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Liberty Mutual Fire Insurancecompany, A Massachusetts v. Ashley Jo Beach

November 1, 2012

LIBERTY MUTUAL FIRE INSURANCECOMPANY, A MASSACHUSETTS CORPORATION,
PLAINTIFF,
v.
ASHLEY JO BEACH, AN INDIVIDUAL; AND JOHN DOE AND JANE DOE, AS THE NATURAL PARENTS OF JACK DOE, AN INDIVIDUAL UNDER THE AGE OF 18 YEARS,
DEFENDANTS.



MEMORANDUM DECISION AND ORDER

INTRODUCTION

Plaintiff Liberty Mutual Fire Insurance Company filed this declaratory judgment action on May 24, 2012, against its insured, Ashley Beach; the parents of Jack Doe; and Jack Doe, a minor, seeking a coverage determination under a homeowner's policy. The coverage litigation arises out of a lawsuit filed by the Does against Beach, Jack Doe's teacher, who had an inappropriate sexual relationship with Jack Doe. The lawsuit against Beach was filed on February 22, 2012, in Ada County District Court for the State of Idaho. Beach was prosecuted later for lewd conduct with a minor under sixteen, and is incarcerated. Liberty has tendered a defense for its insured, but concurrently seeks a declaration from this Court that the homeowner's policy excludes coverage for the conduct that occurred.

On July 11, 2012, the Doe Defendants filed a motion to dismiss or, in the alternative, to stay these proceedings. (Dkt. 8.) They seek dismissal under Fed. R. Civ. P. 12(b)(1) on the grounds Liberty has not met its burden of pleading the minimum amount in controversy necessary to establish diversity jurisdiction. Alternatively, the Doe Defendants contend the Court should abstain from hearing this matter until (1) Defendant Beach is released from prison and can defend herself; or (2) the state court litigation is resolved; or both. In addition, the Doe Defendants contend that the state court can better interpret the insurance contract at issue. Liberty opposes the motion, contending that it has met the pleading requirements considering its potential exposure could exceed $75,000. Liberty argues that the Does will represent Beach's interests in this matter, and that the state court litigation is not duplicative or determinative of the declaratory judgment it seeks regarding its duty to defend or indemnify.

The Court conducted a hearing on the motion on August 7, 2012, at which the parties, with the exception of Beach, appeared and presented oral argument. Later, default was entered against Beach, and the parties who had appeared consented to the presiding judge to issue final orders in this matter. (Dkt. 23.) Upon careful consideration of the parties' arguments, memoranda and pleadings, the Court finds that the motion to dismiss should be granted.

BACKGROUND

Beach is an insured under a homeowner's insurance policy issued by Liberty. According to the state court complaint filed against Beach by the Doe Defendants on February 22, 2012, Beach was Jack Doe's teacher. Jack Doe was fourteen at the time Beach engaged in an inappropriate sexual relationship with Jack Doe. Beach was convicted on December 30, 2009, for lewd conduct with a minor under sixteen. She is currently incarcerated, and is serving a sentence of twenty years, with four years fixed and sixteen years indeterminate. (Compl. Attach. 2, Dkt. 1-2.) The Doe Defendants' lawsuit against Beach seeks unspecified damages for negligent infliction of emotional distress and "outrageous conduct." Liberty has tendered a defense on behalf of its insured under a reservation of rights, but is not a party to the state court lawsuit.

On May 24, 2012, Liberty filed this complaint against Beach and the Doe Defendants seeking a declaratory judgment that it has neither a duty to defend nor indemnify on the basis of a policy exclusion for bodily injury or property damage "which is expected or intended by the insured." Liberty contends that the defense and indemnity of Beach in the underlying complaint will exceed $75,000, and therefore filed suit in federal court asserting diversity jurisdiction.

ANALYSIS

1.Amount in Controversy

The Doe Defendants contend that Liberty's mere assertion that the defense and indemnity of Beach in the state court litigation will exceed $75,000 is insufficient to meet its burden to establish the amount of controversy under 28 U.S.C. § 1332. The Defendants make two additional arguments: (1) that the state complaint makes no specific claim for monetary damages, which could be zero and for which Liberty may not be liable; and (2) that attorney fees cannot be included in the jurisdictional amount.

Liberty contends Defendants' arguments are without merit because valuation of the amount at issue is complex, and it therefore is not a "legal certainty" that the amount in controversy is less than $75,000. That Defendants have not pled a specific amount is of no moment, Liberty claims, because Liberty could potentially be liable for up to the policy limits of $300,000. And, Liberty argues the anticipated costs of defense are a proper subject for consideration in this declaratory judgment action.

The party asserting federal jurisdiction bears the burden of proving the case is properly in federal court. In re Ford Motor Co./Citibank (South Dakota), N.A., 264 F.3d 952, 957 (9th Cir. 2001). The parties do not contest diversity of citizenship, only whether the minimum amount in controversy required to maintain a diversity suit in federal court is present. Because Liberty asserts diversity jurisdiction, it bears the burden of establishing by a preponderance of the evidence that the amount in controversy exceeds $75,000. In re Ford Motor Co., 264 F.3d at 957. To justify dismissal, "[i]t must appear to a legal certainty that the claim is really for less than the jurisdictional amount." St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289, (1938). A claim in excess of the requisite amount, made in good faith in the complaint, satisfies the jurisdictional requirement. Id. at 288. Events occurring after the filing of the complaint that reduce the amount recoverable below the requisite amount do not oust the court from jurisdiction. Id. at 293.

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. Washington State Apple Advertising Com'n, 432 U.S. 333, 346 (1977). Here, the object is the amount of damages sustained by Doe Defendants as a result of Beach's alleged negligent conduct. Liberty contends that, under Idaho Code § 6-1503, negligent infliction of emotional distress is a non-economic damage claim for which up to $313,567.36 per claimant may be awarded. Simply because the Doe Defendants have not pled an amount certain does not mean that the amount in controversy requirement is not met, considering a high award is possible.*fn1 Further, it is not improper to include both the probable costs of defense and indemnification of the underlying litigation when determining the amount in controversy. Scottsdale Ins. Co. v. Univ. Crop Protection Alliance, LLC, 620 F.3d 926, 932 (8th Cir. 2010).

Under the facts alleged, and taking into account both the anticipated defense costs together with the potential for indemnification, it does not appear to a legal certainty that Liberty's ...


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