Ziman v. UNUM

Background

Paul E. Ziman, DDS, brought a declaratory-judgment action in state court against Unum Group and The Paul Revere Life Insurance Company. The defendants removed the action to federal court based on diversity jurisdiction, which requires complete diversity between the parties and more than $75,000 in controversy.

Ziman became unable to work as an orthodontist because of bilateral CMC joint degenerative disease. His disability-insurance policy provided benefits, and Unum initially accepted his claim and paid monthly benefits. Unum later reduced his monthly benefit from $7,500 to $1,500 when he reached age 65, determining that his disability resulted from sickness rather than injury.

The parties agreed that the policy was valid but disagreed about how its provisions applied after age 65. Ziman argued that Policy Schedule II required payment of $7,500 per month for the rest of his life while he remained disabled. Alternatively, he argued that the policy’s Lifetime Total Disability Benefit Rider entitled him to the full amount because his disability resulted from injury. Unum argued that only the Rider applied after age 65 and that the Rider provided $1,500 per month for a sickness-related disability.

Motion to Remand

Ziman moved to remand, arguing that the amount in controversy was below the $75,000 threshold. He asserted that, when the case was removed, he had received reduced benefits for only one month and was owed $6,000. Unum argued that the court should include the difference between the full and reduced monthly benefits over Ziman’s expected lifetime, which Unum estimated could exceed $1.2 million.

Court’s Analysis

The court explained that the party removing a case bears the burden of establishing federal jurisdiction. When a complaint does not specify damages or alleges less than the jurisdictional minimum, the removing party must prove by a preponderance of the evidence that more than $75,000 is in controversy.

The court distinguished between disputes over the validity of a disability-insurance policy and disputes over the amount of benefits payable under a policy whose validity is undisputed. Future potential benefits may be considered when the policy’s validity is challenged. But when the parties dispute only the amount of benefits due under a valid policy, the amount in controversy is measured by the unpaid benefits allegedly due when the lawsuit began or, for a case filed in state court, when it was removed.

The court rejected Unum’s argument that Ziman’s interpretation would effectively invalidate the Rider. The court characterized the dispute as an ordinary disagreement about how two valid policy provisions interact, not a challenge to the validity of either provision. It also rejected Unum’s argument that a declaration interpreting the policy would permanently dictate its terms, explaining that this is true of any decision interpreting a contract.

Disposition

The court held that only the benefits allegedly due when Unum removed the case could be counted. Because that amount was far below $75,000, the court concluded that it lacked diversity jurisdiction. The court ordered that the action be remanded to the District Court for the Fourth Judicial District, County of Hennepin, State of Minnesota.