(Jurisdictional Amount In Controversy Exceeded Amount Required by Federal Rules For Maintaining Declaratory Relief Action)
(September 2025) - In Farmers Direct Property and Cas. Ins. Co. v. Montez, et al. 130 F.4th 748 (9th Cir. March 6, 2025), the Ninth Circuit Court of Appeals reversed the District Court's dismissal of Farmers Direct Property and Casualty Company's ("Farmers") declaratory relief action based on lack of subject matter jurisdiction. The District Court agreed with intervening parties, Victor Montez and Lisa Montez ("Montezes"), because Farmers requested a declaration which did not satisfy the jurisdictional limit of $75,000 required in diversity actions filed in federal court. As such, the District Court vacated its order holding that Farmers had no duty to defend and indemnify its insured, Dennis Perez, based on his failure to cooperate, and dismissed the Farmers action.
In reversing the District Court's decision, the Court of Appeals noted that the Montezes had secured a judgment against Perez for over $8 million and Farmers had incurred over $100,000 in defending the action.
The Court of Appeals reasoned as follows:
For declaratory judgment actions, "it is well established that the amount in controversy is measured by the value of the object of the litigation." Cohn v. Petsmart, Inc., 281 F.3d 837, 840 (9th Cir. 2002)
In this case, we conclude that the value of the underlying potential tort action is not the Policy's limit, because there is a legal possibility that Farmers Direct may be liable for an amount in excess of that limit. Budget Rent-A-Car, 109 F.3d at 1473; see also Love, 71 F.4th at 355 (when there is such possibility, "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" (citation omitted)).
In its Complaint, Farmers Direct alleged that the Montezes, as the "underlying plaintiffs now contend they are entitled to hundreds of millions of dollars in damages and further contend that Farmers Direct is liable for such damages notwithstanding its Policy limits." The Montezes' state court demand served as the basis for Farmers Direct's claim that the amount-in-controversy requirement was satisfied in federal court, and a federal plaintiff's "claim in excess of the requisite amount, made in good faith in the complaint, satisfies the jurisdictional requirement." Budget Rent-A-Car, 109 F.3d at 1473 (citing St. Paul Mercury, 303 U.S. at 288). The Montezes concede that in their underlying tort action against Perez they "alleged they were seeking for hundreds of millions in damages." The Montezes cannot now dispute Farmers Direct's "assumption that the value of . . . their underlying tort claims against" Perez was greater than $75,000, given that they once sought hundreds of millions in damages. Budget Rent-A-Car, 109 F.3d at 1473. Moreover, as is apparent, their goal all along has been to recover from Farmers Direct an amount in excess of the $25,000 policy limit—apparently by setting aside the Judgment, obtaining an assignment of a bad faith claim from Perez, and then suing Farmers Direct for bad faith. See Samson v. Transamerica Ins. Co., 30 Cal.3d 220, 237, 178 Cal. Rptr. 343, 636 P.2d 32 (1981) When . . . the insurer also rejects a reasonable settlement offer within policy limits, it may become obligated to pay more than its policy limits."); see also City of Moore, Okl. v. Atchison, Topeka, & Santa Fe Ry. Co., 699 F.2d 507, 509 (10th Cir. 1983) To determine the amount in controversy, we look to the pecuniary effect an adverse declaration will have on either party to the lawsuit." (citations omitted)). Therefore, there is at least an arguable basis that the value of the default judgment Farmers Direct sought (and obtained) is greater than $75,000.
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