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Owners Insurance Co. v. Frontier Housing, Inc.

United States District Court, E.D. Kentucky, Northern Division, Ashland

March 21, 2017

OWNERS INSURANCE COMPANY, PLAINTIFF,
v.
FRONTIER HOUSING, INC., STEPHEN BURTON and PAMELA BURTON, DEFENDANTS.

          MEMORANDUM OPINION AND ORDER

          Henry R. Wilhoit. Jr, United States District Judge

         This matter is before the Court upon Defendant Frontier Housing, Inc.'s Motion To Dismiss [Docket No 8], The motion has been fully briefed by the parties [Docket Nos. 10, 11 and 12] and for the reasons stated herein, the Court finds that this matter is not subject to dismissal.

         I.

         This case arises from a construction contract between Defendants Frontier Housing, Inc. ("Frontier") and Stephen and Pamela Burton ("The Burtons") for the construction of their home in West Liberty, Kentucky. The original contract set the price of constriction around $200, 000. However, a result of alleged change orders and upgrades, the legitimacy of which are hotly contested by the Burtons, the ultimate price of the construction was upwards of $400, 000. According to Frontier, the Burtons owe it $250, 000. According to the Burtons, they owe Frontier about $17, 000. The matter resulted in litigation, to-wit, Frontier filed a mechanics lien against the Burton's property as well as a Complaint in Morgan Circuit Court, styled Frontier Housing Inc., v. Stephen Burton and Pamela Burton, Commonwealth of Kentucky, Morgan Circuit Court, Civil Action No. 15-CI- 0062. In response to the Complaint filed against them, the Burtons asserted a counterclaim against Frontier, In addition to the injunctive relief, the Burtons seek damages for fraud, violations of the Kentucky Consumer Protection Act, breach of contract, tortious breach of contract, intentional and/or negligent misrepresentation, intentional and/or negligent infliction of emotional distress, abuse of process, and slander of title, as well as punitive damages in conjunction with their claims. The counterclaim does not specify a dollar amount in damages.

         Owners Insurance Company ("Owners") issued a policy of general liability insurance Policy No. 52454382, ("Policy") to Frontier. Pursuant to that policy, Owners instigated this declaratory judgment action, seeking a judicial determination as to whether it owes a duty of defense or indemnity to Frontier for the Burtons counterclaim.

         Frontier argues that this action must be dismissed because this Court lacks jurisdiction. Specifically, Frontier contends that this matter does not involve an amount in controversy sufficient to establish federal subject matter jurisdiction.

         II.

         Federal courts are courts of limited jurisdiction. Subject matter jurisdiction in federal court may be based upon either the assertion of a federal cause of action or a creature known as "diversity jurisdiction." Setting forth the requirements of diversity jurisdiction, 28 U.S.C, § 1332 provides that federal jurisdiction may be based upon the fact the parties are from different states, but only if the amount in controversy exceeds $75, 000. 28 U.S.C. § 1332(a).

         In this case, there is no dispute as to the diversity of citizenship of the parties. Frontier's urging of dismissal for lack of jurisdiction, rests solely upon its argument that the amount in controversy does not meet the jurisdiction threshold of $75, 000. Frontier maintains that the amount in controversy in this instance is hourne of the Burton's counterclaim, which, in its estimation, simply does not add up to $75, 000.

         The Court agrees that it is the counterclaim which is the touchstone of this case. In its Complaint, Owners states quite plainly that it seeks a declaratory judgement with regard to its obligation to defend and/or indemnify Frontier with regard to the claims alleged by the Burtons. However, the amount in controversy is not as apparent as Frontier suggests.

         Difference of opinion as to the amount in controversy in Kentucky often arise in light of Kentucky Rule of Civil Procedure 8.01 prohibiting ad damnum clauses which states:

In any action for unliquidated damages the prayer for damages in any pleading shall not recite any sum as alleged damages other than an allegation that damages are in excess of any minimum dollar amount necessary to establish the jurisdiction of the court....

C.R. 8.01.

         The Burton's counterclaim is silent as to a dollar amount, which begs the question of how to measure the amount in controversy. Further complicating the issue is the fact that this a declaratory judgment action, asking not whether the insurance policy issued by Owners to Frontier in valid, but, rather, tasking this Court to determine the applicability of a policy of insurance to a particular occurrence, in this ...


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