upon "the facts as they exist 

when the complaint is filed," Newman-Green, Inc. v. AlfonzoLarrain, 490 U.S. 826, 830 (1989), and thus subsequent events 

that reduce the amount in controversy below the statutory minimum 

do not require dismissal. See Jones v. Knox Exploration Corp., 2 

F.3d 181, 182-83 (6th Cir. 1993). However, "[a] distinction must 

be made . . . between subsequent events that change the amount in 

controversy and subsequent revelations that, in fact, the 

required amount was or was not in controversy at the commencement 

of the action." Id. at 183 (emphasis added). 

 With respect to the issue regarding the number of policies 

at issue in the case, State Farm's situation falls into the 

latter category. In its motion for summary judgment, State Farm 

admits that "[w]hile initially there was some dispute as to this 

matter, it has since been determined and agreed upon that at all 

times relevant hereto, the Defendant had two separate policies of 

insurance issued by the Plaintiff insuring two separate vehicles 

owned by the Defendant." App. at 204. Under these circumstances, 

the discovery that one of the original three policies was not in 

effect during Powell's accident should be considered a revelation 

that only two policies were at issue when the litigation was 

commenced, not a "subsequent event." Accordingly, jurisdiction 

must be assessed based upon the factual reality that only two 

policies were in effect at the time of the accident. 

 B. 

 State Farm next argues that, even if the court does not 

consider the third insurance policy once thought to be at issue 

in determining diversity jurisdiction, the amount at issue 

continues to exceed $50,000. It avers that under the two 

policies actually at issue, its total exposure is $100,000 and 

that this amount should be considered the amount in controversy. 

 State Farm, however, never denied that it was obligated to 

provide Powell with at least $50,000 in coverage. In fact, the 

relief it sought from the district court was a declaration that 

it was "only obliged to provide underinsured motorist coverage in 

the instant case in the amount of $50,000." App. at 207. Thus, 

from the outset of this litigation State Farm conceded that it 

owed Powell $50,000; it merely sought to limit its obligation to 

that figure out of his alleged $100,000 in underinsured motorist 

coverage. Indeed, as evidenced by the letter dated November 4, 

1993 from State Farm to Powell, State Farm actually entered into 

a settlement with Powell to pay him the $50,000 prior to the 

commencement of this action. Simple arithmetic demonstrates that 

at the time that the action was filed, then, only $50,000 was in 

controversy. 

 C. 

 State Farm finally argues that even if the Court finds -- as 
we do -- that only the $50,000 policy for which no payment was 

received is at issue in this case, its contractual duty to pay 

arbitration costs brings the amount in controversy above the 

jurisdictional prerequisite. State Farm points to language in 

the insurance policies at issue that provides for the parties to 

pay certain costs related to arbitrating the underlying insurance 

motorist claim. The relevant language reads as follows: 

 If there is no agreement [between the insured and State 

 Farm regarding whether the insured is legally entitled 

 to collect damages or the amount of such damages], 

 these questions shall be decided by arbitration at the 

 request of the insured or [State Farm.] . . . 

 * * * 

 The cost of the arbitrator and any expert witness shall 

 be paid by the party who hired them. The cost of the 

 third arbitrator and other expenses of the arbitration 

 shall be shared equally by both parties. 

App. at 33. 

 State Farm points out that, while costs and attorneys' fees 

are not normally considered when determining the amount in 

controversy, "where the underlying instrument or contract itself 

provides for their payment, costs and attorneys' fees must be 

considered in determining the jurisdictional amount." Nationwide 

Mut. Ins. Co. v. Rowles, 818 F. Supp. 852, 854-55 (E.D. Pa. 1992) 

(citing Springstead v. Crawfordsville State Bank, 231 U.S. 541 

(1913); Farmers Ins. Co. v. McClain, 603 F.2d 821 (10th Cir. 

1979)). In particular it refers this court to a decision from 

the District Court for the Eastern District of Pennsylvania, 

Nationwide Mut. Ins. Co. v. Rowles. There, the district court 

found that, in a case where the insurance policy at issue was 

only for $50,000, the insurer's obligation under the terms of the 

policy to pay arbitration expenses raised the amount at issue 

above the $50,000 statutory minimum for jurisdictional purposes. 

Id. at 855. 

 As an initial matter, we question the reasoning of the 

district court's decision in Rowles. In arriving at its 

conclusion, the Rowles court relied upon two cases, Springsteadand McClain 

which held that costs and attorneys' fees should be

considered part of the amount in controversy for jurisdictional 

purposes when they are mandated by underlying instruments or 

contracts. In those two cases, however, the contracts at issue 

called for the payment of attorneys' fees and costs by the party 

breaching the contract. Springstead, 231 U.S. at 541; McClain, 

603 F.2d at 822. Thus, the costs were essentially additional 

damages to be assessed against the party found to have breached 

the instrument, and were thus part of the controversy at issue in 

those cases. 

 However, the arbitration provision at issue in Rowles (as 

well as in the instant case) does not provide for additional 

damages to be assessed against the party who does not prevail. 

Rather, it merely provides that the costs associated with 

arbitration will be shared evenly by the two parties. Thus, 
these costs were never in controversy, but simply were to be 

shared by the parties regardless of ultimate responsibility for 

the breach. 

 Furthermore, even if we considered the Rowles reasoning 

sound, we think that that decision is nonetheless inapposite to 

the case at hand. In Rowles the underlying policy mandated 

arbitration in the event of a dispute over coverage, providing 

that "[i]f [the insurer] and the insured do not agree about the 

insured's right to recover damages or the amount of damages, the 

following arbitration procedure will be used." Id. at 854 

(emphasis added). Indeed, before the insurer filed the federal 

suit in Rowles, the insured had sought to arbitrate the dispute 

according to the arbitration provision. Id. The provisions 

governing arbitration in the insurance policy at issue in the 

instant case, however, are not mandatory and do not specifically 

impose a duty to pay on the part of State Farm. Rather, the 

policy provides that if State Farm and the insured do not agree 

on coverage, coverage "shall be decided by arbitration at the 

request of the insured or us." App. at 33 (emphasis added). Only 

if arbitration is requested will the parties then bear the extra 

cost of paying for the arbitration. 

 Here, State Farm did not plead in its complaint that it 

intended to pursue arbitration and would thus incur the alleged 

costs. See Dept. of Recreation and Sports v. World Boxing 

Ass'n., 942 F.2d 84, 89 (1st Cir. 1991) (explaining that a 

plaintiff must plead in his complaint that he has or will incur 

attorneys' fees as provided by statute or contract in order for 

such costs to be considered part of the amount in controversy for 

jurisdictional purposes). Rather, that State Farm elected to 

bring this case to federal court, indicates that it affirmatively 

opted not to pursue arbitration. Indeed, if the suit were to 

continue in federal court, we cannot see how any arbitration 

costs would be incurred. 

 Having concluded that the cost of arbitration should not be 

considered part of the amount in controversy for jurisdictional 

purposes, it is clear that the amount in controversy at issue 

here is limited to $50,000. 

 III. 

 For the foregoing reasons, we vacate the decision of the 

district court granting summary judgment in favor of State Farm 

and remand this matter to the district court for purposes of 

dismissing the case for lack of jurisdiction.