Opinion
Civ. No. 04-3192 (RHK/RLE).
October 25, 2004
Robert O. Blatti, Pemberton, Sorlie, Rufer Kershner, P.L.L.P., Fergus Falls, Minnesota, for Plaintiff.
Erik T. Salveson, Gray, Plant, Mooty, Mooty Bennett, P.A., Minneapolis, Minnesota, for Defendant.
MEMORANDUM OPINION AND ORDER
Introduction
This matter comes before the Court on Plaintiff Kraig A. Stengrim's Motion to Remand. Stengrim sued Defendant Northwestern Mutual Life Insurance Company ("Northwestern") in state court alleging breach of contract based on Northwestern's refusal to pay Stengrim disability benefits under a disability income policy. Northwestern removed the action to this court on the basis of federal diversity jurisdiction. Stengrim now moves to remand this case on the ground that the amount in controversy does not satisfy the jurisdictional requirement. For the reasons set forth below, the Court will deny Stengrim's motion.
Background
In June 2000, after completing an application process that involved answering questions on a "Nonmedical Questionnaire" and in a "Personal History Interview," Stengrim was issued a disability income policy by Northwestern ("the Policy"). (Salveson Aff. Ex. 2; Latus Aff. ¶ 2.) The Policy provided for a "Disability Income" benefit with a maximum benefit period of 60 months and a "Social Insurance Substitute" benefit payable until June 23, 2027, in the event of Stengrim's disability. (Latus Aff. ¶ 4.)
In September 2002, Stengrim filed a disability claim with Northwestern. (Stengrim Aff. ¶ 3.) The claim was approved, and in December 2002 he began receiving $2,200.00 monthly benefit payments which continued through October 2003. (Id. ¶ 4.)
In early November 2003, Stengrim received a letter from Northwestern stating that a review of his medical records revealed that he had provided the company with inaccurate or incomplete medical history information during the policy application process. (Id. ¶ 5; Salveson Aff. Ex. 2.) Northwestern asserted that this information "would have made a difference in [its] underwriting decision." (Salveson Aff. Ex. 2.) Northwestern also stated that it intended to rescind the Policy, but gave Stengrim the opportunity to present "any additional information [he] would like [Northwestern] to consider" by November 26, 2003. (Id.) Having received no satisfactory response from Stengrim, Northwestern rescinded the Policy in a letter to Stengrim's counsel, and attached a check refunding the premiums Stengrim paid under the Policy. (Id. Ex. 3.) Counsel returned the refund check to Northwestern stating that Stengrim "disputes both the cancellation and rescission of his disability policy." (Blatti Aff. Ex. 1.) Stengrim has not received any disability payments from Northwestern since October 2003. (Stengrim Aff. ¶ 6.)
The record indicates that Stengrim's attorney responded to Northwestern by letter dated November 24, 2003. (Salveson Aff. Ex. 3.) While that letter has not been provided to the Court, the record does contain Northwestern's reference to the letter as providing "no new information." (Id.)
Paragraph 8.2 of the Policy grants Northwestern the right to "rescind the policy or deny a claim" for certain specified reasons. (Salveson Aff. Ex. 1, ¶ 8.2.)
In June 2004, Stengrim filed this action in state court. (See Compl.) In his Complaint, he claims that Northwestern "is obligated to the terms of the . . . Policy . . . to pay to [him] . . . all benefits payable under [the Policy] from September 8, 2002, to date. . . ." (Id. ¶ 8.) He seeks a determination that he is totally or partially disabled under the terms of the Policy, and "judgment against [Northwestern] for all benefits due and payable under [the Policy]." (Compl.)
In July 2004, Northwestern removed the case to this Court on the ground that there is federal jurisdiction over the matter because the parties are citizens of different states and the amount in controversy exceeds $75,000. According to Stengrim, at the time of removal, his claim (and in his view, the amount in controversy) was no more than $22,870.00 — the amount of disability benefit payments he would have received from October 2003 to July 2004 in the absence of Northwestern's rescission. (See Mem. in Supp. at 4.) Northwestern asserts that the total value of the Policy should determine the amount in controversy, meaning that if payments under the Policy had remained in effect and Stengrim was totally disabled through the end of the maximum benefits period, he would be entitled to $420,775.00 in disability benefit payments. (Latus Aff. ¶ 5.)
Standard of Review
Under 28 U.S.C. § 1441(a), a defendant may remove a matter from state court if that matter could have originally been brought in federal court. The district court must, however, remand the case to state court "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction. . . ." 28 U.S.C. § 1447(c). The party seeking removal and opposing remand has the burden of establishing federal subject matter jurisdiction. In re Bus. Men's Assurance Co., 992 F.2d 181, 183 (8th Cir. 1993). When reviewing a motion to remand, a court must resolve all doubts about federal jurisdiction in favor of remand.Id.
Analysis
Federal jurisdiction extends to cases between citizens of different states where the amount in controversy exceeds $75,000. 28 U.S.C. § 1332. At issue in this case is whether the amount in controversy exceeds $75,000. In cases involving disability insurance policies, the amount in controversy determination depends on whether the validity or enforceability of the policy is at issue. See Thorkelson v. Aetna Life Ins. Co., 9 F. Supp. 570, 572 (D. Minn. 1934). If the validity or enforceability of the policy is in dispute, the amount in controversy is the amount of future potential benefits under the policy. Id.; Penn Mut. Life Ins. Co. of Phila. v. Joseph, 5 F. Supp. 1003, 1005 (D. Minn. 1934); see also Mass. Cas. Ins. Co. v. Harmon, 88 F.3d 415, 416 (6th Cir. 1996) ("The clear federal rule is that where the validity of an insurance policy containing disability benefit provisions is involved in a diversity action in a federal district court, the future potential benefits may be considered in computing the requisite jurisdictional amount." (internal quotation omitted)). Such a rule, however, does not apply when the parties agree that there is a valid disability policy, but disagree as to their obligations under the terms of that policy. Mass. Cas, 88 F.3d at 416-17.Stengrim contends that the amount in controversy requirement is not satisfied because he did not explicitly allege in his Complaint that the validity or enforceability of the Policy is in dispute. (Mem. in Supp. at 6.) According to Stengrim, the amount in controversy is limited to the value of the withheld disability payments from December 2003 to July 2004 — when the action was removed. (Id. at 4-5.) The value of his claim at the time of removal would be limited to $22,870, short of the requisite jurisdictional amount. Stengrim's argument fails, however, because the relief he requests — "all benefits due and payable under [the Policy]" — necessitates a determination of the Policy's validity and enforceablility. That his Complaint is artfully constructed to avoid asking outright for such a determination does not change the nature of this dispute. See also City of Univ. City v. ATT Wireless Serv., 229 F. Supp. 2d 927, 933 (E.D. Mo. 2002) (citing Bishop Clarkson Mem'l Hosp. v. Reserve Life Ins. Co., 350 F.2d 1006, 1008 (8th Cir. 1965)) ("It is the substance of the claim, not the conclusory recitation of its worth, that will determine if federal jurisdiction is extant. `The value of the right which is sought to be enforced by the suit determines the amount in controversy.'") There is no dispute that the value of the future potential benefits under the Policy is well in excess of $75,000, and the Court concludes that this is the applicable measure of the amount in controversy.
At oral argument, Stengrim's counsel acknowledged that Stengrim, if successful in the present action, will continue to claim disability benefits under the Policy. This reinforces the conclusion that the amount in controversy here is not limited to the amount of the missed disability payments between October 2003 and July 2004. Rather, Stengrim seeks to have the Policy reinstated and to receive any future benefits to which he may be entitled.
The Court's conclusion is buttressed by Thorkelson, where this court denied an insured plaintiff's motion to remand, and determined that the value of his disability benefit and life insurance policy satisfied the requisite jurisdictional amount. 9 F. Supp. at 572. When the insured refused to pay his premiums because he claimed to be disabled, the insurance company determined that the policy had lapsed due to his nonpayment.Id. at 571. The insured then brought suit in state court against the insurance company seeking a declaration "that the policy [was] in full force and effect."Id. In determining that the amount in controversy requirement was satisfied, the court noted that "the mere fact that there are certain contingencies and uncertainties does not necessarily defeat the jurisdiction of this court in computing the value of the protection that plaintiff is seeking." Id. at 572 (internal quotation omitted).
The court stated that "the amount in controversy . . . [is] either the face of the policy or the amount of reserve that the insurer will be required to set up in the event the policy remains in force." Thorkelson, 9 F. Supp. at 572 (citations omitted).
Thorkelson, decided in 1934, is supported by more recent case law. See, e.g., In re Minn. Mut. Life Ins. Co. Sales Practices Litig., 346 F.3d 830, 834-35 (8th Cir. 2003) (holding in a case removed to federal court, that the face value of life insurance policies not the "potentially smaller award based solely on compensatory damages" establishes the jurisdictional amount in controversy); Mass. Cas., 88 F.3d at 416 (holding that future potential benefits are the appropriate measure of the amount in controversy where insurer brought suit seeking rescission of policy because insured failed to disclose relevant medical history). While Minnesota Mutual involved life insurance policies, and this case involves a disability benefit policy, this court has not emphasized a distinction between life and disability insurance policies when determining the amount in controversy. Penn Mut., 5 F. Supp. at 1004-05 (noting contingencies inherent in life insurance policies similar to disability benefit policies, such as the chance that an insured would not collect on a life insurance policy because of a default in premium payments or a death occurring under circumstances that render the life insurance policy voidable).
As in Thorkelson, Stengrim claims to be entitled to disability benefit payments despite having been informed by Northwestern that the Policy was no longer in force. In response to Northwestern's rescission notice and stoppage of disability payments, Stengrim, like the insured in Thorkelson, brought suit to enforce the Policy. That Stengrim did not explicitly ask the Court for a declaration that the Policy is "in full force and effect," as the plaintiff did in Thorkelson, does not change the underlying nature of the dispute; this case centers around whether Stengrim is entitled to disability benefit payments due to Northwestern's wrongful rescission of the Policy. Stengrim's contention that his claim is solely for missed payments, and consequently does not involve the enforceability of the Policy, must be rejected as faulty reasoning — Stengrim cannot claim that the validity of the Policy is not at issue just because he asserts that the Policy is valid. Because the value of the future potential benefits under the Policy exceeds the requisite jurisdictional amount, the Court finds that it has jurisdiction over this matter.
Stengrim's reliance on Umbenhower v. Mutual of Omaha Ins. Co., 298 F. Supp. 927 (W.D. Mo. 1969) is misplaced. While the facts in Umbenhower are similar to the instant case, and the court there found jurisdiction lacking, the holding of the case is not at odds with the Court's conclusion here. Umbenhower made clear that the plaintiff could not recover for future disability payments (an issue not present in this case), and that the defendant's counterclaims could not be considered in determining the amount in controversy. Id. at 28-29. This Court is not taking into account Northwestern's affirmative defenses or counterclaims in deciding this issue. Further, Stengrim's own filings establish that the enforceability of the Policy is at the center of this dispute. Because the amount in controversy is not apparent from the face of the Complaint, the Court is not prevented from considering the December 30, 2003 letter Stengrim's attorney wrote to Northwestern stating that "Mr. Stengrim disputes both the cancellation and rescission of his disability policy. . . ." (Blatti Aff. Ex. 1.) See Manguno v. Prudential Prop. Cas. Ins. Co., 276 F.3d 720, 723 (5th Cir. 2002) (in considering a motion to remand where "the petition does not include a specific monetary demand" the defendant can establish that the amount in controversy is met through "[setting] forth summary judgment type evidence of facts in controversy that support a finding of the requisite amount" (internal quotation and citations omitted)). While this letter was submitted in support of his Motion to Remand, it only reinforces the conclusion that the enforceability and validity of the Policy is at issue in this case. There is no indication of similar evidence in Umbenhower.