The opinion of the court was delivered by: KRAM
MEMORANDUM OPINION AND ORDER
SHIRLEY WOHL KRAM, U.S.D.J.
This action arises out of an automobile accident and the state judicial proceedings that ensued from that accident. Plaintiff commenced this action asserting that subject matter jurisdiction is found in this Court pursuant to section 1332 of Title 28, United States Code. The case is currently before the Court upon defendant's motion to dismiss the complaint for lack of subject matter jurisdiction upon the ground that the matter in controversy does not exceed the sum or value of $10,000, exclusive of interests and costs. For the reasons stated below, the motion is granted.
On March 19, 1981, a vehicle owned by plaintiff All State Vehicles, Inc. ("Vehicles") collided with a vehicle owned and operated by Vincenzo Dagati. Dagati was insured for property damage in the sum of $5,000 under a policy of liability insurance issued by Allstate Insurance Company ("Insurance").
Insurance established a claim file for this accident and held discussions with a representative from Vehicles in an effort to settle the matter. Apparently based, at least in part, upon Dagati's claim that the accident was not his fault but was caused by the driver of Vehicle's car, Insurance refused to settle the case on Vehicle's terms. Those terms have not been disclosed to the Court.
Vehicles sued Dagati in the Civil Court of the City of New York, Kings County claiming $7,572.64 for the property damage sustained in that accident. Vehicles allegedly served Dagati on April 21, 1983, by substituted service pursuant to N.Y. Civ. Prac. Law § 308(4) (McKinney Supp. 1984) (the "nail and mail" provision). Dagati apparently claimed that he did not receive service in any manner other than by mail, but he did receive the mailed copy of the summons and complaint.
Dagati forwarded this copy of the summons to an attorney, who then forwarded it to Insurance.
Dagati did not answer the summons and complaint, either in person, by his private attorney, or through Insurance, within the time allowed by state law. Vehicles requested an inquest and the matter was placed on the Inquest Calendar for June 30, 1983. Notice of this inquest was allegedly given to Dagati and his private attorney (but not Insurance). The inquest and assessment of damages was taken on that day and judgment entered for damages of $7,752.64 plus interest (a total of $9,219.67).
The following day Insurance (through an attorney) attempted to serve an answer on behalf of Dagati. Vehicles's attorney refused to accept the answer in light of the default judgment already obtained.
Thereafter, Vehicles secured from Dagati an assignment of any claim Dagati might have against Insurance for its failure to defend the state claims against him and for bad faith refusal to settle the claim. Vehicles then commenced this action, as assignee of Dagati, against Insurance seeking the $9,219.67 assessed in the state proceeding plus $500,000 in punitive damages for Insurance's alleged bad faith settlement of the claims against Dagati. This motion ensued.
Insurance claims, as a matter of law, that Vehicles is not entitled to recover punitive damages in this case, and, therefore, that the amount in controversy ($9,219.67) does not exceed the sum of $10,000 exclusive of interest and costs, as required by section 1332 of Title 28, United States Code. The Court agrees.
A plaintiff may aggregate its claims for compensatory and punitive damages in order to satisfy the minimum amount in controversy requirement for subject matter jurisdiction in this Court. See Bell v. Preferred Life Assurance Soc'y, 320 U.S. 238, 88 L. Ed. 15, 64 S. Ct. 5 (1943). However, a plaintiff may not rely upon a claim for punitive damages which are not recoverable as a matter of law. See Schwartz v. Victory Container Corp., 294 F. Supp. 866, 867 (S.D.N.Y. 1969). Accordingly, if plaintiff cannot recover punitive damages in this action, the Court does not have subject matter jurisdiction over this suit, because plaintiff's remaining claim for damages does not satisfy the amount in controversy requirement of 28 U.S.C. § 1332.
In order to determine whether punitive damages are recoverable in this case, the Court must review the applicable substantive law. In a diversity action, such as this purports to be,
the Court must follow the substantive laws of the state in which it sits, Erie R.R. Co. v. Tompkins, 304 U.S. 64, 82 L. Ed. 1188, 58 S. Ct. 817 (1938), including the forum state's choice of law rules, Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941). All of the relevant contacts in this case are with New York: Vehicles is a New York corporation; Dagati is a New York citizen; the accident occurred in New York; the insurance contract involved was entered into in New York; and the underlying state court proceeding, and with it the conduct complained of herein, transpired in New York. Thus, New York courts would apply New York law in this case.
The Court must, therefore, look at New York law in determining whether the requisite jurisdictional amount has been pleaded. Schwartz, 294 F. Supp. at 867.
In essence, plaintiff claims a bad faith breach of defendant's duty to defend its insured and its duty to make a reasonable settlement of a claim within the policy limits. In New York, in order for an insured to recover punitive damages from its insurer on these causes of action, there must be a showing of more than a mere breach of contract. E.g., Gordon v. Nationwide Mut. Ins. Co., 30 N.Y.2d 427, 334 N.Y.S.2d 601, 609, 285 N.E.2d 849 (1972), cert. denied, 410 U.S. 931, 35 L. Ed. 2d 593, 93 S. Ct. 1374 (1973); Dawn Frosted Meats, Inc. v. Insurance Co. of North America, 99 A.D.2d 448, 470 N.Y.S.2d 624 (1st Dep't 1984); Royal Globe Ins. Co. v. Chock Full O'Nuts Corp., 86 A.D.2d ...