The Fourth Circuit recently held that the amount of attorney’s fees sought by an insured in a declaratory judgment action should be included in the calculation to determine whether an insurance coverage case satisfies the amount-in-controversy requirement under the federal removal statute.
In 2008, the insured, a California resident, and her minor son were sued in the Maryland state court. The claimant worked as a resident aide at the Maryland School for the Deaf (MSD), which the insured’s son attended. The complaint alleged that the insured’s son, with the assistance of his parents, “made false statements about [the claimant], claiming he had sexually abused . . . and assaulted [the insured’s son] and other students at MSD.”
The insureds filed a declaratory judgment action in Maryland state court, contending that their insurer, which had issued a renters policy, had a duty to defend them in the underlying action. At the time the declaratory judgment action was filed, the insured (by their privately retained counsel) had already filed a motion for summary judgment in the underlying action. The motion was granted. At the conclusion of the underlying action, the insureds had expended $66,347 in attorney’s fees and costs for their defense.
The insurer removed the case to federal court, after which the insureds filed two motions to remand. In their second motion to remand, the insureds argued that the insurer failed to meet the amount-in-controversy requirement of $75,000. The Fourth Circuit noted that the relief requested in the declaratory judgment complaint specifically included the costs and expenses to be incurred in the declaratory judgment action as well as defense costs in the underlying action.
Generally, attorney’s fees are not included in the amount-in-controversy calculation, but courts have created two exceptions to this rule: (1) if the fees are provided for by contract; or (2) if a statute mandates or allows payment of attorney’s fees. The Fourth Circuit agreed with the district court that because Maryland case law allows for the recovery of attorney’s fees in declaratory judgment actions, the attorney’s fees in the insured’s action were properly considered in the amount-in-controversy calculation. The Fourth Circuit also agreed with the district court that the complexity of the case was sufficient to establish that it was more likely than not that the attorney’s fees likely to be incurred by Appellants in this declaratory judgment action, when coupled with the amount they expended to defend the tort action, would exceed the jurisdictional threshold.