Sabrina_Roppo_v_Travelers_Commercial_Insurance_Co_et_al., 2017 WL 3695205 (7th Cir. Aug. 28, 2017)

In an action challenging Travelers Commercial Insurance Company’s (“Travelers”) alleged practice of not disclosing the existence of umbrella policies, the United States Court of Appeals for the Seventh Circuit (the “Seventh Circuit”) affirmed the dismissal of Plaintiff Sabrina Roppo’s (“Plaintiff”) claims finding that the allegations in the operative complaint at the time of removal were sufficient for the United States District Court, Northern District of Illinois (the District Court”) to establish subject matter jurisdiction under the Class Action Fairness Act (“CAFA”), and that the defending counsel were not significant defendants to apply the local controversy exception under CAFA.

In this matter, Plaintiff filed a personal-injury suit with a state court after suffering serious injuries in a motor vehicle accident with Jeffrey Block. Block was insured by Travelers. At the time of the accident, Block carried two types of insurance with Travelers: an automobile liability policy with a policy limit of $500,000 and a general umbrella policy with a policy limit of $1,000,000.

In early 2013, as part of discovery in the personal injury suit, Plaintiff requested information regarding Block’s insurance policies, including information regarding Block’s “umbrella or excess insurance coverage.” Block initially failed to disclose the excess Travelers umbrella policy. Travelers eventually disclosed and produced the policy. Following this, Plaintiff filed a putative class action in the Circuit Court of Cook County, Illinois, alleging Travelers fraudulently misrepresented and concealed actual policy limits of insured tortfeasors by not disclosing excess or umbrella policies. Plaintiff asserted two causes of action against Travelers: (i) for fraudulent concealment and misrepresentation of the policy limits; and (ii) for an implied private right of action under the Illinois Insurance Code. Plaintiff defined her putative class as all Illinois persons who made a personal injury motor vehicle claim for accidents occurring after August 12, 1988 and had the Travelers Insurance Company misrepresent and conceal the actual policy limits of tortfeasor by not disclosing the excess or umbrella policy.

Travelers timely removed the action to the District Court asserting federal jurisdiction under CAFA. Shortly after removing the action, Travelers filed a motion to dismiss arguing Plaintiff’s claims failed to state a claim for relief.

In response, Plaintiff filed two motions—a motion for leave to file an amended complaint and a motion to remand. In the amended complaint, Plaintiff alleged fraudulent concealment against both Travelers and its claims representative, negligence against Block, negligence against Block’s attorney, Mr. Jason Hitchings, and his law firm. Plaintiff also filed another motion, a motion to file a proposed “second” amended complaint. The second amended complaint added two new defendants—Mr. Hitchings and his law firm. Plaintiff argued that the defendants she sought were “significant local defendants” and therefore, that the “local controversy” exception required remand. Plaintiff also argued Travelers had failed to meet its burden of showing that the putative class consisted of over 100 members and the amount of controversy exceeded $5 million; and therefore, the jurisdiction under CAFA does not apply.

The District Court denied Plaintiff’s motion to remand. The District Court noted Plaintiff had herself described the size of the class to be approximately 500 persons and Travelers could rely on that representation in establishing the class-number requirement. The District Court then found it compelling that, even if the alleged additional damages of each putative class member were as small as $10,000, the aggregate damages for the putative class would nevertheless exceed the requisite amount of $5 million. Finally, the District Court held the action did not fall within the local controversy exception because Mr. Hitchings and his law firm only defended Block and thus were not defendants from which significant relief was sought.

After the denial of leave to appeal, Plaintiff filed a third amended complaint adding a cause of action under the Racketeer Influence and Corrupt Organizations Act (“RICO”). The defendants again moved to dismiss, which the District Court granted. The District Court noted the complaint lacked the necessary allegations for reliance for her fraud and negligent misrepresentations claims. The District Court also determined Plaintiff had not only failed to plead adequately a RICO enterprise, but she also failed to plead with particularity the underlying predicate acts of fraud.

Following the denial of her motion for reconsideration, Plaintiff appealed. Plaintiff argued the District Court lacked jurisdiction over the action because the statutory requirements of CAFA were not met. Affirming the District Court’s order, the Seventh Circuit held the District Court had jurisdiction and Plaintiff complaint did not sufficiently state claims of fraudulent misrepresentation, negligent misrepresentation, and negligence under Illinois law, or violations of the Illinois Insurance Code and the Illinois Consumer Fraud and Deceptive Business Practices Act.

The Seventh Circuit’s evaluation of the amount in controversy began with the allegations in the complaint that estimated the size of the class consisting of approximately 500 persons. Plaintiff maintained the number was simply an estimate and that it was incumbent upon Travelers to establish that at least 100 individuals fall within the class. The Seventh Circuit refused to accept that view. The Seventh Circuit pointed out that, according to Illinois Supreme Court Rule 137(a), Travelers may rely on the estimate of the class number set forth in the complaint.

Regarding the amount in controversy, Plaintiff maintained the underlying policy limits did not establish the amount of damages to any members of the class. According to Plaintiff, one simply cannot tell from policy limits the amount of damages suffered by a class member. The Seventh Circuit again disagreed, finding Plaintiff’s argument untenable. The Seventh Circuit noted that the complaint had emphasized the importance of policy limits in determining settlement value—they represented the maximum recovery that an injured party likely would receive. According to the Seventh Circuit, given that Travelers’s minimum available umbrella coverage over the relevant time period was $1,000,000, injured parties who made claims against Travelers’s insureds during that time would have had a minimum of an additional $1,000,000 in potential recovery. Thus, if there were even five members of the proposed class to whom the policy limits were not revealed, the amount in controversy under CAFA would be met based just on compensatory damages. In addition, Plaintiff had also sought punitive damages, which factor into the amount-in-controversy calculation. Moreover, Travelers submitted undisputed evidence that additional policy amounts were at least $1,000,000 per insured. Based on the allegations and evidence, the Seventh Circuit held that a fact-finder might conceivably and lawfully award in excess of $5 million dollars.

The Seventh Circuit then held that the addition of two defendants in the underlying personal injury action did not trigger one or both of CAFA’s local controversy exceptions because the significant basis provision of CAFA requires at least one local defendant whose alleged conduct forms a significant basis for “all the claims” asserted in the action. Neither Mr. Hitchings nor his law firm were a defendant from whom Plaintiff sought a significant relief. According to the complaint, Travelers instructed Mr. Hitchings and his law firm not to disclose umbrella and excess policies of their insureds, and the allegations highlighted that the gravamen of the action was directed at Travelers, a citizen of Connecticut, not its attorneys. While it was true that Mr. Hitchings defended Block in Plaintiff’s personal injury action, the Seventh Circuit found the complaint did not provide any basis to conclude those defendants made similar misrepresentations to a significant portion of the Plaintiff class. Neither the second amended complaint nor the third amended complaint alleged Mr. Hitchings and his law firm were the primary defendants.

The Seventh Circuit therefore held the District Court correctly concluded the action was not a “local controversy” and it had subject matter jurisdiction under CAFA.

Yaron Shaham