Court Opinion

ID: 9404311
Source: CourtListenerOpinion
Date Created: 2023-06-22 18:00:40.856159+00
Date Added: 2024-06-11T17:20:13.053663
License: Public Domain

Case: 22-20405      Document: 00516795974         Page: 1    Date Filed: 06/22/2023

            United States Court of Appeals
                 for the Fifth Circuit
                                                                       United States Court of Appeals
                                                                                Fifth Circuit

                                ____________                                  FILED
                                                                          June 22, 2023
                                 No. 22-20405                            Lyle W. Cayce
                                ____________                                  Clerk

   Allstate Fire and Casualty Insurance Company,

                                                             Plaintiff—Appellee,

                                       versus

   Allison Love; Tammy Love,

                                           Defendants—Appellants.
                   ______________________________

                   Appeal from the United States District Court
                       for the Southern District of Texas
                             USDC No. 4:20-CV-22
                   ______________________________

   Before Higginbotham, Graves, and Douglas, Circuit Judges.
   Dana M. Douglas, Circuit Judge:
          The issue on appeal is whether, in an action seeking declaratory relief,
   the amount of an insurance policy or the underlying claim determines the
   amount in controversy to establish diversity jurisdiction pursuant to 28
   U.S.C. § 1332(a). We hold that where there is a legal possibility that an
   insurance company may be liable for an amount in excess of its policy limit,
   the underlying claim determines the amount in controversy. Therefore, we
   AFFIRM the district court’s determination that it had subject matter
   jurisdiction.
Case: 22-20405      Document: 00516795974          Page: 2    Date Filed: 06/22/2023

                                    No. 22-20405

                                I. Background
          This dispute began in 2016 when Allison and Tammy Love sued
   Jonathan Perez in state court for damages stemming from an automobile
   accident. Perez fled the scene of the accident, was criminally charged for
   failing to provide his name, address, and insurance information, and pleaded
   nolo contendere to a criminal misdemeanor. Perez was insured by Allstate Fire
   & Casualty Insurance Company (“Allstate” herein). Allstate paid the
   Loves’ claims for property damages, but the Loves rejected Allstate’s offers
   to resolve their physical injury claims, demanding the policy limit of $50,000.
          As the claims progressed, Perez failed to cooperate with Allstate in
   pursuing the litigation. His failure to respond to written discovery and to
   appear at his deposition resulted in the court barring Allstate’s counsel from
   representing Perez and striking all pleadings that counsel had filed on Perez’s
   behalf. Ultimately, the trial court entered a final default judgment against
   Perez awarding Allison Love $100,000 in actual damages and $50,000 in
   exemplary damages and awarding Tammy Love $13,822 in actual damages
   for the past medical expenses of Allison Love while a minor.
          The state court default judgment prompted Allstate to file suit in
   federal district court requesting a declaration that it had no duty to indemnify
   the Loves for the damages awarded in the underlying state lawsuit. Invoking
   diversity jurisdiction, Allstate’s complaint claims:
          The default Final Judgment entered in the pending state court
          lawsuit against Mr. Perez awards Allison Love $100,000 in
          actual damages and an additional $50,000 for exemplary
          damages and further awards Tammy Love the sum of $13,822.
          Thus, the total award in the default Final Judgment is
          $163,822. Allison and Tammy Love, through counsel, have
          asserted that Allstate must pay this entire amount based on two
          purported prior Stowers demands and the absence of prejudice
          caused by Mr. Perez’s admitted failure to cooperate in his

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                                         No. 22-20405

           defense. Moreover, the aggregate liability limit under Mr.
           Perez’s Allstate personal auto policy is $100,000. Courts
           consider such damages and policy limits when determining
           whether the “amount in controversy” diversity requirement is
           satisfied.
   In Texas, the Stowers doctrine may subject an insurer to liability for the entire
   amount of a judgment, including the part exceeding the insured’s policy
   limits. “The common law imposes a duty on liability insurers to settle third-
   party claims against their insureds when reasonably prudent to do so.”
   Phillips v. Bramlett, 288 S.W.3d 876, 879 (Tex. 2009) (citing G.A. Stowers
   Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. 1929)).
           Here, no party disputes that Allstate and the Loves are completely
   diverse, as Allstate is a citizen of Illinois, and the Loves are citizens of Texas.
   Instead, the sole issue on appeal is whether, in this action seeking declaratory
   relief, the amount of the policy limit or the value of the underlying claim
   should be assessed in determining whether the amount in controversy
   exceeds $75,000. 1
           The district court determined that it had subject matter jurisdiction
   over the lawsuit, denying the Loves’ motion to dismiss pursuant to Federal
   Rule of Civil Procedure 12(b)(1). It subsequently granted summary judgment
   in favor of Allstate, finding that Perez’s failure to cooperate in the underlying
   suit prejudiced Allstate and barred any legal obligation to pay the Loves the
   judgment amount of $163,822.

           _____________________
           1
             The court does not consider the $50,000 per person limit to equate to a policy
   limit of $100,000 under the instant facts, thus satisfying the amount in controversy, where
   Allison Love was the only person to sustain injuries. Tammy Love was awarded past
   medical expenses for Allison Love while she was a minor. Thus, the aggregate policy limit,
   representing two individuals, is inapplicable for establishing the amount in controversy.

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                        II. Parties’ Contentions
          The Loves claim that the district court erroneously held that the
   amount of the state court judgment, rather than the applicable policy limits,
   determined the amount in controversy. The Loves argue that any potential
   Stowers claims were unasserted by them and unassigned by Perez, who was
   not made a party in the initial complaint, and cannot be aggregated with the
   applicable policy limits to meet the minimum amount in controversy for
   jurisdiction. Finally, the Loves urge that any subsequent amendment to
   Allstate’s complaint adding Perez as a defendant did not create jurisdiction
   and was a nullity, where the record does not indicate Perez was validly
   served.
          Allstate argues that the amount in controversy far exceeds $75,000
   because it was exposed to liability for the $163,822 state court judgment
   entered against its insured due to the Loves’ two Stowers demand letters.
   Allstate claims that policy limits do not control the amount in controversy in
   insurance cases such as this one. Alternatively, Allstate argues that its
   amendment to include Perez as a defendant, which was properly served,
   squarely put the potential Stowers claim before the district court in
   satisfaction of the amount in controversy.
                                III. Discussion
          We review the district court’s legal determination that it possessed
   subject matter jurisdiction de novo. Passmore v. Baylor Health Care Sys., 823
   F.3d 292, 295-96 (5th Cir. 2016). The court need not reach all the arguments
   raised by the Loves because it is apparent from the face of the complaint that
   the amount in controversy is satisfied here.
          Title 28 U.S.C. § 1332(a) confers federal diversity jurisdiction on civil
   actions where the matter in controversy exceeds the sum or value of $75,000.
   As the party invoking federal diversity jurisdiction, Allstate bears the burden

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                                      No. 22-20405

   of establishing the amount in controversy by a preponderance of the
   evidence. St. Paul Reins. Co., Ltd. v. Greenberg, 134 F.3d 1250, 1253 (5th Cir.
   1998). In determining whether Allstate has met its burden, we must first
   examine the complaint to determine whether it is facially apparent that the
   claims exceed the jurisdictional amount. See id. If the amount in controversy
   is not apparent, we may rely on “summary judgment” type evidence. Id.
          Allstate’s complaint seeks a judicial declaration that it has no duty to
   indemnify the Loves for the damages awarded to them in the default final
   judgment entered against Perez by the state court. In actions for declaratory
   judgment, “it is well established that the amount in controversy is measured
   by the value of the object of the litigation.” Hunt v. Wash. State Apple Adver.
   Comm’n, 432 U.S. 333, 347 (1977); Frye v. Anadarko Petroleum Corp., 953 F.3d
   285, 293 (5th Cir. 2019). In other words, the amount in controversy in such
   actions “is the value of the right to be protected or the extent of the injury to
   be prevented.” St. Paul Reins. Co., 134 F.3d at 1252-53 (citation omitted).
          The parties assert that Hartford Ins. Grp. v. Lou-Con, Inc., 293 F.3d
   908 (5th Cir. 2002), is the controlling Fifth Circuit case on this matter. We
   agree. In Hartford, this circuit squarely addressed the question of “whether,
   in a declaratory judgment action concerning the applicability of an insurance
   policy to a particular occurrence, the amount in controversy is to be
   measured by the policy limits or by the value of the underlying claim.” Id. at
   910.
          Hartford is cited by district courts throughout our circuit for the
   proposition that “[w]hen a plaintiff seeks to recover payments under an
   insurance policy, the amount in controversy, for purposes of establishing
   diversity jurisdiction, is governed by the lesser of the value of the claim under
   the policy or the value of the policy limit.” See, e.g., Henderson v. Allstate Fire
   & Cas. Ins. Co., 154 F. Supp. 3d 428, 431 (E.D. La. 2015); Mabry v. Gov. Emp.

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   Ins. Co., 268 F. Supp. 3d 885, 890 (N.D. Miss. 2017); Martinez v. Allstate Fire
   & Cas. Ins. Co., No. 5:20-cv-74, 2020 WL 10063135, at *3 (W.D. Tex. June
   11, 2020); Wahlenmaier v. Allstate Indemnity Co., No. 3:20-cv-0704, 2020 WL
   2841381, at *1 (N.D. Tex. May 29, 2020). The Loves arguments are drawn
   from the proliferation of this holding that in a declaratory judgment action,
   the policy limit establishes the amount in controversy if the underlying state
   court judgment exceeds that amount. But this proposition is premised on an
   oversimplification of our caselaw perpetuated by numerous district courts
   throughout our circuit. Thus, we seek to clarify herein.
          Hartford involved an insurance company filing suit for declaratory
   judgment “that it ha[d] no duty to defend or indemnify Lou-Con or Murphy
   Oil in the asbestos litigation.” Hartford, 293 F.3d at 909. The district court
   dismissed the case for lack of subject matter jurisdiction, finding an
   insufficient amount in controversy. Id. at 909-10. Hartford had issued Lou-
   Con two $1 million general liability insurance policies and two $5 million
   umbrella liability insurance policies. Id. at 909. But the amount that Lou-
   Con sought from Hartford represented only about $261.42. Id. at 910. The
   district court found that the amount of Lou-Con’s claim against Hartford —
   $261.42 — established the amount in controversy and did not reach the
   necessary $75,000. Id. We affirmed. Id. at 912.
          The panel in Hartford provided a nuanced discussion on when the
   policy limit versus the value of the underlying claim controls a matter:
          We recognize that under certain circumstances the policy
          limits will establish the amount in controversy. Specifically, the
          policy limits are controlling “in a declaratory action … as to the
          validity of the entire contract between the parties.” 14B Charles
          Alan Wright, Arthur R. Miller & Edward H. Cooper,
          Federal Practice and Procedure: Jurisdiction 3D §
          3710 (3d ed. 1998); see also Waller v. Prof’l Ins. Corp., 296 F.2d
          545, 547 (5th Cir. 1961) (holding that when the validity of a

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                                        No. 22-20405

             contract or a right to property is called into question in its
             entirety, the value of the property controls the amount in
             controversy). However, in declaratory judgment cases that
             involve the applicability of an insurance policy to a particular
             occurrence, “the jurisdictional amount in controversy is
             measured by the value of the underlying claim – not the face
             amount of the policy.” 14B Charles Alan Wright, Arthur R.
             Miller & Edward H. Cooper, Federal Practice and
             Procedure: Jurisdiction 3D § 3710 (3d ed. 1998).
   Id. at 911 (emphasis added). It concluded that Hartford’s case fell into the
   latter category — “Hartford seeks a judicial declaration that its policy does
   not extend to Lou-Con employees who sustained asbestos-related injuries
   while working for Murphy Oil.” Id. And importantly, “[i]t is not seeking to
   void the entire insurance contract.” Id. (emphasis added). Accordingly, the
   jurisdictional amount in controversy was properly measured by the value of
   the underlying claim. Id.; see also C.E. Carnes & Co. v. Employers’ Liab. Assur.
   Corp., Ltd. of London, Eng., 101 F.2d 739, 741 (5th Cir. 1939) (“The amount
   in controversy is the value of that which is sought to have declared free from
   doubt.”). The court held that “in declaratory judgment cases that involve
   the applicability of an insurance policy to a particular occurrence, the
   jurisdictional amount in controversy is measured by the value of the
   underlying claim — not the face amount of the policy.” Hartford, 293 F.3d
   at 911.
             The court in Hartford did not hold that in determining the amount in
   controversy, the jurisdictional amount is governed by the lesser of the value
   of the claim under the policy or the value of the policy limit. In fact, it
   expressly rejected this rule, pointing to C.E. Carnes & Co. v. Employers’ Liab.
   Assur. Corp., Ltd. Of London, Eng., 101 F.2d 739 (5th Cir. 1939):
             Carnes has also been cited for the proposition that when a claim
             exceeds the policy limits, the policy limits, rather than the larger

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           value of the claim, determine the amount in controversy. In
           other words, if an insurance policy limits the insurer’s liability
           to a sum below the jurisdictional threshold, the fact that a
           claimant wants more money does not increase the amount in
           controversy.
   Id. at 911. The court stated, “[we] do not read [Carnes] … to announce a rule
   that the policy limits determine the amount in controversy.” Id. (emphasis
   added). 2
           Here, the circumstances are like those in Hartford. Allstate does not
   seek to void the entire insurance contract — it is seeking a judicial declaration
   that its policy does not extend to the damages awarded to the Loves by the
   state court. This seemingly ends our inquiry. But in Hartford the court
   indicated that it was not faced with the “possibility that the claims will likely
   exceed the policy limits.” 293 F.3d at 911.                 Unlike Hartford, we are
   confronted with a case where the amount sought is in excess of the policy
   limit. Thus, the determination of the applicable amount in controversy
   continues beyond Hartford’s holding.
           Hartford and the Loves cite Payne v. State Farm Mut. Auto. Ins. Co.,
   266 F.2d 63 (5th Cir. 1959), for the proposition that “the fact that a claimant
   wants more money does not increase the amount in controversy” beyond the
   policy limit. Hartford, 293 F.3d at 911. In Payne, this court stated, “[i]f there
   is one situation where the amount of a claim can be determined with legal
   certainty, it is in a case when a claim is asserted on an insurance policy
   limiting liability.” Payne, 266 F.2d at 64. The Payne court focused on the
   legal impossibility of the plaintiff recovering more than that which was

           _____________________
           2
             Instead, the panel in Hartford stated, that Carnes “simply held that numerous
   individual claims against an insurer may be aggregated to reach the policy limit.” Hartford,
   293 F.3d at 911.

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   available under the policy. See id. But in some circumstances, a recovery in
   excess of the policy limit may be available. This case represents one of those
   circumstances.
          Here, it is a legal possibility that Allstate may be liable for more than
   the policy limit. As noted, the Stowers doctrine may subject an insurer to
   liability for the entire amount of a judgment, including the part exceeding the
   insured’s policy limits. For liability to arise, “there must be coverage for the
   third-party’s claim, a settlement demand within policy limits, and reasonable
   terms ‘such that an ordinarily prudent insurer would accept it, considering
   the likelihood and degree of the insured’s potential exposure to an excess
   judgment.” Phillips, 288 S.W.3d at 879 (quoting Am. Physicians Ins. Exch. v.
   Garcia, 876 S.W.2d 842, 849 (Tex. 1994)). “When these conditions coincide
   and the insurer’s negligent failure to settle results in an excess judgment
   against the insured, the insurer is liable under the Stowers doctrine for the
   entire amount of the judgment, including the part exceeding the insured’s policy
   limits.” Id. (citing G.A. Stowers Furniture Co., 15 S.W.2d at 548) (emphasis
   added).
          Here, Allstate pointed to the Loves’ Stowers demands in the complaint
   invoking diversity jurisdiction. It also presented evidence that it was in
   danger of potential liability for the full amount of the state court judgment. It
   thus demonstrated to the district court by a preponderance of the evidence
   that it was legally possible for it to be held liable for more than the policy limit
   of $50,000 per person and become liable to the Loves for the full amount of
   the state court judgment. Accordingly, Allstate adequately alleged diversity
   jurisdiction, and the district court had subject matter jurisdiction over the
   dispute.
          The Loves argue that a Stowers claim for the amount of a judgment in
   excess of policy limits belongs solely to the insured and that an injured party

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   has no standing to assert an unassigned Stowers claim directly against an
   insurer. But this is not unequivocally true. Although it is true that the
   insured generally owns a Stowers claim, a third-party beneficiary may pursue
   such a claim by turnover. 3 See Goggans v. Ford, No. 05-15-00052, 2016 WL
   2765033, at *2-3 (Tex. App. — Dallas 2016, pet. denied); D & M Marine, 409
   S.W.3d at 858 (turnover did not violate public policy where there was no
   evidence insured did not want to be indemnified). Because this presents a
   legal possibility, it does not “appear to a legal certainty that the claim is really
   for less than the jurisdictional amount.” St. Paul Reins. Co., 134 F.3d at 1253
   (quotation omitted).
           Based on this analysis, the proposition that the amount in controversy
   is governed by the lesser of the value of the claim under the policy or the value
   of the policy limit is not dispositive. Instead, we hold that where the claim

           _____________________
           3
              Notably, “an insured’s cause of action against its insurer for failure to settle is not
   subject to a turnover order when the insured is satisfied with its insurer’s representation.”
   D & M Marine, Inc. v. Turner, 409 S.W.3d 853, 857 (Tex. App.—Fort Worth 2013, no pet.)
   (citing Charles v. Tamez, 878 S.W.2d 201, 208 (Tex. App. — Corpus Christi-Edinburg
   1994, writ denied)); see also Nationwide Mut. Ins. Co. v. Chaney, No. 3:00-cv-0628, 2002
   WL 31178068, at *4 n. 5 (N.D. Tex. Sept. 30, 2002) (noting turnover to judgment creditor
   of failure-to-settle claim against insurer improper when insured — the judgment debtor —
   believed he was better off without settlement), aff’d sub nom., Nationwide Mut. Ins. Co. v.
   Haffley, 78 F. App’x 348 (5th Cir. 2003) (unpublished) (per curiam). There is no evidence
   to suggest that Perez, the insured, thought he was better off without settlement such that a
   turnover would be inappropriate here.
            The Loves argue vigorously that they have not asserted any Stowers demand. But
   the settlement demands they sent Allstate undermine these arguments. The record
   suggests that it is likely that the Loves would seek a turnover based on their letters to
   Allstate, specifically invoking the Stowers doctrine and noting “[o]ther liabilities and
   exposures may exist on account of the insurance company’s refusal to timely investigate,
   negotiate, and settle this case.” Moreover, Perez has not released any potential Stowers
   claim. See Haffley, 78 F. App’x at 350 (affirming district court judgment that the Stowers
   claim was not subject to turnover because the insured never attempted to assert it and
   “[i]ndeed, [the insured] released any potential Stowers claim”).

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   under the policy exceeds the value of the policy limit, courts considering
   declaratory judgments should ask whether there is a legal possibility that the
   insurer could be subject to liability in excess of the policy limit. 4 The party
   seeking diversity jurisdiction should establish this possibility by a
   preponderance of the evidence. See id. at 1252.
           AFFIRMED.

           _____________________
           4
              This holding is supported by our prior precedents. In De Aguilar v. Boeing Co.,
   we held that the party seeking to avoid federal jurisdiction is required to prove that “it is
   certain that he will not be able to recover more than the damages for which he has prayed
   in the state court complaint.” 47 F.3d 1404, 1411 (5th Cir. 1995), superseded by amendment
   on other grounds, Tex. R. Civ. P. 47 (emphasis added). This is so because the amount in
   controversy is “not proof of the amount the plaintiff will recover” but “an estimate of the
   amount that will be put at issue in the course of the litigation.” Durbois v. Deutsche Bank
   Nat’l Tr. Co. as Tr. of Holders of AAMES Mortg. Inv. Tr. 20054 Mortg. Backed Notes, 37 F.4th
   1053, 1057 (5th Cir. 2022). Thus, the party seeking federal jurisdiction need only
   demonstrate a “probability that the matter in controversy exceeds the jurisdictional
   amount.” De Aguilar, 47 F.3d at 1411.

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