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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF FLORIDA

TALLAHASSEE DIVISION

DIRECT GENERAL INSURANCE

COMPANY,

Plaintiff,

v. CASE NO.: 4:10cv336-SPM/WCS

CAROLYN A. GAY, EDWARD GAY and

RETONYA WALLACE, as Personal

Representative of the ESTATE OF CURTIS

WALLACE,

Defendants.

___________________________________/

ORDER GRANTING MOTION TO DISMISS

This cause comes before the Court pursuant to Defendants Carolyn Gay’s and

Edward Gay’s motions to dismiss the action for Declaratory Judgment filed by Plaintiff

Direct General Insurance Company (“Direct General”). Defendants Gay seek dismissal

of the claims for lack of Subject Matter Jurisdiction (doc. 11). They also seek dismissal

of specific claims based on the “Criminal Act Exclusion,” or alternatively, partial summary

judgment (doc. 12). Direct General has filed memoranda of law in opposition (docs.

16,17). For the reasons set forth below, the Court grants the Gays’ motion to dismiss for

lack of subject matter jurisdiction and denies the Gays’ motion to dismiss Criminal Act

Exclusion claims or alternative motion for partial summary judgment.

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Background

On March 8, 2010, Edward Gay ( “E. Gay”) was driving and Curtis Wallace

(“Wallace”) was a passenger in the motor vehicle owned by Carolyn Gay (“C. Gay”). The

vehicle was insured under a policy with Direct General issued to C. Gay, under which E.

Gay was not listed as a driver of the vehicle. C. Gay’s auto policy contained a bodily

injury limit of $10,000. E. Gay and Wallace were in an accident in which Wallace was

killed. Direct General alleges that at the time of the accident and Wallace’s death, E.

Gay and Wallace were personally involved in the commission of a crime. Following the

accident, Retonya Wallace, as personal representative of Wallace’s estate, filed a

wrongful death complaint against E. Gay as driver of the vehicle, and C. Gay under the

dangerous instrumentality doctrine.

Direct General filed an action for declaratory relief in this Court pursuant to 28

U.S.C. § 2201, to determine the rights and obligations of Direct General, the Gays, and

Retonya Wallace under the automobile insurance police issued to C. Gay. Direct

General seeks a declaration that no coverage is owed to E. Gay and C. Gay for two

reasons: 1) C. Gay failed to list E. Gay as a driver on the April 3, 2009, application for

insurance and therefore the Policy issued to C. Gay was void for material

misrepresentation; and 2) the Criminal Act Exclusion in the Insurance Policy applies to

prevent coverage for the underlying accident because it occurred during the commission

of a crime.

Alleging a lack of subject matter jurisdiction for failure to meet the $75,000

amount in controversy requirement, E. Gay and C. Gay have filed a motion to dismiss

Direct General’s action (doc. 11). Further alleging the inapplicability of the Criminal Act

Exclusion and its violation of Florida public policy, the Gays also filed a motion to

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dismiss all Criminal Act Exclusion claims and alternative motion for partial summary

judgment on the applicability of the exclusion to C. Gay (doc.12).

Standards of Review:

Subject Matter Jurisdiction

Federal Courts are courts of limited jurisdiction with the power to decide only

certain types of cases prescribed by Constitutional and Congressional grants of

jurisdiction. See Morrison v. Allstate Indem. Co., 228 F.3d 1255, 1260-61 (11th Cir.

2000). If there is no grant of jurisdiction that covers a particular action before a Federal

Court, the Court must dismiss the action for lack of jurisdiction. Id.

In order to establish diversity jurisdiction under 28 U.S.C. § 1332, there must be

complete diversity of citizenship between the plaintiff(s) and defendant(s), and the

amount in controversy must exceed $ 75,000. Courts are reluctant to dismiss a case for

lack of subject matter jurisdiction, “unless it appears to a ‘legal certainty’ that [a]

plaintiff’s claim is actually for less than the jurisdictional amount.” Burns v. Windsor Ins.

Co., 31 F.3d 1092, 1094 (11th Cir. 1994) (quoting St. Paul Mercury Indem. Co v. Red

Cab Co., 303 U.S. 283, 288 (1938)). However, when plaintiff's claim is for a yet

undetermined amount of damages, “the Red Cab Co. ‘legal certainty’ test gives way, and

the party seeking to invoke federal jurisdiction bears the burden of proving by a

preponderance of the evidence that the claim on which it is basing jurisdiction meets the

jurisdictional minimum.” Federated Mut. Ins. Co. v. McKinnon Motors, 329 F.3d 805, 807

(11th Cir.2003).

Summary Judgment

Federal Rule of Civil Procedure Rule 56(c) states that summary judgment should

be granted “if the pleadings, the discovery and disclosure materials on file, and any

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affidavits show that there is no genuine issue as to any material fact and that the movant

is entitled to judgment as a matter of law.” In making this determination, a court should

resolve all issues of material fact in favor of the nonmoving party. Durruthy v. Pastor,

351 F.3d 1080, 1084 (11th Cir. 2003).

The nonmoving party, in turn, bears the burden of producing evidentiary material

demonstrating a genuine issue of fact for trial. Celotex Corp. v. Catrett, 477 U.S. 317,

322-23 (1986). The nonmoving party must show more than the existence of a

“metaphysical doubt” regarding material facts, and a “scintilla” of evidence will not

suffice. Moss v. Gradia, No. 3:08cv351/MCR/AK, 2010 WL 337603, at *1 (N.D. Fla. Jan.

21, 2010) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586

(1986)). “Rule 56(e) . . . requires the nonmoving party to go beyond the pleadings and by

her own affidavits, or by the ‘depositions, answers to interrogatories, and admissions on

file,’ designate ‘specific facts’” that demonstrate a need for trial. Owen v. Wille, 117 F.3d

1235,1236 (11th Cir. 1997) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)).

Discussion

1.Subject Matter Jurisdiction

Direct General seeks a judgment on whether or not it is required to provide

coverage to E. and C. Gay. Direct General asserts that coverage should be denied on

the grounds that the “criminal act exclusion” of the Policy bars coverage for the accident,

and that C. Gay’s failure to list E. Gay as an operator of the vehicle when applying for

insurance is a misrepresentation that nullifies the policy. This court must consider

whether subject matter jurisdiction exists in light of these claims and the Defendants’

additional contention that the Court does not have supplemental jurisdiction over the

Wallace Estate claim.

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a.Criminal Act Exclusion

In their motion to dismiss for lack of subject matter jurisdiction, C. and E. Gay

allege that even if the criminal act exclusion is found to apply in this case, it is not

subject to any determination of a duty to defend for the purposes of amount in

controversy analysis. In order to support this claim, the Gays argue that courts look to

the lesser of the face value of the policy or the amount of the actual underlying claim

when establishing the amount in controversy for the purposes of subject matter

jurisdiction.

However, the cases relied on by the Defendants strongly establish that policy

limits alone are insufficient to determine the amount in controversy for insurance

coverage purposes. See, e.g. Martins v. Empire Indem. Ins. Co., 2008 WL 78762 (S.D.

Fla. 2008) (holding that the policy limits of an insurance policy are not alone sufficient

evidence to establish the amount in controversy); Emp’rs Mut. Cas. Co. v. Parker

Towing Co., Inc., 2007 WL 4577705, *2 (S.D. Ala. 2007) (holding that the amount in

controversy in insurance policy applicability to particular occurrences is measured by the

value of the claim and not the value of the policy). The relevant portions used by the

Gays are merely creative manipulations of the various Courts’ attempts to clarify amount

in controversy valuations when insurance claims vastly exceed policy limits and viceversa.

In actions by insurance companies seeking declarations on whether or not there

is a duty to defend or indemnify an insured against lawsuit, precedent clearly supports a

court examination of not only the limits of the insurance policy, but also the amount of

damages sought in suit and the pecuniary value of the obligation to defend. See, e.g.,

Macy’s Florida Stores, LLC. V. Illinois Nat. Ins. Co., 2008 WL 2741132 (S.D. Fla. 2008);

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Clarendon Am. Ins. Co. v. Miami River Club. Inc., 417 F.Supp 2d 1309 (S.D. Fla. 2006).

Dairyland v. Chadwick, 2008 WL 912428 (M.D. Fla. 2008). This precedent clearly allows

for the consideration of defense obligations in determining the amount in controversy for

insurance coverage purposes.

The Gays further assert that even given the consolidation of indemnity and

defense costs, Direct General does not have a good faith argument that it can avoid the

expenses through litigation in order to claim them as part of the amount in controversy.

Essentially that even if Direct General can prove a criminal act and in so doing establish

no duty to indemnify, Direct General will still have a duty to defend under Florida Law,

and thus the unavoidable defense expenses cannot be counted in consideration of the

amount in controversy.

It is well settled that an insurer’s duty to defend its insured against a legal action

arises when the complaint alleges facts that fairly and potentially bring the suit within

policy coverage. State Farm Fire & Cas. Co v. CTC Dev. Corp., 720 So.2d 1072, 1077

n.3 (Fla. 1998); see also Nat’l Union Fire Ins. Co. v. Lenox Liquors, Inc., 358 So.2d 533,

535 (Fla. 1977).

The Direct General Auto Policy specifically states that Direct General has no duty

to defend any suit or settle any claim for bodily injury or property damage not covered

under the policy. The criminal acts exception in the policy removes Direct General from

all liability and resulting need for defense incurred by while in the commission of a

criminal act. Direct General accurately points out that although the complaint in the

underlying lawsuit does not identify E. Gay’s conduct as criminal, the facts implicate

criminal behavior and the criminal law exclusion of the policy. Considering this specific

policy exclusion, and the possibility that the action of E. Gay falls squarely within that

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very exclusion, a declaration by this Court as to the applicability of the exclusion would

directly affect the pecuniary value, if any, of Direct General’s obligation to defend. As

such, this court cannot agree with the Gays’ contention that declaratory judgment would

not affect Direct General’s liability obligations, and thus the potential expenses

associated with those obligations are appropriately considered in the amount in

controversy at issue.

In spite of the analysis to this point, and support for the inclusion of Direct

General’s defense obligation expenses in the amount in controversy calculations,

established precedent does not allow for conclusory, self-serving assertions of attorney’s

fees in order to meet the amount in controversy threshold. “Arguably, when the amount

in controversy depends on a claim for attorney fees, that claim should receive

heightened scrutiny.” Cohen v. Office Depot, 204 F.3d 1069,1080 n.10 (11th Cir.2000).

“Merely relying on general statements that any litigation of this nature would result in that

level of fees is insufficient to meet the burden of proof.” Hall v. Am. Sec. Ins. Co., 2009

WL 2215131, *2 (S.D. Fla. 2009).

Direct General has not met its burden to show that a reasonable amount of

attorney’s fees would reach Direct General’s own assessment of over $65,000, thus

satisfying the $75,000 amount in controversy requirement. As with the insurance

company in Hall, Direct General has not filed any affidavits or provided any other proof,

aside from its own assertion, that the fees would exceed $65,000. Thus, as was held by

the Court in Hall, without more evidence of how this fee amount was determined or the

likelihood of an accumulation of such an amount, this court is unwilling to simply accept

this assertion for the purposes of establishing subject matter jurisdiction.

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b. Misrepresentation

To support their assertion that insurance misrepresentation claims are properly

based on the value of the policy, Defendants Gay cite to a California district court

decision which states that, “[w]here the substance of the declaratory judgment seeks to

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

controversy.” Infinity Ins. Co v. Guerrero, 2007 WL 2288324, *5 (E.D. Cal. 2007).

However, the facts of the instant case are easily differentiated from those of Guerrero.

In Guerrero, an insurer sought a declaratory judgment in Federal Court that a

policy was void for misrepresentation when the face value of the policy was below the

amount in controversy threshold. However, the present action, in addition to the

misrepresentation and general policy validity issue, Direct General seeks judgment on

the applicability of the policy to a particular accident in the context of the criminal acts

exclusion. Guerrero itself states that in declaratory actions involving the applicability of

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

measured by the value of the underlying claim, rather than the face amount of the policy.

Id. at *3 (citing Hartford Ins. Group v. Lou-Con, Inc., 293 F.3d 908, 911 (5th Cir.2002)).

Direct General recognizes that were this case merely a misrepresentation issue akin to

that of Guerrero, the $10,000 policy limit would be insufficient to meet federal amount in

controversy requirement. However, because it is both a misrepresentation and a specific

applicability issue, this court would be wrong to limit the amount in controversy

calculation only to the $10,000 face value of the insurance policy.

As mentioned in the Criminal Acts exemption analysis, the fact that this court

may consider additional pecuniary obligations over the $10,000 policy value in

calculating the amount in controversy does not eliminate the responsibility of Direct

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General to reasonably account for over $65,000 in attorney’s fees on a $10,000 disputed

claim. Without such a clarification and in light of established precedent, this court is

unwilling to accept what on the surface appears to be a self-serving fee calculation for

the purposes of establishing subject matter jurisdiction.

c.Inclusion of the Wallace Estate as a Defendant

Because Direct General has failed present any reasonable justification for the fee

valuations necessary to meet the minimum amount in controversy, this Court does not

have subject matter jurisdiction over the present action regardless of any exercise of

supplemental jurisdiction or aggregation of the various amounts in controversy.

Therefore, any determination of the appropriate exercise of supplemental jurisdiction or

claim aggregation in regards to the Wallace Estate is unnecessary for the purposes of

the current analysis.

2. “Criminal Acts Exclusion” / Partial Summary Judgment

Defendants Gay also seek dismissal of the of Criminal Acts Exclusion claims on the

grounds that the plain language of the exclusion does not apply to the loss at issue, and

that even if it did it would be unenforceable as contrary to Florida public policy.

Alternatively they argue that if the exclusion is found to apply, that it would not apply to

C. Gay.

a.The Language of the Exclusion Applies

The plain language of the exclusion indicates that the policy will not cover losses

which arise out of criminal acts where those covered losses exceed a state’s financial

responsibility laws, but will cover liability arising out of criminal acts for that portion of the

damages within a state required financial responsibility law.

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The Gays claim that Florida law requires a vehicle owner to be able to respond to

damages for bodily injury in at least the amount of $10,000. However, the State of

Florida only compels this bodily injury liability insurance for drivers who have

demonstrated themselves to be high risk operators. The applicable law in the absence of

high risk is the Florida No Fault Law, requiring drivers to carry a minimum amount of

personal injury protection (“PIP”) for the benefit of the owner and other designees. See

Allstate Indem. Co. v. Wise, 818 So. 2d 524, 528 (Fla. 2d DCA 2001). Therefore,

considering that neither C. Gay nor E. Gay were classified as high risk operators, the

$10,000 in bodily injury coverage by C. Gay under the Direct General policy was in

excess of minimum financial PIP requirements of Florida Law. Because the policy

provided coverage above the minimum amount of financial responsibility required, the

Gay’s contention that the criminal act exclusion contained within the policy does not

apply to this loss is incorrect and insufficient to grant a motion to dismiss.

b.The Exclusion is Not Contrary to Public Policy

The Criminal Acts Exclusion is not contrary to public policy because it does not fall

within the sphere of precedent condemning exclusions which destroy the effectiveness

of the policy to any substantial segment of the public. See Wise, 818 So. 2d at 526-527.

The exclusion at issue, unlike the impermissible exclusion in Wise, does not concern

liability for high risk Florida drivers, and does not completely eliminate coverage under

the exclusion. As previously stated, neither C. Gay nor E. Gay were high risk drivers who

required bodily injury coverage. Additionally, the Direct General Policy exclusion only

eliminates coverage in excess of the minimum required amounts under Florida Law

rather than fully denying coverage in any amount, and in so doing destroying the

effectiveness of the policy to a substantial portion of the public. As such, the Criminal

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Act Exclusion does not contravene Florida’s public policy and is not subject to dismissal

on such grounds.

c.The Exclusion Applies to C. Gay

The Gays focus on the term “the insured” in the context of the Criminal Act Exclusion

as proof of an ambiguity as to whether the exclusion should apply to the insured who

commits the crime or all insureds. However, considering that all of the relevant terms

contained within the Criminal Act Exclusion are defined within the Auto Policy to

specifically eliminate ambiguity, the Gay’s attempt to inject it into the language fails. The

definition of “Insured Person” as used in the Exclusion includes a policy holder or

relative. Thus, under the very definitions in the policy, the exclusion denies coverage to

C. Gay as “the insured person,” whether the car was used by C. Gay herself or her son

E. Gay in the commission of a crime. Adherence to the terms, definitions and

constructions in the policy drafted by Direct General and entered into with C. Gay,

clearly bring C. Gay within the application of the Criminal Act Coverage Exclusion in

spite of the fact that it was her son E. Gay who incurred liability while using the vehicle in

the alleged commission of a crime.

Conclusion

The Criminal Act Exclusion applies to the claim at issue, is not contrary to Florida

public policy, and covers both C. Gay and E. Gay under the language and construction

of the Policy. Therefore, dismissal of the Criminal Act Exclusion claims or partial

summary judgment on the issue of the applicability of the exclusion to C. Gay is

inappropriate. However, although Direct General is correct that the potential costs of

litigation are appropriately considered in determining whether the claim meets the

threshold amount in controversy requirement, Direct General has failed to reasonably

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explain, justify, or support its largely conclusory and extremely convenient valuation of

attorney’s fees. Because Direct General has failed to meet the burden of proof in

regards to reasonable attorney’s fees, in light of the small underlying policy limits and

the mere speculation as to the ultimate claim amounts, the claim at issue fails to reach

the $75,000 amount in controversy requirement. This Court is therefore without subject

matter jurisdiction to adjudicate the issue. Accordingly, it is hereby

ORDERED AND ADJUDGED

1. Defendants C. Gay’s and E. Gay’s Motion to Dismiss for lack of Subject

Matter Jurisdiction (doc. 11) is Granted.

2. Defendants C. Gay’s and E. Gay’s Motion to Dismiss Claims Based on the

“Criminal Act Exclusion” or Alternative Motion for Partial Summary Judgment

(doc. 12) is Denied.

DONE AND ORDERED this fifteenth day of November, 2010.

s/ Stephan P. Mickle

Stephan P. Mickle

Chief United States District Judge

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