Greater New York Insurance Company v. United Specialty Insurance Company

Background

Greater New York Insurance Company (GNY) filed this action in New York Supreme Court, New York County, seeking a declaration about insurance coverage and reimbursement of defense fees. United Specialty Insurance Company (USIC) removed the case to the U.S. District Court for the Southern District of New York.

The dispute arose from an underlying state-court action involving alleged water damage to an apartment and personal property at a building located at 240 West 75th Street. The building owner, 240 West 75th Street Corp., had hired A&J Contractors Co. Inc. to perform roof maintenance. GNY insured the building owner, and USIC insured A&J. GNY alleged that the building owner was an additional insured under USIC’s policy. USIC denied coverage for the building owner and refused to defend it in the underlying action. GNY sought a declaration that USIC had to pay for that defense and reimbursement of defense costs incurred to date; it did not seek indemnification for any eventual damages in the underlying lawsuit.

Removal and Amount in Controversy

USIC asserted diversity jurisdiction under 28 U.S.C. § 1332(a). Diversity jurisdiction requires complete diversity of citizenship and an amount in controversy exceeding $75,000. The parties alleged different state citizenships, but GNY challenged USIC’s showing on the amount in controversy. The party removing a case to federal court has the burden of establishing that federal jurisdiction exists.

For a declaratory-judgment action, the amount in controversy is measured by the value of the subject of the dispute and the consequences that may result from the litigation. The court considered the complaint and notice of removal, and it explained that a defendant’s counterclaims are not used to calculate the amount in controversy. The court also noted that it could consider other evidence in the record in deciding the remand motion.

GNY stated that defense costs incurred to date were less than $15,000. The underlying action sought damages that could exceed $180,000, but GNY’s case did not seek indemnification for those eventual damages. USIC argued only that it was possible that defense fees would exceed $75,000, based on the realities of litigation and prevailing New York City attorney rates. The court found that this unsupported possibility was insufficient to meet USIC’s burden. The court also held that USIC’s answer could not establish the amount in controversy because it sought dismissal and a declaration concerning coverage obligations, including indemnity.

Declaratory Judgment Act

USIC alternatively argued that the federal court could exercise jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201. The court rejected that argument, holding that the Act does not itself create federal subject-matter jurisdiction. An independent jurisdictional basis was required, and the court concluded that diversity jurisdiction had not been established.

Disposition

The court held that USIC failed to show that the federal court had subject-matter jurisdiction. Judge Mary Kay Vyskocil granted GNY’s motion to remand. The Clerk of Court was directed to remand the case to New York Supreme Court, New York County.