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.
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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