American General Life and Accident Insurance Company issued a Life Insurance Policy to Mr. William Johnson. After that, it increased the face amount of the Policy from $50,000.00 to $100,000.00. Mr. Johnson died. His death took place within two years of the effective date of the face amount increase, which triggered "a routine contestable investigation" by American General. Download American General Life & Accident Insurance Co. v. Johnson (M.D. Ga. Case No. 7.10cv00136, Order Filed April 7, 2011) PUBLIC ACCESS., also published as 2011 WL 1336554 *1 (M.D. Ga. April 7, 2011)(authorized password required to access Westlaw), to which the Federal Court added an Addendum the same day: Download American General Life & Accident Insurance Co. v. Johnson (Addendum Order Filed April 7, 2011) PUBLIC ACCESS.
What American General found in its investigation was not identified by the Federal Court in this case, but whatever it was it was enough for American General to file a Complaint in Federal Court for a Declaratory Judgment of Rescission. Not rescission of the entire Life Insurance Policy. American General paid the previous face amount of $50,000.00. American General instead contested the increase of the face amount by another $50,000.00 to $100,000.00. American General Life & Accident Insurance Co. v. Johnson, 2011 WL 1336554 at *1.
Betty Johnson was the Defendant. She was William Johnson's wife and life insurance beneficiary. She responded to the Complaint for Declaratory Relief with a Motion to Dismiss based on lack of diversity and therefore a lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1). Id.
The attack on diversity focused on the Federal statutory requirement that Federal Court diversity jurisdiction include an amount in controversy in excess of $75,000.00, exclusive of interest and costs. American General as the Plaintiff invoking Federal Court diversity jurisdiction bore the burden of proof by a preponderance of the evidence "that the claim exceeds $75,000." Id. at *2.
American General's Complaint was for Declaratory Relief and did not specify the amount in controversy. "There is no question that the $50,000 additional face amount is in controversy." Id. The fight was about whether there was $25,001.00 more at issue in this case to meet the jurisdictional amount which was required to exceed $75,000.00.
Although the Federal Court in this case said that it did not consider a Counterclaim filed by Ms. Johnson, id. at *3 n.3, it surely appears that in fact, it did. Ms. Johnson carefully filed a Counterclaim "for the $50,000 unpaid portion of the policy, as well as a statutory bad faith penalty not to exceed $24,999 .... Thus, Ms. Johnson specified in her counterclaim that she was seeking a maximum amount of $74,999." Id. at *1.
The Federal Court just as carefully examined the bad faith penalties that Ms. Johnson was seeking in this case. "The issue is whether the claimed bad faith damages and attorneys' fees are sufficient to establish the rest of the jurisdictional amount." Id. at *2. "Under Georgia law," wrote the Federal Court, applied to the facts alleged in this case, "bad faith" statutory penalties could include a maximum award of 50% of the denied benefit, or here, 50% of $50,000.00 which would be a maximum additional $25,000.00, plus Ms. Johnson's attorney's fees. Therefore, if Ms. Johnson was awarded the maximum statutory bad faith penalty plus at least $1.00 in attorney's fees, the jurisdictional amount would be satisfied in this case. The problem with assuming that Ms. Johnson would receive the maximum available statutory bad faith penalty in this case, however, is that this assumption would "'an impermissible speculation as to what a jury may or may not award in this case.'" Id. at *3. In fact, in the eyes of the District Judge, that assumption "is too speculative to give this Court jurisdiction." Id. at *2.
There was another way to establish diversity jurisdiction consdering Ms. Johnson's Counterclaim. Her award of statutory bad faith penalties, and her attorney's fees award, might result in an additional $25,001.00 if she also recovered the $50,000.00 face amount increase in her late husband's Life Insurance Policy. Not only was this again speculative, said the Federal Court, id. at *2 - *3, but "[i]n addition, American General has provided no evidence whatsoever to establish a dollar amount" for Ms. Johnson's attorney's fees. "Consequently, American General has failed to show by a preponderance of the evidence that its Complaint satisfies the amount in controversy and, as a result, this Court lacks jurisdiction to hear the case." Id. at *3. In and Addendum Order, the Court corrected this statement to acknowledge that American General had indeed filed an Affidavit reflecting that Ms. Johnson's attorney's fees, if awarded, would be over $30,000.00. Download American General Life & Accident Insurance Co. v. Johnson (Addendum Order Filed April 7, 2011) PUBLIC ACCESS. The Federal Court did not alter its ruling, however. The amount in controversy was still too speculative for the Court to exercise jurisdiction in this case.
For all these reasons, the Federal Court in this case granted Ms. Johnson's Rule 12(b)(1) Motion to Dismiss for lack of subject matter jurisdiction.
Removal and remand, establishing diversity jurisdiction and amounts in controversy, and related burdens of proof and standards of proof in Insurance Cases are examined in Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" ยงยง current 5:1, new 5:57 (Third-Party Cases) and current 11:1, new 11:23 (First-Party Cases) (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement; Third Edition in process for projected June, 2011 publication).
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