Cox v. Allstate Insurance Company et al., No. 07-1449-L, 2008 WL 2167027 (W.D. Okla. May 21, 2008). 

[The editors of CAFA Law Blog salute the insurance industry, and their advertising wizards, in this post]

The plaintiffs, a putative class of Allstate policyholders, claimed that when a wildfire swept across the plains and damaged their property, their Allstate replacement coverage policies sold by a local Allstate agent, didn’t live up to their promise. After winning a skirmish about fraudulent joinder resulting in the remand of the case to state court, the plaintiffs must have thought they had the strength to be there [www.aig.com]. So, they filed an amended complaint containing class allegations. 

Allstate removed under CAFA, and the plaintiffs moved to remand. Their challenge to federal jurisdiction under CAFA focused on two things (1) the amount in controversy; and (2) the local controversy exception to CAFA jurisdiction. The court rejected the plaintiffs’ arguments and kept the case in its good hands [www.allstate.com].

The plaintiffs argued the controversy did not exceed $5,000,000 because they expressly limited their damages in the amended complaint, stating “the matter in controversy does not in the aggregate exceed the sum or value of $5,000,000, exclusive of interest and costs.” Properly alleging a limitation on the amount in controversy seems so easy, a caveman could do it [www.geico.com]. But, not these plaintiffs. The court found that this language was not sufficiently specific or precise to limit damages to less than the jurisdictional amount. What was the problem?

Allstate argued that plaintiffs really wanted to get their piece of the rock [www.prudential.com], and the purported limitation did not include the value of all the relief sought. Allstate posited that it could prove to a legal certainty that the real amount in controversy exceeded the jurisdictional threshold. In addition to damages, the plaintiffs sought injunctive relief and the equitable remedy of disgorgement of the “increased financial benefit derived by defendants as a direct result of the conduct causing injury and damages (allegedly, sale of the replacement cost insurance policies). The court agreed that the pecuniary effect of this relief must be included in the tally of the amount in controversy and recognized Allstate’s uncontroverted evidence that it received $70,000,000 in premium payments for replacement cost policies sold in Oklahoma in 2006 alone.   This led the court to conclude CAFA’s jurisdictional requirements were satisfied.

Like a good neighbor [www.statefarm.com], the plaintiffs focused on the local agent’s presence as a defendant, pushing for application of CAFA’s local controversy exception. The court, considering whether plaintiffs met their burden, found that there was no question that (1) more than two-thirds of the class members were Oklahoma citizens; (2) the principal injuries allegedly occurred in Oklahoma; and (3) no other class action making the same allegations had been filed in the last three years. 

However, the plaintiffs’ argument failed on the question of whether the local defendant (one of Allstate’s Oklahoma-based agents) was one from whom significant relief was sought and whose conduct formed a significant basis for the claims asserted. The plaintiffs argued that the court’s earlier conclusion that the agent was not fraudulently joined to defeat diversity jurisdiction meant that he must be “a significant Defendant.” 

The court rejected this argument and acknowledged evidence showing that the local agent received less than two-tenths of one percent of the premium amount paid to Allstate in 2006 for the replacement cost policies. Moreover, the local agent sold less than two percent of those policies sold in Oklahoma during the period at issue in the case and had no involvement in the other types of wrongdoing alleged in the lawsuit. Accordingly, the court concluded the local controversy exception did not apply.

This case has a lesson for everyone. For class action plaintiffs: exercise care in drafting if you are trying to limit your damages to avoid federal jurisdiction, because the value of all relief requested will be included in calculating the real amount in controversy. For defendants: don’t lose hope of removing to federal court under CAFA when the plaintiffs allege they are seeking less than $5,000,000, because CAFA is on your side [www.nationwide.com].