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Ammons v. Sentry Insurance Co.

United States District Court, D. New Mexico

December 31, 2019

SHAWN AMMONS and JESSICA AMMONS, Plaintiffs/Counter-Defendants,
SENTRY INSURANCE COMPANY, Defendant/Counter-Plaintiff.


         This Opinion addresses Plaintiffs'/Counter-Defendants' Motion for Partial Summary Judgment for UM Benefits (Doc. 13), filed May 24, 2019; Defendant's/Counter-Plaintiff's Cross-Motion for Summary Judgment (Doc. 17), filed June 12, 2019; and Plaintiffs' Opposed Motion for Leave to File First Amended Complaint (Doc. 33), filed September 12, 2019. I held a hearing on these motions on December 16, 2019. Doc. 39.[1]

         The central issue before the Court is whether Plaintiffs are entitled to recover punitive damages under their uninsured property damage coverage for the actions of an unknown thief, who crashed Plaintiffs' car after stealing it. Defendant argues that Plaintiffs have no valid punitive damages claim under their uninsured property damage coverage for two primary reasons: (1) uninsured motor vehicle coverage (on which the punitive damages claim is based) is not available for insured vehicles such as the one at issue here, and (2) even if such coverage were available, punitive damages are not available against an unknown tortfeasor. Regarding Defendant's first argument, although the operative policy defines Plaintiffs' vehicle as insured (and therefore ineligible for uninsured motorist coverage), it is uncertain whether this policy exclusion would be valid under New Mexico's Uninsured Motorist Act. Regarding Defendant's second argument, the Court agrees that punitive damages, which are meant to punish and deter, are not available against an unknown tortfeasor. The Court therefore determines that Plaintiffs are not entitled to the punitive damages they seek.

         Although this conclusion necessarily resolves most of the issues Plaintiffs raise in their complaint, a portion of Plaintiffs' extra-contractual allegations not related to denial of coverage remains viable. Specifically, the Court's decision that punitive damages are not available against an unknown tortfeasor has no effect on Plaintiffs' extra-contractual claims that are premised on Defendant's alleged delays in responding to Plaintiffs' requests. However, Plaintiffs' failure to allege sufficient facts to sustain those allegations makes them subject to dismissal. Plaintiffs shall be allowed 30 days from the entry of this Order to move to amend to remedy this deficiency.

         Thus, the Court denies Plaintiffs' Partial Motion for Summary Judgment and grants Defendant's Motion for Summary Judgment. The Court also denies as futile Plaintiffs' Motion for Leave to File First Amended Complaint because the claims in that proposed amendment would be subject to dismissal.


         This case arises from the theft of Plaintiffs' vehicle, which was stolen from an auto repair shop on November 22, 2018. Plaintiffs' Undisputed Material Facts (“P-UMF”) 1. A police officer later spotted the stolen vehicle and initiated a traffic stop. Doc. 27 at 1 (Joint Status Report). The driver fled, leading the officer on a chase. Id. The officer lost sight of the vehicle but later found it unoccupied and crashed. Id.; P-UMF 2. The auto repair shop's insurer paid Plaintiffs for the property damage to the car. Defendant's Undisputed Material Facts (“D-UMF”) 7. Plaintiffs seek, under their uninsured (“UM”)/underinsured motorist (“UIM”) policy with Defendant Sentry Insurance Company, only punitive damages for the acts of the unknown thief.[2]D-UMF 7. Defendant Sentry denied the claim, asserting that UM property damage coverage does not provide coverage for theft. See Docs. 13-3 to 13-10.

         Plaintiffs initially filed this suit in state court. Doc. 1-1. The Complaint brings three counts: (1) UIM benefits; (2) breach of contract; and (3) violations of the insurance practices act, insurance bad faith, and punitive damages. Id. Defendant removed the matter to federal court, Doc. 1, and filed a counterclaim with two counts: (1) declaratory relief regarding UM/UIM coverage; and (2) declaratory relief regarding UM/UIM limits. Doc. 4. Plaintiffs now seek partial summary judgment on Count I of their Complaint and on Count II of the Counterclaim. Doc. 13. Defendant filed a cross-motion, seeking summary judgment on all three counts of Plaintiffs' Complaint. Doc. 17.


         “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A dispute about a material fact is “genuine” if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In other words, a dispute is genuine “if there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way, ” and it is material “if under the substantive law it is essential to the proper disposition of the claim.” Becker v. Bateman, 709 F.3d 1019, 1022 (10th Cir. 2013) (internal quotation marks omitted). In reviewing a motion for summary judgment, the Court views the evidence and all reasonable inferences therefrom in the light most favorable to the non-moving party. S.E.C. v. Thompson, 732 F.3d 1151, 1156-57 (10th Cir. 2013) (internal quotation marks omitted). Initially, the party seeking summary judgment has the burden of showing that there is no genuine dispute as to any material fact. See Shapolia v. Los Alamos Nat'l Lab., 992 F.2d 1033, 1036 (10th Cir. 1993). Once the moving party meets its burden, the non-moving party must show that genuine issues remain for trial. Id.

         Because this Court is sitting in diversity jurisdiction, the substantive law governing this case is that of New Mexico. Racher v. Westlake Nursing Home Ltd. P'ship, 871 F.3d 1152, 1164 (10th Cir. 2017). New Mexico courts “resolve questions regarding insurance policies by interpreting their terms and provisions in accordance with the same principles which govern the interpretation of all contracts.” Ponder v. State Farm Mut. Auto. Ins. Co., 2000-NMSC-033, ¶ 11, 12 P.3d 960 (internal quotation marks omitted). “In order to determine coverage, [courts] initially look to the language of the policy itself.” Gonzales v. Allstate Ins. Co., 1996-NMSC-041, ¶ 12, 921 P.2d 944. New Mexico courts “interpret unambiguous insurance contracts in their usual and ordinary sense unless the language of the policy requires something different.” Id. (internal quotation marks omitted). “Thus, when the policy language is clear and unambiguous, [courts] must give effect to the contract and enforce it as written.” Ponder, 2000-NMSC-033, ¶ 11. “But when an insurance provision does conflict with a statute, it is void.” Chavez v. State Farm Mut. Auto. Ins. Co., 1975-NMSC-011, ¶ 6, 533 P.2d 100.


         I. The amount in controversy needed to sustain diversity jurisdiction is met.

         Before addressing the merits of the pending cross-motions, the Court must determine whether it has subject matter jurisdiction to hear this case. Plaintiffs originally filed this lawsuit in state court and Defendant removed it to federal court, citing diversity jurisdiction under 28 U.S.C. § 1332. Doc. 1 at 2. Section 1332(a) gives federal courts “original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs, and is between citizens of different States . . . .” When a plaintiff files a civil action in state court over which the federal court would have original jurisdiction based on diversity of citizenship, the defendant may remove the action to federal court, provided that no defendant is a citizen of the State in which such action is brought. See 28 U.S.C. § 1441(a), (b). However, if the federal court determines it lacks subject matter jurisdiction, such as lacking diversity jurisdiction, it must remand the matter to the state court. 28 U.S.C. § 1447(c). The removing party bears the burden of establishing the requirements for federal jurisdiction. Martin v. Franklin Capital Corp., 251 F.3d 1284, 1290 (10th Cir. 2001), abrogated on other grounds by Dart Cherokee Basin Operating Co. v. Owens, 574 U.S. 81 (2014).

         In this case, the parties do not dispute that they are citizens of different states. See Doc. 1 at 2. Rather, Plaintiffs challenge whether the amount in controversy is met. Doc. 21 at 16. Plaintiffs assert that the Court should dismiss Count II of the Defendant's Counterclaim (seeking declaratory relief regarding UIM/UM limits) because the amount of available UM coverage is only $14, 763.37-that is, $25, 000 minus the offset from the underlying settlement with the auto repair shop. Doc. 13 at 25. Plaintiffs argue that Defendant only brought Count II of the Counterclaim to justify removing the case to federal court when the amount in controversy is clearly less than $75, 000. Id. Although Plaintiffs' argument focuses on the Defendant's Counterclaim, the Court must begin with whether it has subject matter jurisdiction over Plaintiffs' Complaint.[3]

         To determine the amount in controversy, the court should first look to the complaint. If the plaintiff's complaint, filed in state court, demands monetary relief of a stated sum, that sum, if asserted in good faith, is “deemed to be the amount in controversy.” 28 U.S.C. § 1446(c)(2). When the plaintiff's initial pleading seeks nonmonetary relief or does not state the amount in controversy, the defendant's notice of removal may do so. Id. § 1446(c)(2)(A). “[A] defendant's notice of removal need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold. Evidence establishing the amount is required by §1446(c)(2)(B) only when the plaintiff contests, or the court questions, the defendant's allegation.” Dart Cherokee, 574 U.S. at 89. Thus, “when a defendant seeks federal-court adjudication, the defendant's amount-in-controversy allegation should be accepted when not contested by the plaintiff or questioned by the court.” Id. at 87.

         If the defendant's allegation regarding the amount in controversy is contested, Section 1446(c)(2)(B) provides that “removal of the action is proper on the basis of an amount in controversy asserted” by the defendant “if the district court finds, by the preponderance of the evidence, that the amount in controversy exceeds” the jurisdictional minimum. As the Supreme Court has explained, “[t]his provision . . . clarifies the procedure in order when a defendant's assertion of the amount in controversy is challenged. In such a case, both sides submit proof and the court decides, by a preponderance of the evidence, whether the amount-in-controversy requirement has been satisfied.” Dart Cherokee, 574 U.S. at 88. A defendant seeking removal can establish jurisdictional facts by a preponderance in many ways:

by contentions, interrogatories or admissions in state court; by calculation from the complaint's allegations[;] by reference to the plaintiff's informal estimates or settlement demands[;] or by introducing evidence, in the form of affidavits from the defendant's employees or experts, about how much it would cost to satisfy the plaintiff's demands.

McPhail v. Deere & Co., 529 F.3d 947, 954 (10th Cir. 2008) (quoting Meridian Sec. Ins. Co. v. Sadowski, 441 F.3d 536, 541-42 (7th Cir. 2006)). If a defendant is able to prove these jurisdictional facts, the matter should stay in federal court unless it is legally certain that the amount in controversy is not met. Id.; see also Hammonds v., Inc., 844 F.3d 909, 912 (10th Cir. 2016) (“to justify dismissal under this standard it must appear to a legal certainty that the claim is really for less than the jurisdictional amount”).

         In this case, Plaintiffs do not demand a stated sum in their Complaint; instead, they seek punitive damages under the UM portion of their policy, as well as damages for breach of contract and extra-contractual claims, including punitive damages and attorney's fees. See Doc. 1-1. In the Notice of Removal, Defendant alleges that “Plaintiffs have a Sentry policy with limits of $25, 000 for Uninsured Motorist Property Damage (‘UMPD') and have four vehicles insured under the policy. In the course of the adjustment of the claim, Plaintiffs have claimed that their policy has a total of $100, 000 in stacked UM/UIM property damage coverage.” Doc. 1 at 2. Defendant further explains that Plaintiffs demanded $55, 000 to settle their property damage claim and also claim damages for extra-contractual claims and attorneys' fees, which “makes it possible to establish here that $75, 000 is ‘in play.'” Id. at 3-5 (citing cases in which juries awarded punitive damages against an insurance company for bad faith and unfair insurance claims practices).[4]

         The Court finds, by a preponderance of the evidence, that the amount in controversy is satisfied. Before they filed suit, Plaintiffs demanded $55, 000 to resolve their punitive damages UM claim. Doc. 13-4. In making that demand, Plaintiffs claimed that they had not received the requested rejection forms and thus “can only assume those forms do not exist and therefore applicable coverage must be reformed to $100, 000 in stacked UM property damage coverage.” Id. After making their demand, Plaintiffs received the rejection forms. Doc. 13-6. Plaintiffs now assert that because their Complaint does not state that the rejection forms are invalid, the Complaint clearly seeks only $25, 000 for their property damage claim. Yet, the Complaint does not make clear that Plaintiffs are seeking less than their previous demand. Omitting a specific demand is not the same as conceding that only $25, 000 is available for the property damage claim. Additionally, Plaintiffs offer no other evidence to show that they communicated to Defendant, after receiving the rejection forms, that they were seeking only $25, 000 in coverage or that they would not be seeking to reform the rejection under New Mexico law.[5]

         In addition to the property damage claim, Plaintiffs also seek damages for extra- contractual claims. In the Notice of Removal, Defendant provides general calculations based on those theories and what previous juries have awarded, showing that juries have awarded large sums for bad faith. Doc. 1 at 3-4. Plaintiffs offer no rebuttal to those calculations. Accordingly, the Court finds that Defendant has shown by a preponderance of the evidence that more than $75, 000 is at issue in this case, and that there is no legal certainty that $75, 000 or less is at stake.

         Because the Court has subject-matter jurisdiction over Plaintiffs' Complaint, it likewise has subject-matter jurisdiction over Defendant's Counterclaim. Counterclaims are categorized as being either “compulsory” or “permissive.” Fed.R.Civ.P. 13(a), (b). A counterclaim is compulsory if it “arises out of the transaction or occurrence that is the subject matter of the opposing party's claim.” Fed.R.Civ.P. 13(a)(1)(A). Defendant's request for declaratory judgment arises out of the same dispute as Plaintiffs' Complaint. The Court thus has subject-matter jurisdiction over the Counterclaim.[6] N.L.R.B. ex rel. Int'l Union of Elec., Radio & Mach. Workers, AFL-CIO-CLC v. Dutch Boy, Inc., Glow Lite Div., 606 F.2d 929, 932 (10th Cir. 1979); see also 28 U.S.C. § 1367(a); Glob. NAPs, Inc. v. Verizon New England Inc., 603 F.3d 71, 85-86 (1st Cir. 2010).

         II. Plaintiffs are not entitled to recover punitive damages under their UM policy for the acts of an unknown thief.

         The parties dispute whether Plaintiffs are entitled to recover punitive damages under their UM property damage coverage for the actions of the unknown thief. Defendant asserts Plaintiffs are not for two primary reasons: (1) the policy does not permit recovery of UM benefits when the vehicle is insured rather than uninsured; and (2) punitive damages are not available against an unknown tortfeasor. While the Court agrees with Defendant about what the policy says, it nonetheless rejects Defendant's first argument because the portion of the policy Defendant relies on may be invalid under New Mexico's Uninsured Motorist Act (“UMA”), as interpreted by the New Mexico courts. The Court agrees with Defendant, however, that punitive damages in New Mexico are not available for the actions of an unknown tortfeasor. Finally, the Court rejects Plaintiffs' argument that the mend-the-hold doctrine would apply here to prevent Defendant from prevailing on this argument. Even if Plaintiffs are correct that Defendant should have asserted, pre-lawsuit, the argument that punitive damages are not available against an unknown tortfeasor, Plaintiffs have shown no prejudice resulting from the failure to do so.

         A. Whether Defendant's policy would be valid under New Mexico law is uncertain.

         In addressing whether coverage exists, the Court first looks at the policy. It next considers whether the relevant portions of the policy are valid under New Mexico law.

         1. Plain language of the policy

         Defendant argues that the damage to Plaintiffs' car “did not arise out of an accident involving the use of an uninsured motor vehicle” because the vehicle at issue was insured. Doc. 16 at 5. This argument has logical appeal under the terms of the policy at issue. The policy provides UM property damage coverage in the following situation:

We will pay damages for property damage which an insured person is legally entitled to recover from the owner or operator of an uninsured motor vehicle or an underinsured motor vehicle. The property damage must be caused by a car accident and result from the ownership, upkeeping or use of an uninsured motor vehicle or an underinsured motor vehicle.

D-UMF 1 (emphasis added).[7] The policy defines an uninsured motor vehicle as follows:

(A) Not insured by a property damage liability bond or policy or does not have liability limits complying with the financial responsibility law of the policy state.
(B) Insured by a property damage liability bond or policy at the time of the car accident whose insurer is or becomes insolvent or denies coverage.
(C) A hit-and-run vehicle. A hit-and-run vehicle is a motor vehicle whose operator and owner are unknown and which causes property damage that is coverage by this endorsement.

D-UMF 2. The policy defines an underinsured motor vehicle as follows:

“Underinsured motor vehicle” means a motor vehicle as to which there is a property damage liability policy or a bond applicable at the time of the car accident but the sum of the limits of liability under all property damage liability insurance applicable at the time of the car accident is less than the sum of the limits of liability applicable to the insured person for Uninsured/Underinsured Motorist Property Damage Coverage under this policy and any other policy.

D-UMF 2.

         The policy also provides that an uninsured or underinsured motor vehicle does ...

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