Am. Guarantee & Liab. Ins. Co. v. Norfolk S. Ry. Co.

• Decision Date: 06 October 2017
• Docket Number: Case No. 3:16–cv–129
• Citation: 278 F.Supp.3d 1025
• Court: U.S. District Court — Eastern District of Tennessee
• Parties: AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, Plaintiff, v. NORFOLK SOUTHERN RAILWAY COMPANY, et al., Defendants.

278 F.Supp.3d 1025

AMERICAN GUARANTEE AND LIABILITY INSURANCE COMPANY, Plaintiff,

v.NORFOLK SOUTHERN RAILWAY COMPANY, et al., Defendants.

Case No. 3:16–cv–129

United States District Court, E.D. Tennessee, Northern Division, at Knoxville.

Signed October 6, 2017

Alan M. Sowell, William H. Tate, Howard Tate Sowell Wilson Leathers & Johnson, PLLC, Nashville, TN, for Plaintiff.

Donald R. McMinn, Pro Hac Vice, Hollingsworth LLP, Washington, DC, Emily L. Herman-Thompson, Baker, O'Kane, Atkins & Thompson, Knoxville, TN, Lewis, Thomason, King, Krieg & Waldrop, P.C. (Knox), Knoxville, TN, for Defendants.

ORDER

HARRY S. MATTICE, JR., UNITED STATES DISTRICT JUDGE

Before the Court is Plaintiff's Motion for Summary Judgment (Doc. 42), and the Norfolk–Defendants' Motion for Summary Judgment (Doc. 51). For the reasons stated herein, Plaintiff's Motion for Summary Judgment (Doc. 42) will be GRANTED in part and DENIED in part , and the Norfolk–Defendants' Motion for Summary Judgment (Doc. 51) will be GRANTED in part DENIED in part .

I. FACTS

One evening in May 2014, Darius Gallaher was driving his three friends—Jadah Gallaher, Hunter Crass, and Roderick Drummond—to Cracker Barrel to get dinner. Unfortunately, Darius and his friends did not make it to dinner that night. When crossing a railroad track at the Mountain View Crossing, a train collided into the car's passenger side and dragged the vehicle a considerable distance before coming to a stop. As a result of the collision, Roderick Drummond died at the scene of the accident. Darius and Jadah Gallaher and Hunter Crass were rushed to the emergency room in critical condition. Jadah eventually succumbed to her injuries and died at the hospital. Crass and Darius survived, but both are likely permanently injured by the accident.

The train that struck the car was owned and operated by Norfolk Southern Corporation and related entities (collectively "Norfolk"). Norfolk also maintained the Mountain View Crossing, the scene of the collision. Norfolk became aware of the accident shortly after it occurred, and it promptly investigated the incident.

Mountain View Crossing is a rural crossing. It did not have gates or warning lights like those typically seen at more modern crossings, and the tracks leading up to the crossing were surrounded by trees and shrubbery. Tennessee law and prudence required Norfolk to keep the vegetation surrounding the tracks from obstructing drivers' views at the crossing. In order to meet this obligation, Norfolk maintained a contract with East Coast Right of Way Maintenance, Inc. ("East Coast").

Under the contract (the "Vegetation Control Agreement"), East Coast was required to spray herbicide, monitor vegetation, and otherwise keep vegetation from obstructing the view at the Mountain View Crossing. The contract obligated East Coast to buy commercial general liability (CGL) insurance with a combined policy limit of $2 million. As part of that requirement, East Coast agreed to name Norfolk as an additional insured under the policy. East Coast upheld its end of the bargain and purchased a CGL policy from Cincinnati Specialty Underwriters Insurance Company ("Cincinnati") with a policy limit of $1 million. The Cincinnati policy included an "Additional Insured Endorsement" (the "AI Endorsement"), which amends the policy's definition of insured to include any entity East Coast agrees in writing to designate as an additional insured. East Coast also purchased Umbrella and Follow Form Excess coverage from American Guarantee & Liability Insurance Company ("AG"). AG's Excess coverage adopted the terms and conditions of the underlying Cincinnati policy, as is standard industry practice. Both the Cincinnati and AG policies were in effect at the time of the May 2014 Mountain View Crossing accident. The Vegetation Control Agreement also contained an indemnification provision in which East Coast promised to indemnify Norfolk for liability arising out of East Coast's acts or omissions.

Shortly after the accident, Roderick Drummond's estate threatened a lawsuit against Norfolk. Acting alone, Norfolk quickly settled the Drummond claim on August 20, 2014, three months after the accident. It would not be the end of the Mount View Crossing accident litigation. In January of 2015, Darius, Crass, and the estate of Jadah Gallaher filed a suit against Norfolk in Tennessee state court (the "Crass–Gallaher suit"). The complaint in the Crass–Gallaher suit alleged, among other things, that vegetation surrounding the Mountain View Crossing obstructed the view of drivers at the crossing.

For six months, Norfolk defended itself in the Crass–Gallaher suit. Norfolk did not formally notify or otherwise call upon East Coast or its insurers for a defense. Eventually, however, East Coast's President became ancillarily involved in the Crass–Gallaher suit when he was deposed by the plaintiffs' attorney in the suit. The deposition involved questions regarding East Coast's maintenance of the Mount View Crossing vegetation. Prior to the deposition, on July 31 2015, East Coast's President saw to it that East Coast's CGL insurers, Cincinnati and AG, were notified of the suit and upcoming deposition.

On September 11, 2015, nine months into the lawsuit, Norfolk contacted AG and Cincinnati by mail to formally notify them of the Crass–Gallaher suit. Neither AG nor Cincinnati responded to Norfolk's letter. As the Crass–Gallaher suit continued, the parties to the suit eventually agreed to mediate the claim. Around this time, on October 30, 2015, Norfolk sent a letter to East Coast demanding indemnification and notifying it of the upcoming mediation, which was set for November 10, 2015. Through East Coast, Cincinnati and AG were both aware of the letter and its contents. AG considered the letter Norfolk's first formal notice. On November 2nd, as the November 10th mediation approached, Norfolk again sent letters to AG and Cincinnati advising them of the mediation. Cincinnati did not reply, but AG responded to the letter by instructing Norfolk to "act as a reasonable uninsured in evaluating/acting upon any settlement offers at the mediation."

At the November 10th mediation, Norfolk and the Crass–Gallaher plaintiffs reached a settlement agreement. That same day, Norfolk promptly notified AG of the settlement. Two weeks later, Norfolk requested AG indemnify it for the Crass–Gallaher settlement. Not satisfied with AG's response, Norfolk sent a formal bad faith demand letter to AG on December 22, 2015.

On January 14, 2016, AG finally responded to the formal demand letter and requested Norfolk send materials related to the Crass–Gallaher suit so AG could process the claim. Norfolk responded and asked AG to specify what relevant materials of the voluminous Crass–Gallaher record it wanted. It is not apparent what, if any, information was actually exchanged as a result of this interaction and subsequent interactions. On March 16, 2017, Cincinnati and Norfolk reached an agreement over indemnification related to the Crass–Gallaher suit. Two days after that agreement, AG filed this declaratory judgment action against Norfolk.

II. LEGAL FRAMEWORK

A. Jurisdiction

The Declaratory Judgment Act does not provide an independent basis of jurisdiction. Skelly Oil Co. v. Phillips Petroleum Co. , 339 U.S. 667, 671–72, 70 S.Ct. 876, 94 L.Ed. 1194 (1977). Instead, a court can only hear a declaratory judgment action when it is founded upon an independent ground of jurisdiction. Id. Here, the case lies under diversity jurisdiction because complete diversity exists between the parties and the amount in controversy exceeds $75,000.00. 28 U.S.C. § 1332(a).

B. Declaratory Judgment Act

The Declaratory Judgement Act does not swing open the courthouse doors for litigants to come in and parse out their rights. See Pub. Serv. Comm'n of Utah v. Wycoff Co., Inc. , 344 U.S. 237, 241, 73 S.Ct. 236, 97 L.Ed. 291 (1952). Instead, the Act gives district courts "unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co. , 515 U.S. 277, 286–87, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). District courts, however, are not permitted to exercise this discretion blindly. Western World Inc. Co. v. Hoey , 773 F.3d 755, 759 (6th Cir. 2014). Rather, courts must use sound discretion that is "hardened by experience into rule." Id. (quoting Wilton , 515 U.S. at 289, 115 S.Ct. 2137 ). To this end, the Sixth Circuit has identified five non-exclusive factors for courts to consider when deciding whether to hear a declaratory judgment action. Id. The factors—known as the Grand Trunk factors¹ —are as follows:

(1) Whether the declaratory action would settle the controversy;

(2) whether the declaratory action would serve a useful purpose in clarifying the legal relations in issue;

(3) whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for res judicata;"

(4) whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach upon state jurisdiction; [which is determined by asking]

a. whether the underlying factual issues are important to an informed resolution of the case;

b. whether the state trial court is in a better position to evaluate those factual issues than is the federal court; and

c. whether there is a close nexus between underlying factual and legal issues and state law and/or public policy, or whether federal common or statutory law dictates a resolution of the declaratory judgment action; and

(5) whether there is an alternative remedy which is better or more effective.

Western World , 773 F.3d at 759.

Ultimately, the Grand Trunk factors are concerned with three things: efficiency, fairness, and federalism. Id. Before addressing the factors, the Court notes the parties have not objected to the use of a declaratory judgment action in this venue; that is to say, all parties consent to the current form of this...