Liberty Mutual Fire v. Hayes

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
LIBERTY MUTUAL FIRE INSURANCE
COMPANY,
Plaintiff-Appellee,
v.
JEROME HAYES,
Defendant-Appellant,
No. 96-2384
and
RICKY A. CUTHBERT; SOUTH
CAROLINA FARM BUREAU MUTUAL
INSURANCE COMPANY,
Defendants.
Appeal from the United States District Court
for the District of South Carolina, at Beaufort.
Dennis W. Shedd, District Judge.
(CA-95-3687-9-19)
Argued: May 9, 1997
Decided: September 15, 1997
Before MURNAGHAN and NIEMEYER, Circuit Judges, and
FABER, United States District Judge for the
Southern District of West Virginia, sitting by designation.
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Vacated and remanded by unpublished per curiam opinion.
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COUNSEL
ARGUED: Harold Fred Kuhn, Jr., MOSS & KUHN, P.A., Beaufort,
South Carolina, for Appellant. Bert Glenn Utsey, III, SINKLER &
BOYD, P.A., in Charleston, South Carolina, for Appellee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
On April 16, 1994, Jerome Hayes ("Hayes") borrowed a 1971
Volkswagen from Ricky A. Cuthbert ("Cuthbert") for the purpose of
attending the funeral of his mother. Hayes resided in Atlanta, Geor-
gia, and the funeral was held in Beaufort County, South Carolina.
Leaving the funeral, Hayes developed engine trouble and, as the
Volkswagen slowed, the car was rear-ended by another vehicle driven
by Mary Eldonia Myers ("Myers").
Hayes was injured in the wreck and sued Myers for $150,000.00
in the Court of Common Pleas of Beaufort County. The following
insurance policies were implicated: (1) A policy with liability limits
of $15,000.00 issued by Catawba Insurance Company ("Catawba") to
Myers; (2) a policy issued by South Carolina Farm Bureau Mutual
Insurance Company ("Farm Bureau") which provided $30,000.00 in
underinsured coverage to Hayes; and (3) a policy issued by Liberty
Mutual Insurance Company ("Liberty Mutual") to Cuthbert which
provided $25,000.00 in uninsured/underinsured coverage.
Catawba paid the limits of its policy to Hayes; in return, Hayes
signed a covenant not to execute in favor of Myers and Catawba. This
apparently ended the underlying tort suit in the Beaufort County
Common Pleas Court.
2
Liberty Mutual then filed the present action in the United States
District Court for the District of South Carolina under the federal
Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202. Jurisdiction is
based solely on diversity of citizenship. The original defendants were
Hayes, Cuthbert and Farm Bureau. Liberty Mutual sought an order
declaring: (1) that Georgia law governs the interpretation of its policy
covering Cuthbert's automobile; (2) that the Farm Bureau policy pro-
vides primary underinsured motorist coverage to Hayes; (3) that the
Liberty Mutual policy provides secondary underinsured motorist cov-
erage to Hayes; (4) that any liability of Liberty Mutual to Hayes
should be reduced by sums received from Myers and Catawba; and
(5) that coverage afforded by Liberty Mutual to Hayes be reduced by
all sums received by Hayes from Farm Bureau.
Liberty Mutual asserted in the complaint that the amount in contro-
versy exceeds $50,000.00. When the district court expressed its con-
cern that the jurisdictional amount was not present, Liberty Mutual
took the position that the full amount of its policy ($25,000.00) and
the full amount of the Farm Bureau policy ($30,000.00) were both in
issue, raising the total amount in controversy to $55,000.00.1 The dis-
trict court agreed and retained jurisdiction.
Addressing the merits of the action, the district court reasoned that
Georgia law governs the Liberty Mutual policy since the contract of
insurance was formed in Georgia. Under Georgia law, the covenant
not to execute signed by Hayes was deemed to destroy his claim
against the Liberty Mutual policy. Accordingly, the court entered
summary judgment for Liberty Mutual. Prior to the entry of summary
judgment for Liberty Mutual, a settlement was reached with regard to
defendant Farm Bureau. The terms of that settlement are not before
this court.
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1 The district court received very little assistance from the attorneys in
this case with regard to the jurisdictional issue. When the court requested
briefs on this point, the plaintiff filed a cursory brief with little analysis
or authority and the defendant filed no brief at all. Likewise, this court
received very little assistance when it requested specific briefing of the
jurisdictional issue.
3
This court need not address the merits of Liberty Mutual's action
nor the propriety of the district court's entry of judgment in its favor.
Although the district court found federal jurisdiction to exist, we do
not. Accordingly, the lower court's entry of judgment in favor of Lib-
erty Mutual was made without authority and must be vacated.
The federal Declaratory Judgment Act does not confer jurisdiction
upon the federal courts. A district court must have independent sub-
ject matter jurisdiction over the action, either diversity of citizenship
or federal question. Aetna Cas. & Surety Co. v. Quarles, 92 F.2d 321,
323-24 (4th Cir. 1937). In this case, Liberty Mutual filed its declara-
tory judgment action on the basis of diversity. In satisfying the juris-
dictional amount, Liberty Mutual aggregated the policy limit of its
own coverage at issue, $25,000.00, and the limit of the Farm Bureau
policy, $30,000.00. However, as more fully set forth below, Liberty
Mutual may not aggregate the limits of these two policies to satisfy
the jurisdictional amount.2
The rules of aggregation can be stated fairly simply. If a single
plaintiff sues a single defendant, the plaintiff may aggregate the value
of all claims to satisfy the jurisdictional amount, regardless of
whether the claims have any factual connection. In the case of multi-
party litigation, however, claims by or against co-parties generally
may not be aggregated to meet the jurisdictional amount. If several
plaintiffs join together to sue a single defendant, aggregation is
allowed only if the plaintiffs' claims arise from a common and undi-
vided interest. Likewise, if a single plaintiff joins several parties as
defendants, the plaintiff may not aggregate the various claims unless
the defendants' liability is common, undivided or joint. 15 James
Wm. Moore et al., Moore's Federal Practice§§ 102.108(1)-
102.108(3) (3d ed. 1997).
The present action involves an attempt by a single plaintiff to
aggregate claims against multiple defendants. In factually similar
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2 The court notes that this appeal also presents the interesting issue of
the retroactive application of the increase in the jurisdictional amount
from $50,000.00 to $75,000.00. Because plaintiff's declaratory judgment
action fails to meet the lesser requirement, the court does not reach this
issue.
4
cases, courts generally have not allowed aggregation of claims when
an insured sues for coverage on a loss or an insurer sues for a declara-
tion of non-coverage. See Metropolitan Life Ins. Co. v. Ditmore, 729
F.2d 1, 8 (1st Cir. 1984) (denying aggregation of health insurer claims
for individual overpayments); Niagara Fire Ins. Co. v. Dyess Furni-
ture Co., 292 F.2d 232, 233 (5th Cir. 1961) (denying aggregation
where three insurance companies issued separate policies on a single
building under which each insurer was required to contribute a speci-
fied percentage in the event of a loss); Century Ins. Co. v. Mooney,
241 F.2d 910, 912-13 (10th Cir. 1957) (denying aggregation where
four insurers sought declaratory judgment of non-coverage for casu-
alty loss).
The fact that this is a declaratory judgment action has little signifi-
cance. As Professor Moore has stated, a determination of the amount
in controversy in a declaratory judgment action is essentially the same
as in other types of litigation requiring a jurisdictional amount. See 12
Moore, § 57.13(2). However, in a declaratory judgment action, the
amount in controversy is not always obvious or certain. Faced with
a declaratory judgment action that does not clearly satisfy the jurisdic-
tional amount requirement, courts should measure the value of the
object of the litigation. Hunt v. Washington Apple Advertising Comm.,
433 U.S. 333, 347 (1976). The Hunt case forms the basis of Liberty
Mutual's argument in favor of jurisdiction. Liberty Mutual contends
that Hayes' claim of entitlement to full recovery of the coverage pro-
vided by both Liberty Mutual and Farm Bureau, a sum of $55,000.00,
is the value of the object of the litigation. Thus, Liberty Mutual sub-
mits that the jurisdictional amount is satisfied.
Liberty Mutual's argument misses the mark. First, the total value
of the two policies at issue does not represent the total value of the
present declaratory judgment action. In determining the value of the
object of litigation, the majority of courts follows the "plaintiff
approach," in which the court considers only the value of the contro-
versy to the plaintiff. See 12 Moore, § 57.13(2)(d). This court, how-
ever, has employed the "either party approach," examining the
potential pecuniary effect that a judgment would have on either party
to the litigation. Government Employees Ins. Co. v. Lally, 327 F.2d
568, 569 (4th Cir. 1964).
5
From the perspective of Liberty Mutual, a maximum of $30,000.00
is at issue. Liberty Mutual has sought a declaration that the Farm
Bureau policy provides primary underinsured coverage. Furthermore,
Liberty Mutual contends that any coverage afforded by its policy
should be reduced by any recovery received from both Catawba
Insurance and Farm Bureau. Thus, the amount in controversy accord-
ing to the plaintiff's viewpoint falls below the jurisdictional amount
of $50,000.00.
Likewise, the value of the litigation from the defendants' perspec-
tive also falls short of $50,000.00. The two other insurers, Catawba
and Farm Bureau, have limited stakes in the action due to policy lim-
its of $15,000.00 and $30,000.00, respectively; the stake of each is
therefore well below $50,000.00, and their aggregate stake is only
$45,000.00. Moreover, Hayes' total claimed damages stemming from
the accident are not at issue for purposes of determining the amount
in controversy in this declaratory judgment action. This declaratory
judgment action merely seeks a determination of the interaction of
three policies implicated by the underlying accident. Liberty Mutual's
main contention is that there should be some reduction in its cover-
age, if it must provide any, due to any sums paid by the other two
insurers.
Lastly, under the basic rules of aggregation, the policy limits
afforded by the three policies cannot be aggregated to satisfy the
jurisdictional requirement. Assuming that Hayes could recover an
amount equal to the total of all three policies' limits, such a sum does
not represent the value of the litigation for the limited purpose of
determining the amount in controversy. Hayes seeks to recover from
each insurer separately. Hayes does not state a joint and several claim
for insurance coverage. Aggregation is keyed to the type of recovery,
not the factual relatedness of the claims.
In Niagara Fire Insurance Company v. Dyess Furniture Company,
Inc., 292 F.2d 232 (5th Cir. 1961), the court confronted a similar
problem. There, each of three insurance companies issued a separate
policy naming the defendants as insureds and insuring them against
all direct loss by windstorm to a certain parcel of property. Defen-
dants made three distinct claims from the insurers. The total amount
claimed from all three insurers exceeded the jurisdictional amount,
6
but the amount claimed from any one insurer was insufficient to con-
fer jurisdiction. The United States Court of Appeals for the Fifth Cir-
cuit found there was no jurisdiction. "The law has been too long
settled to require extensive discussion that when two or more plain-
tiffs, having separate and distinct demands, unite in a single suit for
convenience of litigation, their claims cannot be aggregated to make
up the jurisdictional amount." Id. at 233 (citations omitted).
Under the general rules of aggregation, Liberty Mutual cannot
aggregate the policy limits to satisfy the jurisdictional amount. The
fact that the instant case involves insurers on both sides of the ledger
does not alter the outcome. Neither Hayes' total claim for damages,
nor the total of the underinsured motorist policies, may serve to sat-
isfy the jurisdictional amount. Accordingly, the judgment of the dis-
trict court is vacated and this action is remanded for dismissal
pursuant to Rule 12(h)(3) of the Federal Rules of Civil Procedure.
VACATED AND REMANDED
7