Posted Feb 04, 2011 08:03 pm CST
The penny is often disrespected. But its critical import is clear in a federal appeals court ruling in an insurance coverage case today.
“The amount in controversy in this declaratory judgment action is exactly one penny short of the jurisdictional minimum of the federal courts,” says the Cincinnati-based 6th U.S. Circuit Court of Appeals in a written opinion (PDF) dismissing the case for lack of jurisdiction.
The case gives the penny “a rare moment in the spotlight,” the opinion says, noting that “many people refuse to bend down to pick up a penny off the ground, deeming the reward not worth the effort.”
However, it has real value in a federal diversity action in which the required amount in controversy must exceed $75,000, the appeals court explains.
The court found that although Liberty Mutual Fire Insurance Co. had said $100,000 was in issue in its removal filing from state court, the actual amount is exactly $75,000:
While the disputed auto insurance policy has a single limit of $100,000, the insurer agreed that the policyholders were entitled to a $25,000 uninsured motorists payout. Hence, the amount in controversy is the difference between $100,000 and $25,000, or exactly $75,000. The dispute arose from a tragic accident in which a relative was at the wheel with permission. Multiple multiple members of his family were killed and injured.
Neither party had sought the dismissal in the coverage case. But, noting that the amount in controversy was deficient, the appeals court raised the issue of subject-matter jurisdiction on its own initiative.
“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 been spent litigating the merits of this case and the infinitesimal amount by which the amount in controversy falls short,” the opinion says. “But the court simply has no choice in the matter.”
The appellate ruling vacates a summary judgment by the federal district court in favor of the insurer and says the case must be remanded back to state court over a lack of federal subject-matter jurisdiction.