Thomas v. Southern Pioneer Life Ins. Co., No. 3:09CV00120-WRW, Slip Copy, 2009 WL 4894695 (E.D. Ark., Dec 11, 2009).

A District Court in Arkansas remanded the action to state court for the defendant’s failure to establish that the amount in controversy exceeded $5 million holding that under the preponderance standard, the jurisdictional fact is not whether the damages are greater than the requisite amount, but whether a fact finder might legally conclude that they are.

The plaintiffs brought a class action in state court alleging that the defendant breached its contract and violated Arkansas state law when it did not refund portions of premiums for credit life or credit premium insurance policies when the policy holder paid off the insured credit earlier than scheduled.  The plaintiffs bought a credit life insurance policy in connection with the purchase of a car that was financed for 72 months.  The plaintiffs paid off their car loan after only eight months.

The plaintiffs assert that damages in this case would not exceed $4,500,000.  The defendant, however, removed the case to the federal court under CAFA anyway. The plaintiffs moved to remand, and the District Court granted the motion.

The defendant produced evidence that there were 304,115 current and expired policies with associated premiums of $75,912,308.  The defendant initially calculated the amount in controversy by multiplying the number of policies that were in force or expired by 87%–the percent of the premium the plaintiffs alleged they were entitled to receive as a refund–for a total of $65 million.  

The plaintiffs asserted that the defendant’s interpretation was ‘widely over-inclusive’ because the defendant identified all holders of current and expired policies within the class period as potential class members when the plaintiffs’ proposed class was limited to former insureds.  The plaintiffs also maintained that other class members would likely have lower damage amounts than the plaintiffs because class members would not likely have paid off their debt as quickly as the plaintiffs.

The defendant responded that even if only 15% of the policyholders asked only 15% of what the named plaintiffs sought in damages, it would be over $8.6 million. The defendant further argued that even if $8.6 million was halved, then, considering interest and attorneys’ fees, the amount in question was still at least $5 million.

The Court remarked that the defendant’s interpretation of the proposed class was too broad because the defendant presented a total number of current and expired policies for the class period, whereas, the plaintiffs’ proposed class was limited to former owners of policies whose insured debt was paid off before the scheduled expiration date of coverage but who had not received a refund of unearned premiums.  The Court observed that the defendant presented no evidence as to, historically, the percent of policies on which the defendant actually paid; the percent of policies that expired when underlying credit was paid off as scheduled; or the percent of policies in which the underlying credit was paid off early.  

In addition, the Court found that the defendant’s argument about the amount of damages was speculative.  The defendant’s policies were issued through a variety of businesses: motor vehicle dealers; other dealer types of vehicles; banks; finance companies; mortgage companies; jewelry stores; and furniture dealers.  Considering the various businesses through which policies were issued, the Court stated that the premium–and the amount of damages–could vary widely with each policy.  Further, the defendant admitted that it was likely atypical for an insured to pay off the underlying credit as quickly as the plaintiff’ did.  

Finally, the Court found that the defendant improperly included interest into its calculation– interest cannot be included when determining the amount in controversy in CAFA cases, and only statutory attorneys’ fees may be counted. 

Thus, the Court concluded a fact finder might not legally conclude that jurisdictional requirements were met.