Unpublished Disposition, 879 F.2d 865 (9th Cir. 1987)

No. 87-5832.

United States Court of Appeals, Ninth Circuit.

Before FLETCHER and KOZINSKI, Circuit Judges, and D. LOWELL JENSEN,^*  District Judge.

MEMORANDUM^** 

The plaintiff-appellants, Manuel and Carol Martinez, filed an action under 28 U.S.C. § 1332(a) against Reserve Life Insurance, alleging that Reserve breached the insurance contract, and breached the implied covenant of good faith and fair dealing. The district court, finding that no reasonable juror could conclude that appellants were damaged in an amount of $10,000.00 or more, dismissed the action for want of jurisdiction. We reverse and remand.

FACTS

In 1969, appellee Reserve Life issued a joint life insurance policy to Manuel and Carol Martinez. The policy contained a provision stating that if one of the insureds became totally disabled, Reserve would waive the premium payment during the period of total disability. The policy defined total disability as "incapacity to engage in any occupation for remuneration or profit, which incapacity is the result of injury or disease contacted after the effective date." According to the appellants, such a definition is inconsistent with California law, and was adopted for the purpose of discouraging appellants and similarly situated insureds from applying for premium waiver.

According to the appellants, Manuel Martinez became disabled in 1981. Appellants sought information about premium waiver, but did not file the forms necessary to effectuate such a waiver because they felt that they did not qualify under the definition of disability stated in the policy. During the next two years, appellants, allegedly at great hardship, continued to pay the quarterly premium.

In December of 1983, the condition of Martinez worsened. Carol Martinez submitted a claim of disability which was allegedly ignored by Reserve Life. Throughout 1984 and the first months of 1985, Carol Martinez continued to pay the quarterly premium while attempting to persuade Reserve Life to acknowledge the premium waiver. In February of 1985, an attorney acting on behalf of the appellants contacted Reserve Life, and resubmitted the premium waiver application. Shortly thereafter, Reserve Life accepted the premium waiver application, and tendered a $195.00 reimbursement of the premiums paid since December 1983.

Appellants filed suit in February of 1985, alleging breach of contract and breach of the implied covenant of good faith and fair dealing. Appellants admitted that their out-of-pocket loss consists only of the premium payments tendered between the initial disability of Manuel Martinez in 1981 through December of 1983, when Reserve accepted the premium waiver application (approximately $400.00). However, they argue that the combination of emotional distress, punitive damages and attorney's fees is sufficient to exceed the $10,000 jurisdictional minimum.¹  The trial court, by order dated April 4, 1987, dismissed the action for lack of jurisdiction under 28 U.S.C. § 1332, holding that the amount in controversy is less than the jurisdictional requirement. The court reasoned that no reasonable juror could conclude that the appellants' damages exceeded $10,000.00. It emphasized that the appellants intended to introduce no expert testimony to substantiate the claim for emotional damages. In addition, it found that because "punitive damages must bear a rational relationship to the amount of actual damages," the small amount of actual damages and tenuous nature of the emotional distress claim effectively precluded a finding that the combination of damages was sufficient to meet the jurisdictional minimum. The appellants filed a timely notice of appeal. We review dismissals for lack of subject matter jurisdiction de novo. McIntyre v. United States, 789 F.2d 1408, 1410 (9th Cir. 1986).

DISCUSSION

Federal courts have jurisdiction over cases in which there is diversity of citizenship, and the amount in controversy exceeds the minimum prescribed by statute, in this case $10,000.00.²  Where such a jurisdictional amount applies, the federal court must determine whether the value of the controversy before it exceeds that amount. The method for making that determination was outlined by the Supreme Court in St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283 (1938) as follows:

The rule governing dismissal for want of jurisdiction in cases brought in federal court is that, unless the law gives a different rule, the sum claimed by the plaintiff controls if the claim is apparently made in good faith. It must appear to be a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal.

303 U.S. at 288 (footnotes omitted) (emphasis added).

Wright, Miller and Cooper suggest that the "legal certainty" threshold is quite high, making it very difficult to secure dismissal of a case on the ground that it does not appear to satisfy the jurisdictional amount requirement. 14A Wright, Miller, and Cooper, Federal Practice and Procedure, Jurisdiction Sec. 3702, at 48-49 (2d ed. 1985). They argue that only three situations clearly meet the legal certainty standard. These are: (1) when the terms of a contract limit the plaintiff's possible recovery; (2) when a specific rule of law or measure of damages limits the amount of damages recoverable; or (3) when independent facts show that the amount of damages was claimed merely to obtain federal court jurisdiction. Id. at 48-50. A court's view that the plaintiff is unlikely to obtain a judgment in excess of the jurisdictional amount is insufficient to meet the legal certainty test. See, e.g., Duchesne v. American Airlines, Inc., 758 F.2d 27, 29 (1st Cir. 1985) (holding that while recovery of at least $7,750 for pain and suffering needed to satisfy jurisdictional amount requirement was viewed as unlikely, court refused to conclude that inability to recover that amount was legally certain); Tackett v. Kidder, 616 F.2d 1050, 1053 (8th Cir. 1980) (where relevant state law permits punitive damages, they must be taken into account in deciding jurisdictional amount question even though the court views as unlikely recovery in the amount demanded).

As Duchesne and Tackett suggest, in determining the amount in controversy, courts must take into account not only actual pecuniary damages, but potential damages for emotional distress, punitive damages and attorney's fees. Bell v. Preferred Life Assur. Soc., 320 U.S. 238 (1943) (punitive damages); Love v. Budai, 665 F.2d 1060, 1063-64 (D.C. Cir. 1980) (mental distress); Goldberg v. CPC Int'l Inc., 678 F.2d 1365, 1367 (9th Cir.), cert. denied, 459 U.S. 945 (1982) (attorney's fees). See generally Wright, Miller and Cooper, Sec. 3702, at 44-46. Thus, appellants' claim for emotional distress and punitive damages in excess of $10,000.00, if made in good faith, is sufficient to satisfy Sec. 1332(a) unless it is a "legal certainty" that such damages cannot be recovered.

While it may be unlikely that appellants will actually recover a sum in excess of $10,000.00 in this action, it is not a legal certainty that such a recovery will not take place. The district court did not find that appellants' claims were made in bad faith merely to create federal jurisdiction. This case therefore is unlike Christensen v. Northwest Airlines, Inc., 633 F.2d 529, 530-31 (9th Cir. 1980). Moreover, there is no contract term which would limit appellants' recovery to a figure below the required jurisdictional amount. Thus, if such damages are available under applicable law, the appellants' allegations of damages must be accepted for purposes of determining whether the jurisdictional amount requirement is satisfied.

No specific rule of law prevents or limits the availability of emotional distress and punitive damages claims. Under California law, such damages clearly are available in cases of insurer bad faith. See, e.g., Silberg v. California Life Ins. Co., 11 Cal. 3d 452, 113 Cal. Rptr. 711, 521 P.2d 1103 (1974). Thus, this case is distinguishable from Pachinger v. MGM Grand Hotel-Las Vegas, 802 F.2d 362, 364 (9th Cir. 1986), in which we held that the Nevada Inkeeper Statute, Nev.Rev.Stat. Sec. 651.010 (1979), which limits an innkeeper's liability for a guest's property loss or damage to $750, established to a legal certainty that a plaintiff covered by the statute could not recover damages in excess of the jurisdictional amount. See also Morris v. Hotel Riviera, Inc., 704 F.2d 1113, 1115 (9th Cir. 1983).

The potential punitive damages alone are sufficient to allow this case to go forward. While punitive damages require not only a breach of the covenant of good faith and fair dealing, but a showing that the defendant is guilty of oppression, fraud or malice, Tibbs v. Great Am. Ins. Co., 755 F.2d 1370, 1375 (9th Cir. 1985), such a showing arguably may be made here. Appellants allege that Reserve unduly delayed in responding to repeated requests for premium waiver by Carol Martinez. It is undisputed that such a request was submitted in December of 1983, and that Reserve did not grant the request until February of 1985, after receiving correspondence from appellants' attorney. It is not inconceivable that a trier of fact could determine that Reserve's actions constituted a breach of the covenant of good faith and fair dealing, and that those actions evidenced "a conscious disregard of plaintiff's rights," that would merit imposition of punitive damages. Id., (quoting Betts v. Allstate Ins. Co., 154 Cal. App. 3d 688, 709, 201 Cal. Rptr. 528, 540 (1984). If a trier of fact did so conclude, it is not a legal certainty that the amount of damages awarded would be less than $10,000.00.³  Because the potential recovery for Reserve's delay in granting the premium waiver is a sufficient basis upon which to reverse the district court, we need not address appellants' contention that they could recover in excess $10,000.00 for Reserve's allegedly wrongful adoption of a restrictive definition of disability.

CONCLUSION

The threshold for establishing that the amount in controversy exceeds the jurisdictional minimum is rather low. While appellants' claims of entitlement to more than $10,000.00 in damages may be questionable, they are sufficient to establish jurisdiction under the "legal certainty" test. The district judge, himself, remarked that " [t]his case might be worth a few thousand dollars [.]" In these circumstances, the case must be decided on the merits.

REVERSED and REMANDED.⁴