Adams v. American Family Mutual Insurance Company, 2013 WL 12058059 (S.D. Iowa Nov. 8, 2013).
A district court in Iowa denied a motion to remand because the costs incurred by a defendant in complying with an injunction or declaratory judgment, including the “gap” between the parties’ calculations of benefits owed, were properly considered to determine the amount in controversy.
The insureds filed a putative class action in Iowa state court against American Family Mutual Insurance Company (hereinafter “American Family”), a homeowners’ insurance company, seeking declaratory and injunctive relief regarding the defendant’s use of arbitration, rather than appraisal clauses in its policies. The plaintiffs asserted that since 1994, American Family had issued homeowners insurance policies, and farm and ranch insurance policies, in the State of Iowa that did not contain the right to appraisal guaranteed by the Iowa Code § 515.109. Instead, American Family issued its policies with arbitration clauses, in violation of Iowa Code § 679A. The plaintiffs further alleged that American Family knew it was violating Iowa law, at the latest, by July 10, 2012, before the plaintiffs requested an appraisal, because American Family was ordered by the Insurance Commissioner of the State of Iowa to remove its Arbitration Clauses from all policies issued in the State of Iowa.
American Family removed the action to the federal court, and the plaintiffs moved to remand.
The plaintiffs first argued that American Family failed to establish that the amount-in-controversy exceeded $5 million because they only sought declaratory and injunctive relief, and also because they filed a post-class certification sworn and binding stipulation that the damages they sought would not exceed the jurisdictional minimum set forth in CAFA. The District Court noted that it is well settled that, when seeking declaratory or injunctive relief, the amount-in-controversy is measured by the value of the object of the litigation.
American Family argued that the amount-in-controversy requirement was satisfied because the plaintiffs had explicitly requested an order requiring American Family to participate in the statutory appraisal process for each class member, and for each claim made during the class period, for the purpose of resolving the disputes with all of them. According to American Family, the proper way to calculate the value of such relief was to use the estimated difference between benefits already paid and total benefits purportedly owed as the amount-in-controversy. To determine the likely value of this estimated difference, American Family showed that there were 34,415 Iowa policyholders who submitted 42,355 unique claims for benefits under homeowners or farm and ranch insurance policies during the class period, resulting in payments totaling $233,116,888.93.
American Family contended that if each claim falling within the class period were submitted to appraisal and yielded a 38.99% increase in payments, this would result in well over $90 million in additional payments. Conservatively, if each claim yielded a mere 2.2% increase in payments after appraisal, this would result in well over $5 million in additional payments. American Family asserted that the amount-in-controversy would, therefore, be satisfied if each class member received just under an additional $120.00 related to each claim through the appraisal process. Thus, the primary object of the litigation–the additional benefits the plaintiffs and the class members sought through the requested injunctive relief—easily exceeds $5 million.
American Family also argued that it could satisfy the jurisdictional threshold without reference to any benefits class members might receive through the appraisal process, because the jurisdictional threshold was met simply by taking into account the estimated costs of American Family ‘participating in the appraisal process’ with each purported Class Member. Specifically, American Family submitted the affidavit of a claims administrator, who attested that American Family incurred $7,288.30 in costs payable to third parties related to John Trave’s (a policyholder) appraisal and $3,909.50 in costs payable to third parties related to Nicole Young’s (another policyholder) appraisal. Using the average third-party costs of these two claims—$5,598.90— American Family extrapolated that if all 42,348 unique claims during the relevant time period were submitted to appraisal, the defendant would incur $237,102,217.20 in third party costs associated therewith. Even using the lower of the two known costs—the $3,909.50 expenditure for Young— American Family would still potentially face well over $165 million in appraisal related costs.
The plaintiffs argued that the “object of this litigation is nothing more or less than an opportunity for class members to participate in the appraisal process if they individually elect to do so.” The District Court noted that the plaintiffs’ attempt to circumscribe the “object” of the litigation to exclude the practical and monetary effects of the relief sought, however, strained credulity. Indeed, substantial pecuniary costs to the defendant were virtually certain to “logically flow” from requiring it to provide the opportunity to participate in the appraisal process to 34,415 class members with 42,355 separate claims. Such pecuniary costs, the Court concluded, would unquestionably include expenses incurred by American Family should class members opt to participate in an appraisal, and monetary awards to the plaintiffs who actually participated in the appraisal process and who are successful in obtaining an increased valuation of and payout on their claims.
The Court noted that, although it found no case law directly on point, several cases support its conclusion that costs incurred by a defendant in complying with an injunction or declaratory judgment, including the “gap” between the parties’ calculations of benefits owed, can satisfy the amount in controversy.
Consequently, the District Court concluded that the action was properly removed to federal court.
By: T. Dylan Reeves