“The penny is easily the most neglected piece of U.S. currency.”  So begins the legal discussion in Freeland v. Liberty Mutual Fire Insurance Co., decided by the Sixth Circuit on February 4.  Answering a jurisdictional question that was unraised by the parties and unaddressed by the district court, the Sixth Circuit concluded that the amount in controversy was one penny short of the minimum required for federal diversity jurisdiction.

The plaintiffs in Freeland sought a declaratory judgment that a particular insurance policy provided $100,000 in coverage.  But that did not mean the amount in controversy, for purposes of diversity jurisdiction, was $100,000.  The defendant’s position was that the policy provided $25,000 in coverage, meaning that the amount actually in dispute was exactly $75,000.  Because the amount in controversy for diversity jurisdiction must exceed $75,000, exclusive of interest and costs, jurisdiction was lacking.

The court took care to distinguish the absence of any controversy as to the first $25,000 of coverage from a situation in which a defendant offers a portion of a disputed amount in settlement of a claim: “A party’s offer to settle a case for a specified amount does not reduce the amount in controversy by that amount.  If plaintiff sues defendant for $100,000, defendant cannot defeat federal jurisdiction simply by offering to settle the case for $40,000.”  There may be situations, however, in which it is difficult to distinguish between an offer to compromise and an acknowledgment that the plaintiff is entitled to some portion of the amount demanded.

District Judge Amul Thapar authored the court’s opinion, which was joined by Judges Martin and Stranch.