A woman had a long-term disability policy with an insurer. While covered under the policy, she became disabled and entitled to monthly benefits. At first, the insurer approved her claim and paid her disability insurance benefits for the next twenty-four months. After this twenty-four month period, the definition of “disability” in her policy became more stringent, and the insurer refused to continue paying her monthly disability income, believing she did not qualify as “disabled” under the more rigid standard.
After four months of missed monthly benefit payments, the woman, a Kentuckian, filed Kentucky state law claims against the insurer—a corporation incorporated in Oregon with its principal place of business in Portland, Oregon,—in Jefferson Circuit Court. The complaint sought damages for (1) breach of contract; (2) breach of the duty of good faith and fair dealing; (3) statutory bad faith; (4) violation of Kentucky's consumer protection act; and (5) unjust enrichment. She also sought punitive damages. As usual under Kentucky pleading rules, her complaint did not quantify the damages sought.
Initially, the insurer did not remove the complaint to federal court. Thinking that the woman’s case was worth less than $6,800—the amount of benefits payments she alleged the insurer owed her—the insurer believed the case was not removable because it fell short of the federal jurisdictional minimum. Even contemplating punitive damages calculations of either 2:1 or 4:1, based on United States Supreme Court and Sixth Circuit precedent, of the $6,800 lost benefits, the amount in controversy fell well short of $75,000.
Instead, the two parties litigated for over five months in state court. Motions were filed and briefed; discovery proceeded. In an interrogatory the insurer asked the woman to identify all damages she claimed in the lawsuit. She responded:
My long term disability benefits. I believe this to be at least $71,925. The value of my car I had to sell. I'm uncertain right now as to its value. The value of my mortgage payments. The money lent to me by friends. The value of my claims in this lawsuit. I am working on obtaining a value on all of my claims, but I estimate the value to be at least $883,000.
After the woman’s interrogatory response indicated she valued her claim at $883,000 or more, the insurer removed to federal court. The woman opposed removal and desired remand to state court. She argued that the insurer's removal was untimely, the insurer failed to show by a preponderance of the evidence that the required jurisdictional minimum was met, and the insurer forfeited its right to remove. The insurer argued that the woman’s interrogatory response was the first indication that the amount in controversy might meet the jurisdictional threshold.
The United States District Court for the Western District of Kentucky denied the woman’s motion for remand. The court held that the insurer did not have solid and unambiguous information permitting removal until it received the woman’s $883,000 damages response in discovery, competently demonstrated the amount in controversy, and did not forfeit its right to remove by defending itself in state court.
The insurer did not have solid and unambiguous information permitting removal until it received the woman’s $883,000 damages response in discovery. When removal is based on diversity jurisdiction the amount in controversy must exceed $75,000. The removing party must file within thirty days of receiving the initial complaint, unless it is unclear that the claims are worth $75,000. Then, defendants may remove within thirty days of receiving an amended pleading, motion, order, or other paper from which it may first be ascertained that the case is one which is or has become removable. Discovery responses are considered “other paper” under the relevant statute. In the cases where a federal district court has sustained motions for remand, it did so because defendants had clear and adequate notice that the claims against them would eclipse the minimum jurisdictional requirement. The court found that what the insurer knew from actual writings the woman provided was that she had lost benefits payments totaling less than $6,800. She did request punitive damages, but even assuming a ratio of 4:1, her benefits claims fell short of the $75,000 threshold. She made other claims, but as usual under Kentucky pleading rules, her complaint did not quantify the damages sought. Simply asserting claims for breaching the duty of good faith, violating the Kentucky Consumer Protection Act, and seeking punitive damages for insurance claims worth $8,000, including attorneys' fees, did not make it more likely than not that the amount in controversy exceeded $75,000.
The insurer competently demonstrated the amount in controversy for removal. The insurer did not reflexively seek removal. The insurer proceeded with discovery in state court. In an interrogatory, the insurer asked the woman to identify all damages she claimed in the lawsuit. The court concluded that, after the woman’s interrogatory response, the insurer had plenty of information to support removal.
The insurer did not forfeit its right to remove by defending itself in state court. The insurer was not required to remove at an earlier time. The insurer properly defended itself in state court until it became clear by a preponderance of the evidence that the case met the minimum jurisdictional threshold. Doing so did not forfeit the insurer’s right to remove.
The United States District Court for the Western District of Kentucky denied the woman’s motion for remand.
See: Graves v. Standard Ins. Co., 2014 WL 5803071 (W.D.Ky., November 7, 2014) (not designated for publication).