On January 13, 2017, an automobile accident occurred between Dennis Perez, who was insured by Farmers Direct Property and Casualty Insurance Company and Victor Montez. Charged for driving under the influence and causing bodily injury to another Perez pleaded nolo contendere and served two years in jail. The Montezes alleged Perez’s “legal intoxication” caused the accident and the resulting “severe injuries” to Victor Montez, but Perez claimed that he unexpectedly hit a puddle, causing his vehicle to hydroplane into oncoming traffic.
On March 10, 2017, Victor Montez sent Farmers Direct a handwritten settlement demand letter, to indicate that he sought to settle for the full Policy amount, inquire whether Perez was “doing anything or going anywhere for his job” at the time of the accident, and determine if Perez had “any other insurance policies . . . .” As of May 18, 2017, Farmers Direct told the Montezes that it could not reach Perez “to obtain an affidavit of no other insurance . . . .” However it did offer to settle for the $25,000 policy limit.
Nearly a year later, the Montezes filed their underlying tort action against Perez in state court on May 10, 2018. Farmers Direct appointed counsel to defend Perez in the lawsuit. Perez’s appointed counsel subsequently asserted several defenses, but Perez was uncooperative with his own defense by failing to communicate with his counsel, who eventually retained a private investigator to locate Perez.
On June 15, 2021, the state court allowed Farmers Direct to intervene on behalf of Perez in the underlying tort action after previously denying its request. Farmers Direct incurred over $100,000 in defense fees, to intervene on behalf of Perez ahead of trial in the underlying tort action.
On November 9, 2021, Farmers Direct filed its declaratory judgment action in the federal district court, seeking a declaration that Perez breached the Policy’s provision relating to duties after loss (“Cooperation Clause”), and, in turn, that Farmers Direct no longer has a duty to defend or indemnify Perez in the underlying tort action.
On February 23, 2022, the federal district court entered Judgment, declaring that Farmers Direct: owes no continuing duty to defend and owes no duty to indemnify Perez in connection with the underlying [tort] action . . . because Perez’s breach of the Policy’s Cooperation Clause excuses further performance by Farmers Direct.
During trial of the underlying tort action in state court, Farmers Direct was not able to effectively raise liability defenses, including the theory that Perez hydroplaned after hitting a puddle, because of Perez’s lack of cooperation. On July 28, 2023, the state court entered a tort judgment against Perez of $8,862,730.00 in damages, $881,014.41 in costs and fees, and $3,205,151.67 in prejudgment interest were entered against Perez on November 9, 2023. On August 23, 2023, Farmers Direct paid the $25,000 Policy limit in partial satisfaction of the judgment.
On September 1, 2023, the Montezes filed a motion in Farmers Direct’s declaratory judgment action in federal court to intervene and to vacate the Judgment finding Farmers Direct owes no duty to indemnify Perez on several grounds, including that the Judgment “is void because the [district] [c]ourt lacked subject matter jurisdiction.” The district court agreed with the Montezes in its October 6, 2023 Order vacating the Judgment for lack of subject matter jurisdiction because the amount in controversy was the Policy’s $25,000 face amount, which was less than the over $75,000 statutory minimum.
The 9th Circuit Court of Appeals reversed in the published case of Farmers Direct Property and Casualty Insurance Company v Montez – 23-3320 (March 2025) The 9th Circuit held that the district court erred when it decided that the value of the declaratory judgment action.
In its federal Complaint for Declarative relief Farmers Direct alleged that the Montezes, as the “underlying plaintiffs now contend they are entitled to hundreds of millions of dollars in damages and further contend that Farmers Direct is liable for such damages notwithstanding its Policy limits.” The Montezes’ state court demand served as the basis for Farmers Direct’s claim that the amount-in-controversy requirement was satisfied in federal court, and a federal plaintiff’s “claim in excess of the requisite amount, made in good faith in the complaint, satisfies the jurisdictional requirement.”
The Montezes concede that in their underlying tort action against Perez they “alleged they were seeking for hundreds of millions in damages.” The Montezes cannot now dispute Farmers Direct’s “assumption that the value of . . . their underlying tort claims against” Perez was greater than $75,000, given that they once sought hundreds of millions in damages.
“The judgment was not void because there was at least an “arguable basis” that the amount in controversy was satisfied by considering either the potential excess liability of the underlying tort claim or Farmer Direct’s anticipated future defense fees and costs, or both.”