OCTOBER 2006 BAD FAITH CASES STATE COURT BAD FAITH CLAIM PLEADED LESS THAN $50,000, & IN ARBITRATION, NOT REMOVABLE BECAUSE OF AMBIGUOUS DISCOVERY RESPONSE (Philadelphia Federal)

In Howard v. Allstate Insurance Company, Plaintiff filed a breach of contract and bad faith Complaint in Philadelphia’s Court of Common Pleas, specifically stating that damages were less than $50,000 (Philadelphia’s arbitration limit).  During the litigation, in response to a request for admissions as to whether the damages would exceed $50,000, $75,000 and $150,000, Plaintiff responded that he “cannot state with certainty that should bad faith damages be awarded” his damages would exceed these thresholds. The carrier removed the case to federal court, using this answer to argue that it created a basis for removal because the parties were diverse and the sum at issue could exceed $75,000 (the jurisdictional minimum).  The United States Court for the Eastern District of Pennsylvania rejected this argument and remanded the case.  The applicable legal principles required that Defendant establish by a preponderance of the evidence to a legal certainty that the “amount in controversy” exceeded $75,000.  Defendant could not do this in an arbitration case where damages were capped at $50,000 by the state court rules.  Further, “Defendant cannot base diversity jurisdiction on the mere possibility that damages could exceed $ 75,000 if punitive damages and/or attorney fees were awarded.”  That Plaintiff would not speculate in its answers to the requests for admissions as to how much the case might be worth did not confer jurisdiction.  Finally, although mooted, the Court found that if new information had arisen during the course of litigation that met the legal certainty test for establishing a claim in excess of $75,000, removal may have been possible.

Date of Decision:  Sept. 28, 2006

Howard v. Allstate Ins. Co., United States District Court for the Eastern District of Pennsylvania, No. 06-4017, 2006 U.S. Dist. LEXIS 71915 (E.D. Pa. Sept. 28, 2006) (Stengel, J.)