In Keeling v. Esurance Insurance Company, 660 F.3d 273 (7th Cir. 2011), the plaintiff filed a class action in state court against the defendant insurance company alleging fraud for charging policyholders for worthless policies due to policy restrictions. The plaintiff sought the return of premiums and injunctive relief. The defendant removed the case to federal court under CAFA. The plaintiff argued that the amount in controversy was less than $5 million so the case should be remanded. The motion to remand was granted and the defendant appealed.

The Seventh Circuit examined the amount in controversy analysis of the district court. The defendant submitted evidence that it had issued over 50,000 policies containing the language complained of by the plaintiff. The net premiums received on those policies were $613,894, and no claims had been paid on the policies. The district court concluded that the principal amount in controversy was the $613,894, and it would be legally impossible for the class to recover the nearly $4.4 million in punitive damages needed to meet CAFA’s $5 million amount in controversy. Although the class demanded injunctive relief also, the district court deemed the cost to the defendant on that claim to be miniscule since the company could easily reprint the policies without the offending provisions.

The Seventh Circuit disagreed with the district court’s analysis of the value of the injunctive relief claim. The Court concluded that rewriting the policies could lead to the company either not charging a premium, or changing the terms of the policy so that the policyholders would receive indemnity more frequently. Either outcome could result in financial loss to the defendant. Under the appellate court’s analysis, the expense of restitution, combined with the cost of prospective relief would total approximately $2 million, leaving $3 million still needed to meet CAFA’s jurisdiction requirements. The Seventh Circuit then looked at punitive damages. The issue before the Court was whether it was legally impossible for the class to recover $3 million in punitive damages. If the plaintiff recovered $600,000 in compensatory damages, a multiplier of 5 would result in $3 million in punitive damages. Looking at punitive damage awards in other cases based on multipliers, the Court determined that while recovery of $3 million in punitive damages might be improbable, it was not legally impossible. Consequently, the remand order was overruled.