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The Third Circuit ruled that in determining whether an insurer has alleged the minimum amount in controversy for purposes of diversity jurisdiction over a declaratory judgment action, the court can consider the potential damages owed to each class member in an underlying class action, as well as the costs of defending the underlying action.  Auto-Owners Ins. Co. v. Stevens & Ricci Inc., 2016 WL 4547641 (3d Cir. Sept. 1, 2016).

Auto-Owners filed a declaratory judgment action seeking a ruling that it has no obligation to defend or indemnify its insured in connection with a TCPA class action suit and settlement.  A Pennsylvania federal district court granted the insurer’s summary judgment motion, ruling that the transmission of unsolicited faxes was not covered “advertising injury” or property damage caused by an occurrence.  On appeal, the insured argued that the district court lacked diversity jurisdiction over the dispute because Auto-Owners had not alleged the requisite $75,000 minimum amount in controversy.  See 28 U.S.C. § 1332(a).  In particular, the insured argued that although the underlying suit ultimately settled for $2 million, each class member’s claims fell below $75,000.  As the insured noted, under the “anti-aggregation” rule adopted by the Third Circuit, the claims of separate plaintiffs cannot be aggregated to satisfy the amount in controversy.  The court rejected this argument.

The Third Circuit explained that for declaratory judgment actions that do not involve monetary damages, the amount in controversy is “measured by the value of the object of the litigation.”  The court held that the “object of the litigation” before it was the total amount that Auto-Owners could owe, including both defense and indemnity costs.  The court rejected the notion that the action was “properly viewed as a dispute between Auto-Owners and the many class members – which would give rise to aggregation problems. . . .”  Rather, the court explained, this was a “unitary controversy” relating to overall coverage obligations.  The court recognized that its ruling “results in a situation in which an insurer can invoke federal jurisdiction in a declaratory judgment action while class members cannot.”