JANUARY 2007 BAD FAITH CASES CASE ORIGINALLY STATE COURT ARBITRATION ALLOWED TO PROCEED IN FEDERAL COURT AFTER REMOVAL DESPITE INITIAL CLAIM BEING LIMITED TO $50,000 (Philadelphia Federal)

    

In Valley, et al. v. State Farm Fire and Casualty Company, the insureds sued for breach of contract and bad faith for failure to pay on their claim for $31,445.65 in soot damage.  The case was brought in the Philadelphia Court of Common Pleas’ Compulsory Arbitration Program, which has a maximum jurisdiction limit of $50,000.  The case was removed by the insurer to federal court, which has an amount-in-controversy minimum of $75,000 for this type of case.  The insureds moved to remand the case to state court.  They argued that removal was improper because the case did not meet the minimum amount-in-controversy.  The Federal Court ruled that the removal was proper.  The Philadelphia civil court cover sheet, where the insureds listed their claims as less than $50,000, was not controlling.  Rather, the court reasoned that the insured could conceivably recover in excess of $75,000 if they succeeded on their contract claim for $31,445.65, their bad faith claim (which sough punitive damages), and attorneys fees.  The court noted that it would not be unforeseeable for the insureds to recover three or four times their claim (for $31,445.65) in punitive damages alone.  And the court further observed that the insureds were unwilling to stipulate that their claims were for less than $75,000.

Date of Decision: December 12, 2006

Valley, et al. v. State Farm Fire and Casualty Company, United States District Court for the Eastern District of Pennsylvania, No. 06-4351, 2006 U.S. Dist. LEXIS 90376 (E.D. Pa. 2006) (Shapiro, J.).