• September 9, 2010

What could be easier than determining whether, in a particular lawsuit, there is more than $75,000 “in controversy” (which is a requirement for “diversity jurisdiction” in federal courts)?  In fact, the analysis is most often quite straight-forward.

But what about a case in which an insurer seeks a declaratory judgment from the federal court — that is, a ruling on the proper application of an insurance policy, essentially — to avoid coverage for any potential future liability and to avoid having to pay defense costs where there is a $500,000 deductible on defense costs (and, at the time of filing of the insurer’s action, defense costs well under this $500,000 threshold)?  The insurance company is seeking NO money.  Moreover, it is, when it brings the action, subject at that moment to zero $ liability…  U.S. District Court Judge Paul A. Magnuson (D. Minn.) was summary and dismissive in his rejection of the declaratory judgment defendant’s argument that the federal court had no jurisdiction based on the insurer’s supposed failure to meet the jurisdictional amount.  On this point, he concluded,  “As [the declaratory judgment defendant] is well aware, there is much more than $75,000 at stake in the underlying litigation.”

On appeal to the Eighth Circuit, the appellant lamented that Judge Magnuson’s ruling was “conclusory,” and “a complete mystery because [the order] contains no supporting facts or analysis.”

If the appellant wanted “supporting facts and analysis,” its needs were met by the Court of Appeals.  But what the appellant really wanted, of course, was reversal of the district court’s adverse decision finding no insurance coverage because of the pollution exclusion in the applicable policy and, on this score, appellant was disappointed.   As to the “amount in controversy,” the Eighth Circuit, in an opinion by Chief Judge Riley, held that

It is well established that the requirements for diversity jurisdiction must be satisfied only with respect to the time of filing. … Subsequent events reducing the amount in controversy do not destroy diversity jurisdiction. … Subsequent events may, however, be relevant to prove the existence or nonexistence of diversity jurisdiction at the time of filing.  See, e.g., Grinnell Mut.Reins. Co. v. Shierk, 121 F.3d 1114, 1116 (7th Cir. 1997) (observing that, only six months after a declaratory judgment action was filed by an insurer against an insured,the plaintiff in the underlying liability action argued to a jury that a $100,000 awardwas appropriate against the insured).

The opinion goes on to describe the underlying claims and the declaratory judgment defendant’s own post-filing statements about “staggering” potential liability and extensive litigation costs (in the context of its unsuccessful efforts to limit discovery in the underlying action).

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