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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

Federal Courts have Sua Sponte Authority to Examine Subject Matter Jurisdiction

Posted in Case Summaries

Servedio v. State Farm Ins. Co., 2011 WL 4373923 (E.D.N.Y. Sept. 19, 2011).

In this case, while deciding the defendant’s motion to dismiss complaint, a District Court in New York first determined if it had CAFA jurisdiction under the principle that the federal courts have an independent obligation to consider the presence or absence of subject matter jurisdiction sua sponte

The plaintiff, Dominick Servedio, brought a nationwide class action claiming that the means by which his automobile insurer, State Farm Insurance Company, offers additional Personal Injury Protection (“PIP”) coverage constituted a deceptive trade practice and false advertising in violation of sections 349 and 350 of the New York General Business Law.

Servedio maintained State Farm insurance policies on three different automobiles. As required by New York law, each policy provided PIP (also known as “No Fault”) coverage, under which State Farm promised to reimburse the “basic economic loss sustained by an eligible injured person on account of personal injuries caused by an accident arising out of the use or operation of a motor vehicle.” “Basic economic loss” was defined as (1) medical expenses, (2) 80% of lost wages, up to $2,000 per month for up to three years, and (3) other “reasonable and necessary” expenses of up to $25 per day for up to one year; the total benefit payable was $50,000. In addition to the named insured and his or her relatives, “eligible injured person” was defined to include any person injured by the insured automobile in New York State and any New York State resident injured by the insured automobile outside the state.

Each policy also provided an optional PIP benefit under which State Farm promised to pay “additional first-party benefits to reimburse for extended economic loss sustained by an eligible injured person.” Under this provision, the definition of “eligible injured person” was expanded to include any passenger (regardless of residence or accident location) in any vehicle operated by the insured or his or her relatives. “Extended economic loss” was defined as the difference between basic economic loss under the mandatory PIP provision and basic economic loss as “recomputed in accordance with the time and dollar limits set out in the schedule.”  For the level of coverage selected by Servedio (the “Q1” level), the time and dollar limits in question were up to $2,000 per month for up to three years for lost wages, up to $25 per day for up to one year for other expenses, and up to $50,000 in total payments. In other words, the optional PIP coverage was subject to the same time and dollar limits as mandatory PIP coverage. Servedio paid an additional premium for the optional coverage: $1.34 on the first policy, $0.90 on the second and $1.04 on the third.

On November 8, 2008, Servedio was involved in an automobile accident, as a result of which he made a claim for PIP benefits. After his $50,000 in mandatory PIP benefits were exhausted, State Farm refused to make any additional payments under the optional PIP provision. Accordingly, Servedio filed this lawsuit in the District Court by invoking the jurisdiction under CAFA, 28 U.S.C. § 1332(d). Servedio sought to represent a nationwide class of all State Farm insureds who purchased similar coverage.

In response to the complaint, State Farm filed a motion to dismiss complaint contending that Servedio cannot state a claim under sections 349 and 350 because the policy language for its additional PIP coverage is mandated by the New York Department of Insurance and, therefore, uniform throughout the industry. State Farm further claimed that if the “Q1” additional PIP option is purchased, the difference between $50,000.00 and $50,000.00 is $0, so no higher first party limits are available — though coverage is still enhanced through the broader definition of “eligible insured person. 

While determining the motion to dismiss complaint, the Court first took-up the jurisdictional issue. The Court maintained that the federal courts have an independent obligation to consider the presence or absence of subject matter jurisdiction sua sponte. The Court noted that CAFA, 28 U.S.C. § 1332(d), gives district courts jurisdiction over state-law class actions where more than $5 million is in controversy, even if there is only minimal diversity between parties. Here, as the party invoking federal jurisdiction, Servedio had the burden of showing a “reasonable probability that the claim was in excess of the statutory jurisdictional amount.”

At oral argument, the Court questioned the parties whether the proposed class was large enough to create the requisite “reasonable probability” that small individual claims for premium refunds (less than $4.00 in Servedio’s case) would, in the aggregate, reach the $5 million threshold.

In response to the Court’s query, State Farm commendably acknowledged that it had collected $4,146,882.10 in premiums for Q1 coverage during the six-year limitations period applicable to Servedio’s fraud claim. Given that his statutory claims contemplated treble damages and attorney’s fees under N.Y. Ins. L. § 349(h), and that he sought, in addition, punitive damages, the Court was satisfied that Servedio had established to a “reasonable probability” that his proposed class action sought monetary relief of more than $5 million.

Therefore, the Court concluded that it had jurisdiction over the action and then decided State Farm’s motion to dismiss.