RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 11a0034p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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BETTY FREELAND, Administratrix of the
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Estate of John L. Freeland, Jr., Deceased and
the Estate of Tina M. Freeland, Deceased; -
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No. 10-3038
JOHN L. FREELAND, SR., Guardian of the
,
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Persons and Estate of J.M.F., a Minor,
Plaintiffs-Appellants, -
K.D.F., a Minor, and S.N.F., a Minor,
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v.
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Defendant-Appellee. -
LIBERTY MUTUAL FIRE INSURANCE CO.,
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Appeal from the United States District Court
for the Northern District of Ohio at Youngstown.
No. 09-00341—Peter C. Economus, District Judge.
Argued: January 20, 2011
Decided and Filed: February 4, 2011
Before: MARTIN and STRANCH, Circuit Judges; THAPAR, District Judge.*
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COUNSEL
ARGUED: Michael D. Rossi, GUARNIERI & SECREST, P.L.L., Warren, Ohio, for
Appellants. Jeffrey C. Gerish, PLUNKETT COONEY, Bloomfield Hills, Michigan, for
Appellee. ON BRIEF: Michael D. Rossi, GUARNIERI & SECREST, P.L.L., Warren,
Ohio, for Appellants. Jeffrey C. Gerish, PLUNKETT COONEY, Bloomfield Hills,
Michigan, for Appellee.
*
The Honorable Amul R. Thapar, United States District Judge for the Eastern District of
Kentucky, sitting by designation.
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No. 10-3038 Freeland, et al. v. Liberty Mutual Fire Insurance Co. Page 2
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OPINION
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THAPAR, District Judge. This insurance coverage case arises out of a tragic car
accident. Despite the resources that have been invested in litigating this action, we must
dismiss it to start anew in state court because the amount in controversy is one penny
short of our jurisdictional minimum.
I.
The plaintiffs-appellants, John and Betty Freeland, loaned their Pontiac Trans
Sport minivan to their son, John Freeland, Jr., and his family. On March 7, 2007,
Freeland, Jr. was driving the minivan with his wife and three children in the car when
he ran a red light and struck a police cruiser in the middle of an intersection. Freeland
and his wife were killed in the accident. Their three children survived, but with serious
injuries.
The Freelands insured their minivan with the defendant-appellee, Liberty Mutual
Fire Insurance Co. The Freelands’ policy provided coverage for bodily injuries up to a
“single limit” of $100,000 as well as coverage for accidents caused by
uninsured/underinsured motorists (“UM/UIM coverage”) up to a “split limit” of $12,500
per person and $25,000 per accident. Because the Freelands’ deceased son did not have
car insurance of his own, he was an uninsured motorist. Therefore, Liberty Mutual
offered the Freelands the $25,000 per accident limit of their UM/UIM coverage.
Dissatisfied with the offer, the Freelands filed a lawsuit against Liberty Mutual in Ohio
state court. The complaint alleged that their selection of UM/UIM coverage in 1999 was
invalid under the Ohio Supreme Court’s decision in Linko v. Indemnity Insurance Co.
of North America, 739 N.E.2d 338, 342 (Ohio 2000), because the coverage selection
form they signed did not contain certain required disclosures. Because of this invalid
selection, the Freelands claimed that they had acquired UM/UIM coverage in an amount
equal to their policy’s bodily injury coverage by operation of law. The Freelands
No. 10-3038 Freeland, et al. v. Liberty Mutual Fire Insurance Co. Page 3
therefore sought a declaratory judgment establishing that their insurance policy provided
$100,000 in UM/UIM coverage per accident, instead of the $25,000 per accident stated
on the policy’s face.
Liberty Mutual removed the case to the United States District Court for the
Northern District of Ohio. In the notice of removal, Liberty Mutual asserted that the
parties were completely diverse and that the amount in controversy was $100,000—the
full amount of UM/UIM coverage to which the Freelands argued they were entitled.
Neither party challenged the district court’s jurisdiction. On January 5, 2010, the district
court granted Liberty Mutual’s motion for summary judgment, and the Freelands
appealed to this Court.
II.
The penny is easily the most neglected piece of U.S. currency. Pennies tend to
sit at the bottom of change jars or vanish into the cracks between couch cushions.
Vending machines and parking meters will not accept them. Many people refuse to bend
down to pick up a penny off the ground, deeming the reward not worth the effort. And
a member of Congress even introduced legislation that would effectively eliminate the
penny by requiring merchants to round their prices to the nearest nickel. See Currency
Overhaul for an Industrious Nation (COIN) Act, H.R. 5818, 109th Cong. § 3(a) (2006).
In this case, however, the penny gets a rare moment in the spotlight. The amount in
controversy in this declaratory judgment action is exactly one penny short of the
jurisdictional minimum of the federal courts.
Although the district court did not address it and the parties did not raise the issue
in their briefs, this Court has “an independent obligation to determine whether subject-
matter jurisdiction exists, even in the absence of a challenge from any party.” Arbaugh
v. Y&H Corp., 546 U.S. 500, 514 (2006). Liberty Mutual removed this case to federal
court under 28 U.S.C. § 1441(a), which allows removal of civil actions “of which the
district courts of the United States have original jurisdiction.” Because this case presents
no federal question, Liberty Mutual invoked the district court’s diversity jurisdiction.
Article III of the Constitution authorizes federal jurisdiction in all controversies where
No. 10-3038 Freeland, et al. v. Liberty Mutual Fire Insurance Co. Page 4
the parties are “citizens of different states.” U.S. Const. art. III, § 2. But Congress has
always limited this grant of jurisdiction by also requiring that cases satisfy a minimum
amount-in-controversy requirement. See Snyder v. Harris, 394 U.S. 332, 334 (1969).
When Congress first established the lower federal courts in the Judiciary Act of 1789,
the required amount in controversy was $500. Id. That figure has increased over the
years, and today “the matter in controversy [must] exceed[] the sum or value of $75,000,
exclusive of interest and costs.” 28 U.S.C. § 1332.
Yet in this case the amount in controversy is $75,000 exactly—one penny short
of the jurisdictional bar that Congress has set. The Freelands seek a declaratory
judgment that their insurance policy provides UM/UIM coverage up to $100,000 per
accident, instead of the $25,000 per accident maximum that appears on the policy’s face.
“In actions seeking declaratory or injunctive relief, 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). Applying this principle, this
Court has said that, “[w]here a party seeks a declaratory judgment, ‘the amount in
controversy is not necessarily the money judgment sought or recovered, but rather the
value of the consequences which may result from the litigation.’” Lodal, Inc. v. Home
Ins. Co. of Ill., No. 95-2187, 1998 WL 393766, at *2 (6th Cir. June 12, 1998) (quoting
Beacon Constr. Co. v. Matco Elec. Co., 521 F.2d 392, 399 (2d Cir. 1975)). If the
Freelands prevail in this case, they will receive a declaration that their policy provides
up to $100,000 in UM/UIM coverage. If they do not prevail, their policy will remain as-
is, with only $25,000 in UM/UIM coverage. The “value of the consequences which may
result from the litigation,” id.—that is, the monetary consequences that would result
from a victory for the Freelands—is the difference between $100,000 and $25,000. That
amount is $75,000 exactly.
This conclusion flows from the text of the jurisdictional statute itself. In order
for the district court to have original jurisdiction, “the matter in controversy” must
“exceed[] the sum or value of $75,000.” 28 U.S.C. § 1332 (emphasis added). The words
“in controversy” have to mean something. Congress could have written § 1332 to
No. 10-3038 Freeland, et al. v. Liberty Mutual Fire Insurance Co. Page 5
require only that “the matter exceed the sum or value of $75,000,” in which case
jurisdiction might be appropriate here. But there is simply no controversy over the first
$25,000 of coverage. If the Freelands lose, they will keep that amount of coverage.
Indeed, as the Freelands acknowledged in their complaint in state court, Liberty Mutual
has already offered the Freelands this amount. The dispute—the controversy—is only
over the next $75,000.
Liberty Mutual’s offer of $25,000 is not the same, of course, as a settlement
offer. A party’s offer to settle a case for a specified amount does not reduce the amount
in controversy by that amount. If plaintiff sues defendant for $100,000, defendant
cannot defeat federal jurisdiction simply by offering to settle the case for $40,000. Here,
though, Liberty Mutual’s offer is simply an acknowledgment that there is no dispute
over the first $25,000 of coverage—the maximum under the Freelands’ policy as it is
currently written. That amount is the baseline level of coverage that the Freelands will
keep even if they lose this lawsuit.
Although no other circuits appear to have addressed the precise jurisdictional
issue that this case presents, the Third Circuit’s decision in State Farm Mutual
Automobile Insurance Co. v. Powell, 87 F.3d 93, 97 (3d Cir. 1996), is quite similar.
There, the insured had two policies, each providing $50,000 in coverage. The question
was whether he could recover under both policies, or whether he was limited to
recovering under only one. The insurance company sought a declaratory judgment that
the insured could only recover $50,000 under one of his policies, while the insured
argued that he could recover a total of $100,000 under both of them. Id. at 95-96.
Because, “from the outset of [the] litigation [the insurance company] conceded that it
owed [the insured] $50,000,” the Third Circuit held that the amount in controversy was
not $100,000, but rather only $50,000—one penny shy of the jurisdictional threshold at
the time. Id. at 97. Similarly in this case, Liberty Mutual has always conceded that the
Freelands have $25,000 in UM/UIM coverage. That is what their policy provides on its
face. The controversy is only over whether their policy provides $75,000 in additional
coverage. See also State Farm Fire & Cas. Co. v. Sweat, 547 F. Supp. 233, 238 & n.13
No. 10-3038 Freeland, et al. v. Liberty Mutual Fire Insurance Co. Page 6
(N.D. Ga. 1982) (in declaratory judgment action where insured claimed policy provided
$50,000 in coverage and insurance company claimed it provided $5,000 in coverage,
amount in controversy was $45,000 because insurance company’s “potential liability as
a result of this case is in that amount”).
The Freelands’ demand for interest and costs in their state court complaint does
not change this conclusion. Section 1332 demands that the matter in controversy exceed
$75,000 “exclusive of interest and costs.” Therefore, the amount in controversy remains
one penny short. The absence of that single penny deprived the district court of subject-
matter jurisdiction over the Freelands’ lawsuit. See, e.g., Powell, 87 F.3d at 98-99;
Larkin v. Brown, 41 F.3d 387, 389 (8th Cir. 1994).
In a supplemental brief filed at the Court’s request, Liberty Mutual advances two
arguments for finding that the amount in controversy exceeds $75,000. Both lack merit.
First, Liberty Mutual argues that the amount in controversy is actually $87,500 because
the declaratory judgment the Freelands seek would increase the amount that a single
person could recover under their UM/UIM coverage from $12,500 to $100,000. That
may be true, but it is not what matters in this case. This case involves the $25,000 per
accident limit of the Freelands’ policy, not the $12,500 per person limit. The Freelands’
policy covered four people who were either injured or killed in the accident, and their
total injuries easily exceeded $25,000. Indeed, Liberty Mutual has already offered the
Freelands the full $25,000 per accident limit. So, the difference between what the
Freelands would receive for this accident if they win and what they would receive if they
lose is still only $75,000. The corresponding increase in the per person coverage limit
is of no consequence in this action.
Liberty Mutual’s second argument is that, even if it only faces $75,000 in
additional liability in this case, the possibility of future claims under the Freelands’
reformed policy nudges the amount in controversy over the limit. This argument also
fails. First, the particular policy at issue in this case expired in November 2007, and it
is unclear from the record whether the Freelands still have a policy with Liberty Mutual.
But even if they do, the unsubstantiated possibility of future claims under an insurance
No. 10-3038 Freeland, et al. v. Liberty Mutual Fire Insurance Co. Page 7
policy cannot be enough to satisfy the amount in controversy requirement. As Liberty
Mutual’s counsel conceded at oral argument, this theory has no limit. Under this line
of reasoning, a lawsuit involving an insurance policy that provides $1,000 in coverage
per accident would have a sufficient amount in controversy because the insured could
have 75 more accidents in the future. The amount in controversy requirement would be
satisfied in virtually every insurance case. For this reason, courts typically do not
include speculative future claims under an insurance policy when determining the
amount in controversy. Instead, courts limit their inquiry to the coverage that would
apply to the incident in the dispute before them. See, e.g., State Farm Mut. Auto. Ins.
Co. v. Narvaez, 149 F.3d 1269, 1270-71 (10th Cir. 1998) (considering only potential
liability from underlying incident); Powell, 87 F.3d at 95-97 (same).
Resisting this conclusion, Liberty Mutual asserted at oral argument that this
Court’s unpublished decision in Lodal blessed consideration of potential future claims
under an insurance policy in assessing the amount in controversy. Lodal, Inc. v. Home
Ins. Co. of Ill., No. 95-2187, 1998 WL 393766 (6th Cir. June 12, 1998). This argument
misreads Lodal. That case involved a dispute over an insurance company’s duty to
defend its insured and to pay up to $200,000 in litigation costs in an ongoing lawsuit.
Id. at *1. This Court held that the amount in controversy requirement was satisfied
because of “the potential value of future claims under the policy.” Id. at *3. That
statement made perfect sense in Lodal because the lawsuit was still ongoing and the
insured faced future legal bills from that same action. Id. at *2-3. In other words,
Lodal involved the natural extension of an ongoing liability event. Here, in contrast,
Liberty Mutual asks us to rely on the entirely speculative possibility that the Freelands
might have another accident in the future involving an uninsured or an underinsured
motorist. Lodal provides no justification for such an act of judicial star-gazing.
Thus, the amount in controversy in this case is $75,000—exactly one penny short
of the jurisdictional minimum of the federal courts. 28 U.S.C. § 1332. The Court
recognizes that vacating the district court’s judgment and remanding this case is
painfully inefficient. This is especially so in light of the substantial resources that have
No. 10-3038 Freeland, et al. v. Liberty Mutual Fire Insurance Co. Page 8
been spent litigating the merits of this case and the infinitesimal amount by which the
amount in controversy falls short. But the Court simply has no choice in the matter.
“Federal courts are courts of limited jurisdiction. They possess only that power
authorized by Constitution and statute . . . which is not to be expanded by judicial
decree.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (internal
citations omitted). The district court lacked the authority to grant Liberty Mutual’s
motion for summary judgment. The only proper course is to remand this case back to
state court for lack of federal jurisdiction.
III.
For these reasons, we VACATE the decision of the district court granting
summary judgment in favor of Liberty Mutual and REMAND this case to the district
court with instructions to remand it back to state court for lack of subject-matter
jurisdiction. Because we lack jurisdiction, we express no opinion on the merits of the
Freelands’ claim.