UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF INDIANA

HAMMOND DIVISION

24/7 REPAIR SERVICES INC., and )

DONALD HUTCHINSON, )

)

Plaintiffs, )

)

v. ) No. 2:12 CV 13

)

ZURICH AMERICAN INSURANCE )

COMPANY, and PROGRESSIVE )

DIRECT INSURANCE COMPANY, )

)

Defendants. )

OPINION and ORDER

On December 9, 2011, plaintiffs filed a complaint against defendants in Lake

County Superior Court alleging breach of contract and breach of the duty of good faith, in

connection with defendants’ alleged failure to pay plaintiffs pursuant to the terms of an

insurance contract. (DE # 1.) Defendants removed the case to this court pursuant to 28

U.S.C. § 1332(a), which grants federal district courts original jurisdiction over civil actions

between citizens of different states where the amount in controversy exceeds $75,000.

Plaintiffs have moved to remand the case back to state court, challenging the propriety of

this court’s jurisdiction. (DE # 18.) Specifically, plaintiffs argue that the amount in

controversy falls far below the $75,000 threshold.

In Oshana v. Coca–Cola, Co., the Seventh Circuit Court of Appeals explained the

standard for meeting the amount in controversy requirement in cases removed to federal

court. 472 F.3d 506 (7th Cir. 2006). “[T]he amount in controversy is the amount required to

satisfy the plaintiff’s demands in full on the day the suit begins, or in the event of removal,
on the day the suit was removed.” Id. at 510. In general, the proponent of jurisdiction has

the burden of showing by a preponderance of the evidence facts that suggest the amount

in-controversy requirement is met. Id. Obviously, that is easier said than done when the

plaintiff does not want to be in federal court and provides little information about the

value of its claims. Id. In such a case, “a [defendant’s] good-faith estimate of the stakes is

acceptable if it is plausible and supported by a preponderance of the evidence.” Id. “[O]nce

the defendant in a removal case has established the requisite amount in controversy, the

plaintiff can defeat jurisdiction only if it appears to a legal certainty that the claim is really

for less than the jurisdictional amount.” Id. at 510–11. Ultimately, the question is whether it

is legally impossible for the plaintiff to recover greater than the jurisdictional amount. LM

Ins. Corp. v. Spaulding Enter. Inc., 533 F.3d 542, 553 (7th Cir. 2008).

Defendants claim that because the insurance policy at issue exposes defendants to a

total of $80,000 in potential liability, plaintiffs’ claim is clearly worth more than $75,000.

The court disagrees. When the validity of an entire insurance policy is at issue, the amount

in controversy is indeed the face value of the policy. Hawkins v. Aid Ass’n for Lutherans, 338

F.3d 801, 805 (7th Cir. 2003). However, in disputes regarding the applicability of an

insurance policy to a particular occurrence, the amount in controversy is the value of the

underlying claim, not the face value of the policy. Motorists Mut. Ins. Co. v. Simpson, 404

F.2d 511, 515 (7th Cir. 1968). Because the parties in this case do not dispute that the

insurance policy is a valid contract, only whether defendants must pay given the

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particular facts of this case, the court cannot rely on the $80,000 face value of the policy.

Instead, the court must estimate the value of the underlying claim.

Plaintiffs estimate that the amount of compensatory damages they can recover in

this case is approximately $47,040.56. (DE # 19-1 at ¶ 6, Aff. of Hutchinson.) Defendants do

not dispute this calculation. It is very difficult, based on the record, to determine whether

this figure is correct or not, but since the parties appear to agree on it, the court will accept

it for purposes of this opinion. Assuming plaintiffs are entitled to $47,040 in compensatory

damages, their claim is still $27,961 short of the amount in controversy threshold.

Defendants claim that if plaintiffs are successful on Count II of their complaint,

which alleges that defendants breached a duty to maintain good faith, then defendants

could be exposed to punitive damages. Punitive damages can satisfy the minimum

amount in controversy required for diversity jurisdiction if they are recoverable under

state law. LM, 333 F.3d at 551. Under Indiana law, punitive damages may be recoverable

based on an insurer’s breach of the duty of good faith and fair dealing, as has been alleged

here, when the defendant acted with malice, fraud, gross negligence, or oppressiveness.

Erie Ins. Co. v. Hickman, 622 N.E.2d 515, 520 (Ind. 1993). In this case, plaintiffs’ complaint

alleges that defendants failed to act in good faith in effectuating the terms of the policy

and in handling a fire loss claim. (Compl. ¶¶ 15-21.) It further alleges that defendants

engaged in a pattern of behavior designed to intentionally and unreasonably delay and

prevent processing and payment of the claim, and that defendants even lied about

pertinent facts and provisions of the insurance contract in order to avoid its obligations

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under the contract. (Id. ¶¶ 10, 18-19.) These allegations go beyond the tort of breach of

good faith and fair dealing, and venture into the territory of malice, fraud, gross

negligence, and oppressiveness. Erie, 622 N.E.2d at 520. Accordingly, punitive damages

could be recovered under Indiana law in this case.

Plaintiffs’ motion suggests that because they did not request punitive damages in

their complaint, punitive damages are unavailable to them and should not be considered

when determining the amount in controversy. However, plaintiffs cites no precedent for

this theory, and the court could locate none on its own. There is no federal rule of law

requiring plaintiffs to specifically request punitive damages in their complaint in order to

recover such damages. On the contrary, numerous courts have held that a plaintiff may

recover punitive damages, even where it fails to specifically request the damages, if

sufficient facts supporting such an award are alleged in the complaint. See, e.g., United

States v. Autumn Ridge Condominium Ass’n, Inc., 265 F.R.D. 323, 326 (N.D. Ind. 2009); Newell

v. Wisconsin Teamsters Joint Council, No. 39, No. 05-C-552, 2007 WL 2874938, at *4 (E.D. Wis.

Sept. 28, 2007).

The real question is whether or not it is “legally impossible” for plaintiffs to recover

$27,961 in punitive damages against defendants. LM, 533 F.3d at 553. In this case, the court

finds that it is not legally impossible. Such an award would not violate the Indiana statute

applicable to punitive damages awards, which caps the amount of punitive damages to

the greater of either $50,000 or three times the awarded amount of compensatory

damages. IND. CODE § 34-51-3-4. Further, the ratio of punitive damages to compensatory

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damages would be approximately 0.6-to-1, even lower than 1-to-1; such a ratio would not

offend the due process sensibilities of the Supreme Court, which has frowned upon ratios

exceeding 4-to-1. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003) (noting

that “few awards exceeding a single-digit ratio [e.g., 9-to-1] between punitive and

compensatory damages, to a significant degree, will satisfy due process,” and that a 4-to-1

ratio “might be close to the line of constitutional impropriety”); see also Anthony v. Sec. Pac.

Fin. Servs., Inc., 75 F.3d 311, 315 (7th Cir. 1996) (rejecting punitive damages award more

than 17 times the amount of actual damages). Finally, a $27,961 punitive damages award

would constitute approximately 37 % of the jurisdictional amount required in this case,

not nearly enough to be considered the “bulk” of the jurisdictional amount, which might

render the award excessive as a matter of law. Anthony, 75 F.3d at 315.

In short, a punitive damages award of $27,961 in this case is not a legal

impossibility. Such a potential award, when combined with plaintiffs’ undisputed

proposed compensatory damages of approximately $47,040, satisfies the jurisdictional

amount in controversy requirement. Accordingly, federal jurisdiction in this case is

appropriate under 28 U.S.C. § 1332(a).

For the foregoing reasons, plaintiffs’ motion to remand is DENIED. (DE # 18.)

SO ORDERED.

Date: February 1, 2013

 s/ James T. Moody 

JUDGE JAMES T. MOODY

UNITED STATES DISTRICT COURT