Lewis v. Auto Club Family Ins. Co., No. 11-169-D-M2, 2011 WL 344312 (M.D. La. July 7, 2011). 

A Magistrate Judge in Louisiana reported and recommended that the plaintiff’s motion to remand be denied holding that when a declaratory judgment action involves the applicability of an insurance policy to a particular occurrence, the amount in controversy is to be calculated based upon the value of the underlying claim, rather than the face amount of the policy.

The plaintiff,Paul Lewis, filed a class action complaint for declaratory judgment against the defendants, Automobile Club Inter-Insurance Exchange and Auto Club Family Insurance Company (collectively “AAA Insurance”) challenging their “other insurance” policy exclusion.

Lewis was involved in two automobile accidents, and incurred medical expenses in the amounts of $1,793.00 and $3,905.00 respectively, for which he made demands for reimbursement under his AAA Insurance policy medical payments coverage. AAA Insurance rejected his two demands for reimbursement of medical expenses under an exclusionary provision in his policy, which provided that “Excess Medical Payments Coverage” under his policy could be denied when similar payments are paid or payable through an insured’s “other insurance” policies (i.e., health insurance, group accident, disability or hospitalization plans, worker’s compensation plans, etc.). Specifically, AAA Insurance denied Lewis’ claims for reimbursement on the basis that his medical expenses could have been paid by Lewis’ health insurance company. 

Lewis alleged AAA insurance made that determination without ever examining his health insurance policy. Because of AAA Insurance’s denial of payment, Lewis had to pay for his medical expenses out of pocket, which included payments for co-pays and ultimately payment from proceeds secured from each respective tortfeasor.

That bites. You are battered in two car accidents and then you have to pay for your own medical expenses.

Lewis sought: (1) a declaratory judgment finding as a matter of law that AAA Insurance’s “other insurance” policy exclusion for claims of reimbursement submitted under its “Excess Medical Payments Coverage” benefit found within its automobile accident policies issued through Louisiana violates La. R.S. 22:994; (2) injunctive relief preventing AAA Insurance from denying medical payments benefits by reason of the aforesaid exclusionary “excess” language and processing all prior and future claims of medical payments benefits previously denied under the subject exclusionary policy language; (3) incidental monetary relief in the form of reimbursement of all medical bills submitted to AAA Insurance under the terms of the medical payments benefit, but that were otherwise improperly excluded under the terms of the excess coverage exclusionary language; and (4) statutory damages individually and on behalf of all others similarly situated pursuant to La. R.S. 22:1892.

AAA Insurance removed Lewis’ suit to the federal court pursuant to CAFA. Lewis moved to remand the action back to the state court arguing that AAA Insurance failed to establish that the amount in controversy exceeded $5 million, which the Court denied.

The Court observed that the precise issue in this case related to the manner in which the amount in controversy should be calculated. In the affidavits attached to the Notice of Removal, representatives of AAA Insurance based their amount in controversy calculation upon the remaining amount of policy limits for those policies where med pay claims were submitted but were excluded under the terms of the excess coverage exclusionary language. 

Lewis contended that the amount in controversy should instead be calculated based upon the denied portion of actual med pay claims submitted, i.e., the total amount of medical bills derived from a single accident that were not reimbursed by AAA Insurance, instead of the policy limits.

The Court noted that in declaratory judgment cases involving insurance, the policy limits are the basis of the amount in controversy calculation when the validity of the insurance contract is in question. By contrast, when a declaratory judgment action involves the applicability of an insurance policy to a particular occurrence, the amount in controversy is to be calculated based upon the value of the underlying claim, rather than the face amount of the policy.

The Court found that because this action involved an injunctive and declaratory judgment action relating to the applicability of AAA Insurance’s policy to med pay claims submitted in connection with particular automobile accidents, the amount in controversy was to be measured based upon the actual monetary value of the med pay claims that were submitted and denied based upon the excess coverage exclusionary provision, rather than by totaling the remaining policy limits for the policies applicable to those claims. Thus, the Court concluded that the calculation of the potential amount of damages the putative class members could receive that was set forth in AAA Insurance’s Notice of Removal had an improper basis (policy limits) and, therefore. did not satisfy the defendants’ burden of proving the existence of CAFA jurisdiction. “What?” you ask. Read on.

Nevertheless, the Court found that, irrespective of that improper damage calculation by AAA Insurance, the jurisdictional minimum was satisfied in this case based upon the potential statutory penalties that the putative class members could receive should a judgment be rendered in their favor. 

The Court pointed that although Lewis only specifically requested, in his petition, penalties under La. R.S. 22:1892, he and the other putative class members were not precluded from instead being awarded statutory penalties under La. R.S. 22:1973 because they specifically alleged that the conduct of AAA Insurance in denying the med pay claims in question was arbitrary and capricious. The Court maintained that both federal and Louisiana law provide that a final judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in his pleadings. 

La. R.S. 22:1973 provides that an insurer who breaches its duty of good faith and fair dealing is liable for penalties of $5,000 per plaintiff. The affidavits submitted by AAA Insurance established that during the class period, there had been 1,665 reported med pay claims in Louisiana where AAA Insurance paid less than the total available med pay coverage limits. Any or all of those claims might have been denied, in whole or in part, because of the excess nature of AAA Insurance’s med pay coverage. 

Of those 1,665 med pay claims where an amount less than the total available limits was paid, nothing at all was paid on 1,186 of the claims. AAA Insurance estimated that at least 66% of the total 1,665 reported med pay claims had been denied, in whole or in part, because of the excess nature of AAA Insurance’s med pay coverage. Thus, at least 1,099 med pay claims were denied due to the ‘excess issue’ (66% of 1,665 total claims = 1,099 claims). As a result, the putative class could potentially receive $5,495,000 in penalties under La. R.S. 22:1973 (1,099 claims x $5,000 in penalties per claim = $5,495,000). See…if you were told to go to law school because you don’t need to know math, they lied to you.

The Court concluded that the CAFA jurisdictional minimum was satisfied based solely upon potential penalties. Accordingly, the Magistrate Judge recommended denying the motion to remand.