                                                                                                                           Opinions of the United
1996 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-24-1996

State Farm Auto v. Powell
Precedential or Non-Precedential:

Docket 95-3530




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Recommended Citation
"State Farm Auto v. Powell" (1996). 1996 Decisions. Paper 157.
http://digitalcommons.law.villanova.edu/thirdcircuit_1996/157


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                             UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT



                             No. 95-3530


          STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY

                                  v.

                            HERBERT POWELL,

                                       Appellant




          Appeal from the United States District Court
            for the Western District of Pennsylvania
                   (Civil Action No. 94-604)



            Submitted Under Third Circuit LAR 34.1(a)
                           May 23, 1996



                 Before: SLOVITER, Chief Judge,
and SAROKIN and OAKES, Circuit Judges

                     (Filed June 24, 1996)



                       OPINION OF THE COURT


Thomas A. McDonnell, Esq.
Summers, McDonnell, Walsh
& Skeel
707 Grant Street
2400 Gulf Tower
Pittsburgh, PA 15219

Attorney for State Farm Mutual Automobile
Insurance Company

Dallas W. Hartman, Esq.
Richard R. Morelli, Esq.
Dallas W. Hartman, P.C.
2815 Wilmington Road
New Castle, PA   16105

Attorneys for Herbert Powell


SAROKIN, Circuit Judge.

     Appellee State Farm Mutual Automobile Insurance Company
("State Farm"), an Illinois corporation, filed an action for a
declaratory judgment in federal district court, seeking a
declaration regarding its obligations to appellant Herbert Powell
("Powell") under insurance policies it had issued to him for
underinsured motorist coverage. The district court ultimately
granted summary judgment in favor of State Farm.
     On appeal, we dismiss this matter for lack of jurisdiction.
While State Farm alleged diversity jurisdiction under 28 U.S.C.
1332(a), we conclude that the amount in controversy does not
exceed $50,000.
                                I.
     On May 11, 1991, Powell was struck by a vehicle owned by
Kenneth Wagner, sustaining personal injuries. He received
$25,000 from Wagner's insurance company, which was the maximum
amount of coverage under Wagner's policy.
     Powell then sought coverage under policies he had purchased
from State Farm. Under Pennsylvania law, an insured may "stack"
his coverage for uninsured or underinsured motorist coverage;
that is "[t]he limits of coverages available . . . shall be the
sum of the limits for each motor vehicle as to which the injured
person is an insured." 72 Pa. Cons. Stat. Ann.   1738(a). At the
time he sought coverage, both Powell and State Farm believed that
Powell had purchased three policies from State Farm which could
be applied to the accident, each of which provided for $50,000
coverage per person. Powell thus sought $150,000 from State Farm
to compensate him for his injuries from the accident.
     State Farm refused to provide him with the requested
coverage because Powell had executed a waiver of his stacking
rights in exchange for a reduction in his monthly premiums from
$18 to $11. The language of the waiver signed by Powell reads as
follows:
     By signing this waiver, I am rejecting stacked limits
     of underinsured motorist coverage under the policy for
     myself and members of my household under which the
     limits of coverage available would be the sum of limits
     for each motor vehicle insured under the policy.
     Instead, the limits of coverage that I am purchasing
     shall be reduced to the limits stated in the policy. I
     knowingly and voluntarily reject the stacked limits of
     coverage. I understand that my premiums will be reduced if I reject
this coverage.
Appendix at 51-52. State Farm believed that, based upon the
language, Powell was entitled to a total of only $50,000 from
State Farm, and it entered into a settlement with Powell to pay
this amount on November 4, 1993. Powell, however, maintained
that his signature on the waiver did not bar him from stacking
separate insurance policy coverage.
     State Farm eventually filed an action in federal district
court for declaratory judgment on April 13, 1994 in order to
determine its responsibilities under the policy. In its
complaint, it alleged that although Powell had three insurance
policies in effect at the time of the Wagner accident, Powell had
executed a valid waiver of his stacking rights and it requested
the district court to declare "that the plaintiff, State Farm
Mutual Automobile Insurance Company, is only obliged to provide
underinsured motorists coverage in the instant case in an amount
of $50,000. . . ." App. at 15-16.    State Farm subsequently
discovered that one of the three policies it issued to Powell was
not purchased until after the accident at issue here, and it thus
filed a motion to amend its complaint accordingly, which was
granted.
     Both parties moved for judgment on the pleadings, and Powell
moved for partial summary judgment. All three motions were
denied by the district court. See State Farm Mut. Auto. Ins. Co.
v. Powell, 879 F. Supp. 538 (W.D. Pa. 1995). The court rejected
Powell's theory that the waiver he signed barred stacking only in
cases where a single policy insured more than one car, not when
an insured purchased separate policies for separate cars. Id. at
541. However, it also stated that disputed factual questions
remained as to how many policies were in effect at the time of
the Wagner accident and whether Powell received any consideration
for his waiver. Id. Thus, it also denied State Farm's motion.
     Powell subsequently filed another motion for summary
judgment, in which he stated that two policies were in effect at
the time of the accident and that he received a $7.00 savings per
policy as a result of executing the waivers at issue. However,
he took issue with the district court's previous analysis of the
meaning of the waivers he had signed and requested that the court
enter a declaratory judgment that he was entitled to a total of
$100,000 in underinsured motorist coverage.
     State Farm also filed a new motion for summary judgment,
requesting that the court enter a declaration that Powell was
barred from stacking his underinsured motorists coverage on his
two policies, and that State Farm "is only obliged to provide
motorist coverage of the instant case in the amount of $50,000 .
. . ." App. at 206-7.
     This time the district court granted summary judgment in
favor of State Farm, entering a declaration stating:
     (1) 75 Pa.Cons.Stat.Ann.     1738 bars Defendant,
     Herbert   Powell, in the instant case from stacking UIM
     coverage on the two vehicles in his household insured
     with Plaintiff, State Farm Mutual Automobile Insurance
     Company;

     (2) Plaintiff, State Farm Mutual Automobile Insurance
     company, is only obliged to provide underinsured
     motorist coverage in the instant case in the amount of
     $50,000.

     Powell appeals from this order.
                               II.
     As an initial matter, Powell argues that diversity
jurisdiction is lacking under 28 U.S.C.   1332(a) because the
amount in controversy does not exceed $50,000, and that the
judgment below thus should be dismissed. Although Powell did not
raise this jurisdictional issue below, we may address it for the
first time on appeal "[b]ecause the limited subject matter
jurisdiction of the federal courts is so fundamental a concern in
our system." Page v. Schweiker, 786 F.2d 150, 153 (3d Cir. 1986)
(citing Mitchell v. Maurer, 293 U.S. 237, 244 (1934)).
     In St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S.
283 (1937), the Supreme Court announced the following rule
regarding the requisite amount in controversy for purposes of
diversity jurisdiction:

     [U]nless the law gives a different rule, the sum
     claimed by the plaintiff controls if the claim is
     apparently made in good faith. It must appear to a
     legal certainty that the claim is really for less than
     the jurisdictional amount to justify dismissal.
Id. at 288-89. See also Jumara v. State Farm Ins. Co., 55 F.3d
873, 877 (3d Cir. 1995).
     In the instant matter Powell does not claim that State Farm
alleged its amount in controversy in bad faith. Rather, he
explains in his brief before this court that when this action was
originally filed, both parties mistakenly believed that three
separate insurance policies, each providing $50,000 coverage,
were in effect on the date of Powell's injury. However, when the
parties later discovered that one of the policies was purchased
after the accident occurred, and the complaint was amended to
reflect that discovery, it became clear that only two policies,
valued at $100,000 total, formed the subject matter of the
litigation.
     Powell asserts that with only two policies applicable to the
accident, it is clear "to a legal certainty" that the actual
amount in controversy is only $50,000 -- a penny shy of the
jurisdictional minimum. He explains that at the time State Farm
filed its declaratory judgment action in federal court, it had
already entered a settlement to pay him $50,000 under one policy.
Thus, all that remained in dispute at the time the suit was filed
was $50,000 from the other policy.
     State Farm counters with three alternative arguments in
support of jurisdiction. First, it asserts that because
diversity jurisdiction was proper when the complaint was filed,
it should not be disturbed by subsequent events. Second, it
argues that even if the third policy is not considered, its
"total potential exposure" of $100,000 (the sum of the remaining
two policies) is the actual amount in controversy. Appellee's
Brief at 14. Third, it contends that even if only one policy is
"at issue," the arbitration costs provided for in the policy
should be considered in determining the amount in controversy.
Id. at 14-15. We will consider each of these arguments in turn.
                                A.
     State Farm first argues that the federal courts retain
jurisdiction over this matter because, at the time that it filed
its complaint, it believed that three $50,000 insurance policies
were at issue, totalling $150,000, and subsequent events cannot
destroy jurisdiction if jurisdiction was proper when the
complaint was filed. It is true that a federal court's
jurisdiction ordinarily depends upon "the facts as they exist
when the complaint is filed," Newman-Green, Inc. v. Alfonzo-
Larrain, 490 U.S. 826, 830 (1989), and thus subsequent events
that reduce the amount in controversy below the statutory minimum
do not require dismissal. See Jones v. Knox Exploration Corp., 2
F.3d 181, 182-83 (6th Cir. 1993). However, "[a] distinction must
be made . . . between subsequent events that change the amount in
controversy and subsequent revelations that, in fact, the
required amount was or was not in controversy at the commencement
of the action." Id. at 183 (emphasis added).
     With respect to the issue regarding the number of policies
at issue in the case, State Farm's situation falls into the
latter category. In its motion for summary judgment, State Farm
admits that "[w]hile initially there was some dispute as to this
matter, it has since been determined and agreed upon that at all
times relevant hereto, the Defendant had two separate policies of
insurance issued by the Plaintiff insuring two separate vehicles
owned by the Defendant." App. at 204. Under these circumstances,
the discovery that one of the original three policies was not in
effect during Powell's accident should be considered a revelation
that only two policies were at issue when the litigation was
commenced, not a "subsequent event." Accordingly, jurisdiction
must be assessed based upon the factual reality that only two
policies were in effect at the time of the accident.
                                B.
     State Farm next argues that, even if the court does not
consider the third insurance policy once thought to be at issue
in determining diversity jurisdiction, the amount at issue
continues to exceed $50,000. It avers that under the two
policies actually at issue, its total exposure is $100,000 and
that this amount should be considered the amount in controversy.
     State Farm, however, never denied that it was obligated to
provide Powell with at least $50,000 in coverage. In fact, the
relief it sought from the district court was a declaration that
it was "only obliged to provide underinsured motorist coverage in
the instant case in the amount of $50,000." App. at 207. Thus,
from the outset of this litigation State Farm conceded that it
owed Powell $50,000; it merely sought to limit its obligation to
that figure out of his alleged $100,000 in underinsured motorist
coverage. Indeed, as evidenced by the letter dated November 4,
1993 from State Farm to Powell, State Farm actually entered into
a settlement with Powell to pay him the $50,000 prior to the
commencement of this action. Simple arithmetic demonstrates that
at the time that the action was filed, then, only $50,000 was in
controversy.
                                C.
     State Farm finally argues that even if the Court finds -- as
we do -- that only the $50,000 policy for which no payment was
received is at issue in this case, its contractual duty to pay
arbitration costs brings the amount in controversy above the
jurisdictional prerequisite. State Farm points to language in
the insurance policies at issue that provides for the parties to
pay certain costs related to arbitrating the underlying insurance
motorist claim. The relevant language reads as follows:
     If there is no agreement [between the insured and State
     Farm regarding whether the insured is legally entitled
     to collect damages or the amount of such damages],
     these questions shall be decided by arbitration at the
     request of the insured or [State Farm.] . . .

                           *   *   *

     The cost of the arbitrator and any expert witness shall
     be paid by the party who hired them. The cost of the
     third arbitrator and other expenses of the arbitration
     shall be shared equally by both parties.
App. at 33.
     State Farm points out that, while costs and attorneys' fees
are not normally considered when determining the amount in
controversy, "where the underlying instrument or contract itself
provides for their payment, costs and attorneys' fees must be
considered in determining the jurisdictional amount." Nationwide
Mut. Ins. Co. v. Rowles, 818 F. Supp. 852, 854-55 (E.D. Pa. 1992)
(citing Springstead v. Crawfordsville State Bank, 231 U.S. 541
(1913); Farmers Ins. Co. v. McClain, 603 F.2d 821 (10th Cir.
1979)). In particular it refers this court to a decision from
the District Court for the Eastern District of Pennsylvania,
Nationwide Mut. Ins. Co. v. Rowles. There, the district court
found that, in a case where the insurance policy at issue was
only for $50,000, the insurer's obligation under the terms of the
policy to pay arbitration expenses raised the amount at issue
above the $50,000 statutory minimum for jurisdictional purposes.
Id. at 855.
     As an initial matter, we question the reasoning of the
district court's decision in Rowles. In arriving at its
conclusion, the Rowles court relied upon two cases, Springsteadand McClain
which held that costs and attorneys' fees should be
considered part of the amount in controversy for jurisdictional
purposes when they are mandated by underlying instruments or
contracts. In those two cases, however, the contracts at issue
called for the payment of attorneys' fees and costs by the party
breaching the contract. Springstead, 231 U.S. at 541; McClain,
603 F.2d at 822. Thus, the costs were essentially additional
damages to be assessed against the party found to have breached
the instrument, and were thus part of the controversy at issue in
those cases.
     However, the arbitration provision at issue in Rowles (as
well as in the instant case) does not provide for additional
damages to be assessed against the party who does not prevail.
Rather, it merely provides that the costs associated with
arbitration will be shared evenly by the two parties. Thus,
these costs were never in controversy, but simply were to be
shared by the parties regardless of ultimate responsibility for
the breach.
     Furthermore, even if we considered the Rowles reasoning
sound, we think that that decision is nonetheless inapposite to
the case at hand. In Rowles the underlying policy mandated
arbitration in the event of a dispute over coverage, providing
that "[i]f [the insurer] and the insured do not agree about the
insured's right to recover damages or the amount of damages, the
following arbitration procedure will be used." Id. at 854
(emphasis added). Indeed, before the insurer filed the federal
suit in Rowles, the insured had sought to arbitrate the dispute
according to the arbitration provision. Id. The provisions
governing arbitration in the insurance policy at issue in the
instant case, however, are not mandatory and do not specifically
impose a duty to pay on the part of State Farm. Rather, the
policy provides that if State Farm and the insured do not agree
on coverage, coverage "shall be decided by arbitration at the
request of the insured or us." App. at 33 (emphasis added). Only
if arbitration is requested will the parties then bear the extra
cost of paying for the arbitration.
     Here, State Farm did not plead in its complaint that it
intended to pursue arbitration and would thus incur the alleged
costs. See Dept. of Recreation and Sports v. World Boxing
Ass'n., 942 F.2d 84, 89 (1st Cir. 1991) (explaining that a
plaintiff must plead in his complaint that he has or will incur
attorneys' fees as provided by statute or contract in order for
such costs to be considered part of the amount in controversy for
jurisdictional purposes). Rather, that State Farm elected to
bring this case to federal court, indicates that it affirmatively
opted not to pursue arbitration. Indeed, if the suit were to
continue in federal court, we cannot see how any arbitration
costs would be incurred.
     Having concluded that the cost of arbitration should not be
considered part of the amount in controversy for jurisdictional
purposes, it is clear that the amount in controversy at issue
here is limited to $50,000.

                               III.
     For the foregoing reasons, we vacate the decision of the
district court granting summary judgment in favor of State Farm
and remand this matter to the district court for purposes of
dismissing the case for lack of jurisdiction.
