The Seventh Circuit recently issued a decision favorable to insurers regarding calculating the amount in controversy under the Class Action Fairness Act (CAFA). In Keeling v. Esurance Insurance Company, 2011 U.S. App. LEXIS 19598 (7th Cir. Sept. 26, 2011), the plaintiff brought a class action alleging that certain UM/UIM coverage sold by Esurance was purportedly worthless due to policy restrictions. The case sought refunds of the premiums paid for this coverage, which totaled $613,894, along with declaratory relief and punitive damages. The district court found that the $5 million threshold under CAFA was not met, but the Seventh Circuit reversed, concluding that the amount in controversy exceeded $5 million.
The district court had placed no value on the prospective declaratory relief, but Judge Easterbrook’s opinion concluded that the proper measure of that would be the present value of the anticipated profits on this coverage ($125,000 per year) over the next 20 years, which he calculated at $1.5 million (it’s unclear why he chose a 20-year period). That amount, together with the $613,894, would total over $2 million. The court concluded that an additional punitive damages of $3 million would not be “legally impossible,” noting that such an award would be “[i]mprobable, perhaps, but not impossible.”
The lesson I see here is that where it is not obvious that a case involves over $5 million, insurers and their counsel need to think very carefully about every element of damages being sought or potentially sought in a complaint, and try to place a dollar figure on it, even if it’s not easy to come up with a dollar figure. Courts seem quite willing to give insurers (and other defendants) the benefit of the doubt on this, consistent with the “legally impossible” standard.