### 1996 D e c i sion s O p inion s of the U nit e d

S t a t e s C our t of Appe al s for the Thir d C ir c uit

6-24-1996 

# S t a t e F a r m Aut o v

. P o wel l

P r e c e de n t i al or N on-P r e c e de n t i al :

D ocke t 95-3530

F o l lo w thi s a nd a dd it ion al w ork s a t : h tt p://d i g it alc ommon s .l a w

. v i l l a no v a

. e du/thir dc ir c uit_1996

Thi s de c i sion i s br ou gh t t o y ou for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit a t V i l l a no v a

U niv e r sit y S choo l of L a

w Di g it al Re posit or y

. It h as be e n a c c e pt e d for inclusion in 1996 D e c i sion s b y a n a uthor i z e d a dmini s tr a t or of V i l l a no v a

U niv e r sit y S choo l of L a

w Di g it al Re posit or y

. F or mor e infor m a t ion, p le as e c on t a ct Be n j a min

. C a rl s on@l a

w

. v i l l a no v a

. e du

. 

### Re c omme nde d C it a t ion

" S t a t e F a r m Aut o v

. P o w e l l " (1996). 1996 D e cisio n s

. P ape r 157.
h tt p://d i g it alc ommon s .l a

w

. v i l l a no v a

. e du/thir dc ir c uit_1996/157UNITED STATES COURT O F APPEALS

FOR THE THIRD CIRCUIT

No. 95-3530

STATE FARM MUTUAL AUTOMOBILE INSURANCE CO MPANY

v.

HERBERT POWELL,

Appellant

Appeal from the United States District C ourt for the Western District of Pennsylvan ia (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 RoadNew Castle, PA 16105

Attorneys for Herbert Powell

SAROKIN, Circuit Judge.

Appellee State Farm Mutual Automobile Insuranc e Company ("State Farm"), an Illinois corporation, filed an a ction for a declaratory judgment in federal district court, see king a declaration regarding its obligations to appellant Herbert Powell ("Powell") under insurance policies it had issued t o 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 und er 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 vehicl e owned by Kenneth Wagner, sustaining personal injuries. He r eceived $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 insure d 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 whic h 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 f rom State Farm to compensate him for his injuries from the acciden t. State Farm refused to provide him with the req uested coverage because Powell had executed a waiver of hi s stacking rights in exchange for a reduction in his monthly p remiums from $18 to $11. The language of the waiver signed by P owell reads as

follows: By signing this waiver, I am rejecting stacked limits of underinsured motorist coverage under the po licy 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 polic y. Instead, the limits of coverage that I am purc hasing shall be reduced to the limits stated in the p olicy. I knowingly and voluntarily reject the stacked l imits 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 $5 0,000 from State Farm, and it entered into a settlement with P owell to pay this amount on November 4, 1993. Powell, however, maintained that his signature on the waiver did not bar him fr om stackingseparate insurance policy coverage.

State Farm eventually filed an action in feder al district court for declaratory judgment on April 13, 1994 in order to determine its responsibilities under the policy. I n its complaint, it alleged that although Powell had thre e insurance policies in effect at the time of the Wagner accide nt, 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 oblige d to provide underinsured motorists coverage in the instant case in an amount of $50,000. . . ." App. at 15-16. State Farm subs equently discovered that one of the three policies it issued to Powell was not purchased until after the accident at issue her e, and it thus filed a motion to amend its complaint accordingly, which was granted. Both parties moved for judgment on the pleadin gs, and Powell moved for partial summary judgment. All three moti ons were denied by the district court. See State Farm Mut. Auto. Ins. Co. v. Powell, 879 F. Supp. 538 (W.D. Pa. 1995). The c ourt rejected Powell's theory that the waiver he signed barred st acking only in cases where a single policy insured more than one c ar, 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 Fa rm's motion. Powell subsequently filed another motion for s ummary 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 issu e. However, he took issue with the district court's previous an alysis of the meaning of the waivers he had signed and requested that the court enter a declaratory judgment that he was entitled t o 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 cov erage 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 j udgment 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 sta cking UIM coverage on the two vehicles in his household insured with Plaintiff, State Farm Mutual Automobile I nsurance Company;

(2) Plaintiff, State Farm Mutual Automobile I nsurance company, is only obliged to provide underinsur ed motorist coverage in the instant case in the a mount of $50,000.

Powell appeals from this order.II.

As an initial matter, Powell argues that diver sity 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 addre ss it for the first time on appeal "[b]ecause the limited subject matter jurisdiction of the federal courts is so fundamenta l 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 C o., 303 U.S. 283 (1937), the Supreme Court announced the followi ng rule regarding the requisite amount in controversy for p urposes of diversity jurisdiction:

[U]nless the law gives a different rule, the s um 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 l ess than the jurisdictional amount to justify dismissal

. Id. at 288-89. See also Jumara v. State Farm Ins. C o., 55 F.3d 873, 877 (3d Cir. 1995).
In the instant matter Powell does not claim th at State Farm alleged its amount in controversy in bad faith. Ra ther, he explains in his brief before this court that when t his 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. How ever, when the parties later discovered that one of the policies w as purchased after the accident occurred, and the complaint was amended to reflect that discovery, it became clear that only t wo policies, valued at $100,000 total, formed the subject matter of the litigation. Powell asserts that with only two policies app licable to the accident, it is clear "to a legal certainty" that t he actual amount in controversy is only $50,000 -- a penny sh y of the jurisdictional minimum. He explains that at the ti me State Farm filed its declaratory judgment action in federal co urt, it had already entered a settlement to pay him $50,000 und er 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 arg uments in support of jurisdiction. First, it asserts that be cause diversity jurisdiction was proper when the complain t was filed, it should not be disturbed by subsequent events. S econd, it argues that even if the third policy is not conside red, 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 t he policy should be considered in determining the amount in c ontroversy. Id. at 14-15. We will consider each of these argum ents in turn.A.

State Farm first argues that the federal court s retain jurisdiction over this matter because, at the time that it filed its complaint, it believed that three $50,000 insur ance policies were at issue, totalling $150,000, and subsequent e vents cannot destroy jurisdiction if jurisdiction was proper whe n the complaint was filed. It is true that a federal cou rt'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 subsequ ent events that reduce the amount in controversy below the sta tutory minimum do not require dismissal. See Jones v. Knox Explora tion Corp., 2 F.3d 181, 182-83 (6th Cir. 1993). However, "[a] di stinction must be made . . . between subsequent events that change the amount in controversy and subsequent revelations that, in fac t, the required amount was or was not in controversy at th e 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 judgmen t, State Farm admits that "[w]hile initially there was some dispu te as to this matter, it has since been determined and agreed upo n that at all times relevant hereto, the Defendant had two separa te policies of insurance issued by the Plaintiff insuring two sepa rate vehicles owned by the Defendant." App. at 204. Under these circumstances, the discovery that one of the original three polici es was not in effect during Powell's accident should be considere d a revelation that only two policies were at issue when the litig ation was commenced, not a "subsequent event." Accordingly, jurisdiction must be assessed based upon the factual reality tha t 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 a t issue continues to exceed $50,000. It avers that under t he 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 decl aration that it was "only obliged to provide underinsured motori st coverage in the instant case in the amount of $50,000." App. a t 207. Thus, from the outset of this litigation State Farm conce ded that it owed Powell $50,000; it merely sought to limit its obligation to that figure out of his alleged $100,000 in underins ured 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 pri or to the commencement of this action. Simple arithmetic dem onstrates 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 Cou rt finds -- aswe 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 t he parties to pay certain costs related to arbitrating the underl ying insurance motorist claim. The relevant language reads as fol lows: 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 damag es], these questions shall be decided by arbitratio n at the request of the insured or [State Farm.] . . .

* * *

The cost of the arbitrator and any expert witn ess shall be paid by the party who hired them. The cost of the third arbitrator and other expenses of the arb itration shall be shared equally by both parties. App. at 33. State Farm points out that, while costs and at torneys' fees are not normally considered when determining the am ount in controversy, "where the underlying instrument or co ntract itself provides for their payment, costs and attorneys' fe es 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, 2 31 U.S. 541 (1913); Farmers Ins. Co. v. McClain, 603 F.2d 821 ( 10th Cir. 1979)). In particular it refers this court to a de cision from
the District Court for the Eastern District of Penn sylvania, Nationwide Mut. Ins. Co. v. Rowles. There, the dis trict court found that, in a case where the insurance policy at issue was only for $50,000, the insurer's obligation under th e terms of the policy to pay arbitration expenses raised the amoun t at issue above the $50,000 statutory minimum for jurisdictio nal purposes.
Id. at 855. As an initial matter, we question the reasonin g of the district court's decision in Rowles. In arriving a t 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 ju risdictional purposes when they are mandated by underlying instr uments or contracts. In those two cases, however, the contra cts at issue called for the payment of attorneys' fees and costs by the party breaching the contract. Springstead, 231 U.S. at 5 41; McClain, 603 F.2d at 822. Thus, the costs were essentially additional damages to be assessed against the party found to h ave breached the instrument, and were thus part of the controver sy at issue in

those cases. However, the arbitration provision at issue in Rowles (as well as in the instant case) does not provide for a dditional damages to be assessed against the party who does n ot prevail. Rather, it merely provides that the costs associate d with arbitration will be shared evenly by the two partie s. Thus,these costs were never in controversy, but simply w ere to be

shared by the parties regardless of ultimate respon sibility for

the breach. Furthermore, even if we considered the Rowles reasoning sound, we think that that decision is nonetheless i napposite 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 agr ee 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 p rovisions governing arbitration in the insurance policy at is sue in the instant case, however, are not mandatory and do not specifically impose a duty to pay on the part of State Farm. Ra ther, the policy provides that if State Farm and the insured do not agree on coverage, coverage "shall be decided by arbitrat ion at the request of the insured or us." App. at 33 (emphasis added). Only if arbitration is requested will the parties then b ear the extra cost of paying for the arbitration. Here, State Farm did not plead in its complain t 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 o r will incur attorneys' fees as provided by statute or contract in order for such costs to be considered part of the amount in c ontroversy 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 su it were to continue in federal court, we cannot see how any ar bitration
costs would be incurred. Having concluded that the cost of arbitration should not be considered part of the amount in controversy for ju risdictional purposes, it is clear that the amount in controvers y at issue here is limited to $50,000.

III. For the foregoing reasons, we vacate the decis ion of the district court granting summary judgment in favor o f State Farm and remand this matter to the district court for pu rposes of dismissing the case for lack of jurisdiction.