A dispute between a Wisconsin couple and the Independence Life and Annuity Co. involving stakes of less than $75,000 in connection with a variable life insurance policy has no business in federal court and should be dismissed, a U.S. appeals court has ruled.
In McCormick v. Independence Life and Annuity Co., the 7th Circuit Court of Appeals in Chicago found unconvincing the arguments of the plaintiffs and the defendants as to why their dispute should be remedied in federal court.
The dispute arose after plaintiffs Joseph and Mary McCormick sued Independence Life and Annuity, declaring that they didn’t have to pay $44,000 in interest, which had accumulated over many years after the couple borrowed against the policy’s cash value.
Both sides agreed to move the case to federal court because the McCormicks asked for cancellation of the entire loan balance, a sum of roughly equivalent to $70,000, in addition to the elimination of the interest.
But with $75,000 the “minimum amount in controversy for that jurisdiction,” the court found there was no legal basis for such a request.
The three-judge panel found that cancellation of the principal balance as a remedy for excessive interest “is legally impossible in Wisconsin, whose law supplies the rule of decision.”
“Cancellation of the principal debt would be a windfall, not a means for vindicating the McCormicks’ contractual rights,” the court said in a six-page decision issued last month.
“The complaint might as well have demanded treble the amount of disputed interest, even though Wisconsin law offers not a shred of support for a treble-damages remedy,” the decision also stated.
The court appeared further nonplussed by the McCormicks’ filing their claim against the insurer only last year, 24 years after they bought their policy and far beyond the three-year limit to file suit.
“The securities claim is wacky, so far beyond the pale that it cannot support federal jurisdiction,” the court wrote.
The McCormicks weren’t the only ones to argue that the dispute deserved to be heard in federal court.
Lawyers for the insurance company also argued that the case should remain in federal court since the loan’s unpaid balance equaled or exceeded the policy’s cash value. However, the appeals court rejected that argument as well.
The court failed to see how the unpaid balance-cash value issue propelled the stakes involved at more than $75,000.
“If the policy really was at (or approaching) a negative value, then the difference between its continuation and its cancellation has a correspondingly small value,” the court found.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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