Allstate Fire and Casualty v. Allison Love

Case: 22-20405 Document: 00516795974 Page: 1 Date Filed: 06/22/2023

United States Court of Appeals

for the Fifth Circuit

United States Court of Appeals

Fifth Circuit

____________ FILED

June 22, 2023

No. 22-20405 Lyle W. Cayce

____________ Clerk

Allstate Fire and Casualty Insurance Company,

Plaintiff—Appellee,

versus

Allison Love; Tammy Love,

Defendants—Appellants.

______________________________

Appeal from the United States District Court

for the Southern District of Texas

USDC No. 4:20-CV-22

______________________________

Before Higginbotham, Graves, and Douglas, Circuit Judges.

Dana M. Douglas, Circuit Judge:

The issue on appeal is whether, in an action seeking declaratory relief,

the amount of an insurance policy or the underlying claim determines the

amount in controversy to establish diversity jurisdiction pursuant to 28

U.S.C. § 1332(a). We hold that where there is a legal possibility that an

insurance company may be liable for an amount in excess of its policy limit,

the underlying claim determines the amount in controversy. Therefore, we

AFFIRM the district court’s determination that it had subject matter

jurisdiction.

Case: 22-20405 Document: 00516795974 Page: 2 Date Filed: 06/22/2023

No. 22-20405

I. Background

This dispute began in 2016 when Allison and Tammy Love sued

Jonathan Perez in state court for damages stemming from an automobile

accident. Perez fled the scene of the accident, was criminally charged for

failing to provide his name, address, and insurance information, and pleaded

nolo contendere to a criminal misdemeanor. Perez was insured by Allstate Fire

& Casualty Insurance Company (“Allstate” herein). Allstate paid the

Loves’ claims for property damages, but the Loves rejected Allstate’s offers

to resolve their physical injury claims, demanding the policy limit of $50,000.

As the claims progressed, Perez failed to cooperate with Allstate in

pursuing the litigation. His failure to respond to written discovery and to

appear at his deposition resulted in the court barring Allstate’s counsel from

representing Perez and striking all pleadings that counsel had filed on Perez’s

behalf. Ultimately, the trial court entered a final default judgment against

Perez awarding Allison Love $100,000 in actual damages and $50,000 in

exemplary damages and awarding Tammy Love $13,822 in actual damages

for the past medical expenses of Allison Love while a minor.

The state court default judgment prompted Allstate to file suit in

federal district court requesting a declaration that it had no duty to indemnify

the Loves for the damages awarded in the underlying state lawsuit. Invoking

diversity jurisdiction, Allstate’s complaint claims:

The default Final Judgment entered in the pending state court

lawsuit against Mr. Perez awards Allison Love $100,000 in

actual damages and an additional $50,000 for exemplary

damages and further awards Tammy Love the sum of $13,822.

Thus, the total award in the default Final Judgment is

$163,822. Allison and Tammy Love, through counsel, have

asserted that Allstate must pay this entire amount based on two

purported prior Stowers demands and the absence of prejudice

caused by Mr. Perez’s admitted failure to cooperate in his

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defense. Moreover, the aggregate liability limit under Mr.

Perez’s Allstate personal auto policy is $100,000. Courts

consider such damages and policy limits when determining

whether the “amount in controversy” diversity requirement is

satisfied.

In Texas, the Stowers doctrine may subject an insurer to liability for the entire

amount of a judgment, including the part exceeding the insured’s policy

limits. “The common law imposes a duty on liability insurers to settle third-

party claims against their insureds when reasonably prudent to do so.”

Phillips v. Bramlett, 288 S.W.3d 876, 879 (Tex. 2009) (citing G.A. Stowers

Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. 1929)).

Here, no party disputes that Allstate and the Loves are completely

diverse, as Allstate is a citizen of Illinois, and the Loves are citizens of Texas.

Instead, the sole issue on appeal is whether, in this action seeking declaratory

relief, the amount of the policy limit or the value of the underlying claim

should be assessed in determining whether the amount in controversy

exceeds $75,000. 1

The district court determined that it had subject matter jurisdiction

over the lawsuit, denying the Loves’ motion to dismiss pursuant to Federal

Rule of Civil Procedure 12(b)(1). It subsequently granted summary judgment

in favor of Allstate, finding that Perez’s failure to cooperate in the underlying

suit prejudiced Allstate and barred any legal obligation to pay the Loves the

judgment amount of $163,822.

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1

The court does not consider the $50,000 per person limit to equate to a policy

limit of $100,000 under the instant facts, thus satisfying the amount in controversy, where

Allison Love was the only person to sustain injuries. Tammy Love was awarded past

medical expenses for Allison Love while she was a minor. Thus, the aggregate policy limit,

representing two individuals, is inapplicable for establishing the amount in controversy.

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II. Parties’ Contentions

The Loves claim that the district court erroneously held that the

amount of the state court judgment, rather than the applicable policy limits,

determined the amount in controversy. The Loves argue that any potential

Stowers claims were unasserted by them and unassigned by Perez, who was

not made a party in the initial complaint, and cannot be aggregated with the

applicable policy limits to meet the minimum amount in controversy for

jurisdiction. Finally, the Loves urge that any subsequent amendment to

Allstate’s complaint adding Perez as a defendant did not create jurisdiction

and was a nullity, where the record does not indicate Perez was validly

served.

Allstate argues that the amount in controversy far exceeds $75,000

because it was exposed to liability for the $163,822 state court judgment

entered against its insured due to the Loves’ two Stowers demand letters.

Allstate claims that policy limits do not control the amount in controversy in

insurance cases such as this one. Alternatively, Allstate argues that its

amendment to include Perez as a defendant, which was properly served,

squarely put the potential Stowers claim before the district court in

satisfaction of the amount in controversy.

III. Discussion

We review the district court’s legal determination that it possessed

subject matter jurisdiction de novo. Passmore v. Baylor Health Care Sys., 823

F.3d 292, 295-96 (5th Cir. 2016). The court need not reach all the arguments

raised by the Loves because it is apparent from the face of the complaint that

the amount in controversy is satisfied here.

Title 28 U.S.C. § 1332(a) confers federal diversity jurisdiction on civil

actions where the matter in controversy exceeds the sum or value of $75,000.

As the party invoking federal diversity jurisdiction, Allstate bears the burden

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of establishing the amount in controversy by a preponderance of the

evidence. St. Paul Reins. Co., Ltd. v. Greenberg, 134 F.3d 1250, 1253 (5th Cir.

1998). In determining whether Allstate has met its burden, we must first

examine the complaint to determine whether it is facially apparent that the

claims exceed the jurisdictional amount. See id. If the amount in controversy

is not apparent, we may rely on “summary judgment” type evidence. Id.

Allstate’s complaint seeks a judicial declaration that it has no duty to

indemnify the Loves for the damages awarded to them in the default final

judgment entered against Perez by the state court. In actions for declaratory

judgment, “it is well established that the amount in controversy is measured

by the value of the object of the litigation.” Hunt v. Wash. State Apple Adver.

Comm’n, 432 U.S. 333, 347 (1977); Frye v. Anadarko Petroleum Corp., 953 F.3d

285, 293 (5th Cir. 2019). In other words, the amount in controversy in such

actions “is the value of the right to be protected or the extent of the injury to

be prevented.” St. Paul Reins. Co., 134 F.3d at 1252-53 (citation omitted).

The parties assert that Hartford Ins. Grp. v. Lou-Con, Inc., 293 F.3d

908 (5th Cir. 2002), is the controlling Fifth Circuit case on this matter. We

agree. In Hartford, this circuit squarely addressed the question of “whether,

in a declaratory judgment action concerning the applicability of an insurance

policy to a particular occurrence, the amount in controversy is to be

measured by the policy limits or by the value of the underlying claim.” Id. at

910.

Hartford is cited by district courts throughout our circuit for the

proposition that “[w]hen a plaintiff seeks to recover payments under an

insurance policy, the amount in controversy, for purposes of establishing

diversity jurisdiction, is governed by the lesser of the value of the claim under

the policy or the value of the policy limit.” See, e.g., Henderson v. Allstate Fire

& Cas. Ins. Co., 154 F. Supp. 3d 428, 431 (E.D. La. 2015); Mabry v. Gov. Emp.

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Ins. Co., 268 F. Supp. 3d 885, 890 (N.D. Miss. 2017); Martinez v. Allstate Fire

& Cas. Ins. Co., No. 5:20-cv-74, 2020 WL 10063135, at *3 (W.D. Tex. June

11, 2020); Wahlenmaier v. Allstate Indemnity Co., No. 3:20-cv-0704, 2020 WL

2841381, at *1 (N.D. Tex. May 29, 2020). The Loves arguments are drawn

from the proliferation of this holding that in a declaratory judgment action,

the policy limit establishes the amount in controversy if the underlying state

court judgment exceeds that amount. But this proposition is premised on an

oversimplification of our caselaw perpetuated by numerous district courts

throughout our circuit. Thus, we seek to clarify herein.

Hartford involved an insurance company filing suit for declaratory

judgment “that it ha[d] no duty to defend or indemnify Lou-Con or Murphy

Oil in the asbestos litigation.” Hartford, 293 F.3d at 909. The district court

dismissed the case for lack of subject matter jurisdiction, finding an

insufficient amount in controversy. Id. at 909-10. Hartford had issued Lou-

Con two $1 million general liability insurance policies and two $5 million

umbrella liability insurance policies. Id. at 909. But the amount that Lou-

Con sought from Hartford represented only about $261.42. Id. at 910. The

district court found that the amount of Lou-Con’s claim against Hartford —

$261.42 — established the amount in controversy and did not reach the

necessary $75,000. Id. We affirmed. Id. at 912.

The panel in Hartford provided a nuanced discussion on when the

policy limit versus the value of the underlying claim controls a matter:

We recognize that under certain circumstances the policy

limits will establish the amount in controversy. Specifically, the

policy limits are controlling “in a declaratory action … as to the

validity of the entire contract between the parties.” 14B Charles

Alan Wright, Arthur R. Miller & Edward H. Cooper,

Federal Practice and Procedure: Jurisdiction 3D §

3710 (3d ed. 1998); see also Waller v. Prof’l Ins. Corp., 296 F.2d

545, 547 (5th Cir. 1961) (holding that when the validity of a

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contract or a right to property is called into question in its

entirety, the value of the property controls the amount in

controversy). However, in declaratory judgment cases that

involve the applicability of an insurance policy to a particular

occurrence, “the jurisdictional amount in controversy is

measured by the value of the underlying claim – not the face

amount of the policy.” 14B Charles Alan Wright, Arthur R.

Miller & Edward H. Cooper, Federal Practice and

Procedure: Jurisdiction 3D § 3710 (3d ed. 1998).

Id. at 911 (emphasis added). It concluded that Hartford’s case fell into the

latter category — “Hartford seeks a judicial declaration that its policy does

not extend to Lou-Con employees who sustained asbestos-related injuries

while working for Murphy Oil.” Id. And importantly, “[i]t is not seeking to

void the entire insurance contract.” Id. (emphasis added). Accordingly, the

jurisdictional amount in controversy was properly measured by the value of

the underlying claim. Id.; see also C.E. Carnes & Co. v. Employers’ Liab. Assur.

Corp., Ltd. of London, Eng., 101 F.2d 739, 741 (5th Cir. 1939) (“The amount

in controversy is the value of that which is sought to have declared free from

doubt.”). The court held that “in declaratory judgment cases that involve

the applicability of an insurance policy to a particular occurrence, the

jurisdictional amount in controversy is measured by the value of the

underlying claim — not the face amount of the policy.” Hartford, 293 F.3d

at 911.

The court in Hartford did not hold that in determining the amount in

controversy, the jurisdictional amount is governed by the lesser of the value

of the claim under the policy or the value of the policy limit. In fact, it

expressly rejected this rule, pointing to C.E. Carnes & Co. v. Employers’ Liab.

Assur. Corp., Ltd. Of London, Eng., 101 F.2d 739 (5th Cir. 1939):

Carnes has also been cited for the proposition that when a claim

exceeds the policy limits, the policy limits, rather than the larger

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value of the claim, determine the amount in controversy. In

other words, if an insurance policy limits the insurer’s liability

to a sum below the jurisdictional threshold, the fact that a

claimant wants more money does not increase the amount in

controversy.

Id. at 911. The court stated, “[we] do not read [Carnes] … to announce a rule

that the policy limits determine the amount in controversy.” Id. (emphasis

added). 2

Here, the circumstances are like those in Hartford. Allstate does not

seek to void the entire insurance contract — it is seeking a judicial declaration

that its policy does not extend to the damages awarded to the Loves by the

state court. This seemingly ends our inquiry. But in Hartford the court

indicated that it was not faced with the “possibility that the claims will likely

exceed the policy limits.” 293 F.3d at 911. Unlike Hartford, we are

confronted with a case where the amount sought is in excess of the policy

limit. Thus, the determination of the applicable amount in controversy

continues beyond Hartford’s holding.

Hartford and the Loves cite Payne v. State Farm Mut. Auto. Ins. Co.,

266 F.2d 63 (5th Cir. 1959), for the proposition that “the fact that a claimant

wants more money does not increase the amount in controversy” beyond the

policy limit. Hartford, 293 F.3d at 911. In Payne, this court stated, “[i]f there

is one situation where the amount of a claim can be determined with legal

certainty, it is in a case when a claim is asserted on an insurance policy

limiting liability.” Payne, 266 F.2d at 64. The Payne court focused on the

legal impossibility of the plaintiff recovering more than that which was

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2

Instead, the panel in Hartford stated, that Carnes “simply held that numerous

individual claims against an insurer may be aggregated to reach the policy limit.” Hartford,

293 F.3d at 911.

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available under the policy. See id. But in some circumstances, a recovery in

excess of the policy limit may be available. This case represents one of those

circumstances.

Here, it is a legal possibility that Allstate may be liable for more than

the policy limit. As noted, the Stowers doctrine may subject an insurer to

liability for the entire amount of a judgment, including the part exceeding the

insured’s policy limits. For liability to arise, “there must be coverage for the

third-party’s claim, a settlement demand within policy limits, and reasonable

terms ‘such that an ordinarily prudent insurer would accept it, considering

the likelihood and degree of the insured’s potential exposure to an excess

judgment.” Phillips, 288 S.W.3d at 879 (quoting Am. Physicians Ins. Exch. v.

Garcia, 876 S.W.2d 842, 849 (Tex. 1994)). “When these conditions coincide

and the insurer’s negligent failure to settle results in an excess judgment

against the insured, the insurer is liable under the Stowers doctrine for the

entire amount of the judgment, including the part exceeding the insured’s policy

limits.” Id. (citing G.A. Stowers Furniture Co., 15 S.W.2d at 548) (emphasis

added).

Here, Allstate pointed to the Loves’ Stowers demands in the complaint

invoking diversity jurisdiction. It also presented evidence that it was in

danger of potential liability for the full amount of the state court judgment. It

thus demonstrated to the district court by a preponderance of the evidence

that it was legally possible for it to be held liable for more than the policy limit

of $50,000 per person and become liable to the Loves for the full amount of

the state court judgment. Accordingly, Allstate adequately alleged diversity

jurisdiction, and the district court had subject matter jurisdiction over the

dispute.

The Loves argue that a Stowers claim for the amount of a judgment in

excess of policy limits belongs solely to the insured and that an injured party

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has no standing to assert an unassigned Stowers claim directly against an

insurer. But this is not unequivocally true. Although it is true that the

insured generally owns a Stowers claim, a third-party beneficiary may pursue

such a claim by turnover. 3 See Goggans v. Ford, No. 05-15-00052, 2016 WL

2765033, at *2-3 (Tex. App. — Dallas 2016, pet. denied); D & M Marine, 409

S.W.3d at 858 (turnover did not violate public policy where there was no

evidence insured did not want to be indemnified). Because this presents a

legal possibility, it does not “appear to a legal certainty that the claim is really

for less than the jurisdictional amount.” St. Paul Reins. Co., 134 F.3d at 1253

(quotation omitted).

Based on this analysis, the proposition that the amount in controversy

is governed by the lesser of the value of the claim under the policy or the value

of the policy limit is not dispositive. Instead, we hold that where the claim

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3

Notably, “an insured’s cause of action against its insurer for failure to settle is not

subject to a turnover order when the insured is satisfied with its insurer’s representation.”

D & M Marine, Inc. v. Turner, 409 S.W.3d 853, 857 (Tex. App.—Fort Worth 2013, no pet.)

(citing Charles v. Tamez, 878 S.W.2d 201, 208 (Tex. App. — Corpus Christi-Edinburg

1994, writ denied)); see also Nationwide Mut. Ins. Co. v. Chaney, No. 3:00-cv-0628, 2002

WL 31178068, at *4 n. 5 (N.D. Tex. Sept. 30, 2002) (noting turnover to judgment creditor

of failure-to-settle claim against insurer improper when insured — the judgment debtor —

believed he was better off without settlement), aff’d sub nom., Nationwide Mut. Ins. Co. v.

Haffley, 78 F. App’x 348 (5th Cir. 2003) (unpublished) (per curiam). There is no evidence

to suggest that Perez, the insured, thought he was better off without settlement such that a

turnover would be inappropriate here.

The Loves argue vigorously that they have not asserted any Stowers demand. But

the settlement demands they sent Allstate undermine these arguments. The record

suggests that it is likely that the Loves would seek a turnover based on their letters to

Allstate, specifically invoking the Stowers doctrine and noting “[o]ther liabilities and

exposures may exist on account of the insurance company’s refusal to timely investigate,

negotiate, and settle this case.” Moreover, Perez has not released any potential Stowers

claim. See Haffley, 78 F. App’x at 350 (affirming district court judgment that the Stowers

claim was not subject to turnover because the insured never attempted to assert it and

“[i]ndeed, [the insured] released any potential Stowers claim”).

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under the policy exceeds the value of the policy limit, courts considering

declaratory judgments should ask whether there is a legal possibility that the

insurer could be subject to liability in excess of the policy limit. 4 The party

seeking diversity jurisdiction should establish this possibility by a

preponderance of the evidence. See id. at 1252.

AFFIRMED.

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4

This holding is supported by our prior precedents. In De Aguilar v. Boeing Co.,

we held that the party seeking to avoid federal jurisdiction is required to prove that “it is

certain that he will not be able to recover more than the damages for which he has prayed

in the state court complaint.” 47 F.3d 1404, 1411 (5th Cir. 1995), superseded by amendment

on other grounds, Tex. R. Civ. P. 47 (emphasis added). This is so because the amount in

controversy is “not proof of the amount the plaintiff will recover” but “an estimate of the

amount that will be put at issue in the course of the litigation.” Durbois v. Deutsche Bank

Nat’l Tr. Co. as Tr. of Holders of AAMES Mortg. Inv. Tr. 20054 Mortg. Backed Notes, 37 F.4th

1053, 1057 (5th Cir. 2022). Thus, the party seeking federal jurisdiction need only

demonstrate a “probability that the matter in controversy exceeds the jurisdictional

amount.” De Aguilar, 47 F.3d at 1411.

11