CHICAGO (CN) – Online auto insurance company Esurance must defend itself in federal court against a class action that claims one of its packages offers worthless coverage, after the 7th Circuit ruled its removal from state court was appropriate.
Lukus Keeling, representing a proposed class of over 50,000 automobile policy-holders, claimed that Esurance committed fraud by charging for uninsured or underinsured motorist coverage. Policy restrictions render the package worthless, Keeling maintained.
The case was removed to federal court under the Class Action Fairness Act. But U.S. District Judge David Herndon remanded the case to state court, determining that the amount in controversy did not exceed the $5 million statutory minimum for federal jurisdiction.
In the five years before the suit began, Esurance collected a net premium of $613,894 on the coverages and paid no claims. Herndon treated this as the amount in controversy and determined that prospective relief – which he defined as changing a few words and reprinting the forms -would cost Esurance nothing. He then determined that it would be “legally impossible” for the class to receive $4.4 million in punitive damages and dismissed the suit.
But the 7th Circuit questioned this analysis, finding that requiring Esurance to change its policy would have substantial financial consequences for the company.
“The district court wrote that the cost to Esurance would be trivial: just reprint the forms. But this suit is about money, not ink. If the class is right and Esurance must either stop charging a premium or change the terms so that policyholders receive indemnity more frequently, it will suffer a financial loss,” Chief Judge Frank Easterbrook wrote.
The expense of restitution and prospective relief would total approximately $2 million, the court determined. The remaining $3 million in punitive damages necessary for jurisdiction would amount to a multiplier of five times the amount in controversy-not an impossible award.
“We… do not think it ‘legally impossible’ for the class to recover more than $3 million in punitive damages. Improbable, perhaps, but not impossible,” Easterbrook mused.
The case was remanded to the Chicago-based federal district court for a trial on the merits.