In American Family Mutual Ins. Co. v. Vein Centers for Excellence, Inc., 912 F.3d 1076 (8th Cir. 2018), the Eighth Circuit considered two questions. The first was whether the claims against an insured in an underlying class action suit could be aggregated to satisfy the $75,000 jurisdictional minimum for federal diversity jurisdiction of the coverage suit. The second was whether the endorsement American Family added to the policy restricting coverage for TCPA claims and other statutory violation claims was valid, and whether American Family complied with Missouri notice requirements for making substantive changes to policies.

St. Louis Heart Center, Inc. (“SLHC”) sued Vein Centers for Excellence, Inc. (“Vein Centers”) on behalf of a class, alleging that Vein Centers had sent out numerous unsolicited faxes in violation of the Telephone Consumer Protection Act, 47 U.S.C. §227 (“TCPA”).  American Family filed a declaratory judgment action against its insured, Vein Centers, in Missouri federal court seeking a declaration that it was not obligated to defend or indemnify it in the class action suit. Subsequently, it added SLHC as a defendant in its declaratory action.  The District Court awarded summary judgment in favor of American Family.

On appeal, SLHC challenged the summary judgment, arguing that the District Court lacked diversity jurisdiction because the amount in controversy did not meet the $75,000 jurisdictional minimum. SLHC claimed that the jurisdictional minimum was not met because the claim of each class member was substantially lower than $75,000, and federal courts have long held that the claims of individual class members could not be aggregated to satisfy the jurisdictional minimum for diversity jurisdiction.  The court disagreed, explaining that in a declaratory judgment action concerning an insurer’s duty to defend under an insurance policy, the amount in controversy ordinarily equals the probable costs of defense and indemnity less any applicable deductible. An adverse judgment against Vein Center would have been substantially in excess of $75,000, and it was probable that the cost to defend such an action alone would have exceeded $75,000.  The court rejected the argument that the value of the individual underlying claims could not be aggregated, because from American Family’s standpoint, there was only one claim, by its insured, for defense costs and indemnity costs in the underlying suit.  This ruling makes it easier for an insurer to obtain federal jurisdiction for coverage suits concerning class actions.

Having found jurisdiction, the court then turned to the question of whether American Family owed coverage.  Like many insurers, American Family had issued an endorsement excluding claims for statutory violations, including claims for violation of the TCPA.  SLHC conceded that if valid, the endorsement would exclude coverage for the TCPA claims asserted in the class action.  However, SLHC argued that the endorsement never took effect, because American Family had not complied with the notice provisions of Missouri law when it renewed the policy.

Under Missouri law, “[n]o notice of nonrenewal of a commercial casualty insurance policy shall be effective unless mailed or delivered by the insurer to the named insured at least sixty days prior to the effective date of the nonrenewal.” Mo. Rev. Stat. § 379.883(2). An insurer’s tender of a renewal policy with a significant change in coverage constitutes constructive nonrenewal.  SLHC argued that American Family could not prove that it notified Vein Center of the new endorsement at least 60 days prior to its effective date, so the endorsement was not effective.

American Family did not have a copy of the letter it sent to Vein Center or any other direct proof it had been sent. Instead, American Family submitted the deposition testimony of a corporate representative that American Family had sent a coverage summary letter (“CSL”) to Vein Center more than 60 days prior to its effective date. The representative also testified that it was American Family’s standard practice to include with the CSL a description of any changes to the policy from prior years.  The representative also disclosed an internal communication directing American Family employees to send a Policyholder Communication with a description of the exclusion to any current holders of Business owners Policies.

The court considered this evidence to be sufficient to create a presumption that the notice had been sent. It explained that under Missouri law, there is a presumption of receipt of mailed notices, which applies even in the absence of direct proof that the letter was mailed. In cases where proof is rendered impractical or infeasible due to the volume of mail, the purported sender may rely on “evidence of the settled custom and usage of the sender in the regular and systematic transaction of its business” to establish the presumption.  The testimony of the corporate representative sufficiently established this presumption. While the presumption was rebuttable, SLHC offered no evidence to rebut the presumption.

Most states have similar requirements that the insured must be notified of significant changes or restrictions on coverage.  It is often impractical for insurance companies to provide direct proof that such communications were sent to specific insureds.  The ruling in this case makes it clear that if the insurer can establish that it has a routine practice of sending such communications to the insured, that will suffice even if it has no direct proof that the notice was mailed.