Mitcheson v. Harris

Decision Date12 February 1992
Docket NumberNo. 90-2229,90-2229
Citation955 F.2d 235
PartiesGeorge Anthony MITCHESON, acting for and on Behalf of Certain Other Underwriters at Lloyd's, Plaintiff-Appellee, v. Nathan M. HARRIS, Defendant-Appellant, and Charlese Vines, by her Guardian, Elizabeth Davis; Elizabeth Davis, individually, Defendants.
CourtU.S. Court of Appeals — Fourth Circuit

Kathleen Morris McDonald, Irwin, Kerr, Green, McDonald & Dexter, Baltimore, Md., argued (Charles M. Kerr, on brief), for defendant-appellant.

Robert L. Ferguson, Jr., Thieblot, Ryan, Martin & Ferguson, Baltimore, Md., argued (Jodi K. Ebersole, on brief), for plaintiff-appellee.

Before HALL and WILKINSON, Circuit Judges, and KELLAM, Senior District Judge for the Eastern District of Virginia, sitting by designation.

OPINION

WILKINSON, Circuit Judge:

In this case an insurer comes to federal court seeking a declaratory judgment regarding its obligation to defend and indemnify its insured when the underlying matter for which the insured claims coverage is the subject of an action already pending in state court. The issue of whether a federal court should decline to entertain an insurer's declaratory action when it is closely related to pending state court litigation has been one of recurrent difficulty. In the present version, Vines, a tenant of appellant Harris, brought non-removable, purely state law claims in Maryland state court against Harris alleging personal injuries stemming from lead poisoning. Harris' liability insurer at Lloyd's, London then brought this related, also purely state law action in federal court seeking a declaration that it owed no duty to defend or indemnify Harris on Vines' claims. After declining to dismiss the case, the district court awarded summary judgment to the insurer.

We reverse. The questions of state law are close ones, as illustrated by the disagreement between the district court and the dissenting opinion over the insurer's duty to defend. When considered in light of these problematic state law issues, the relevant state interests in this case should have led the district court to exercise its statutorily provided discretion to decline to entertain this declaratory judgment action.

I.

Appellant Nathan Harris owned a house at 509 North Gilmor Street, Baltimore, Maryland, which he rented to Elizabeth Davis. On March 19, 1981, Harris procured a liability insurance policy from a group of underwriters at Lloyd's, London covering the house for a period of one year. Harris had not had liability insurance for this property prior to that time. The policy promised to indemnify Harris for all damages for bodily injury and property loss arising out of the ownership, maintenance, or use of the insured premises during the policy period. The policy defined a covered "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Lloyd's also promised to defend Harris in any action seeking such damages.

Elizabeth Davis was the legal guardian for Charlese Vines, who began living with Davis in the house shortly after Vines' birth in 1978. Vines tested positive for elevated blood lead levels first in March 1980 and again at several points in 1980 and 1981. Lead paint violation notices regarding the house were issued by the Baltimore City Health Department to Harris in March and June of 1980, but abatement did not occur until June of 1981.

On February 13, 1989, Vines and Davis both filed suit against Harris in the Circuit Court for the City of Baltimore. Based solely on Maryland law, the complaint alleged that on or about August 1980, Vines had become seriously and permanently injured as a result of exposure to the lead paint in the house. After being notified of this claim, Lloyd's provided Harris with a defense under a reservation of rights. This action is still pending in state court.

After the action had been filed in the Maryland court, appellee George Mitcheson, acting for and on behalf of certain other underwriters at Lloyd's, filed this declaratory action in the federal district court for the District of Maryland on June 9, 1989. Lloyd's sought a declaration that it was not obligated to defend or indemnify Harris regarding the claims made by Vines and Davis. Because Vines' lead poisoning was first discovered prior to the inception of coverage, Lloyd's alleged that the harm to Vines constituted an occurrence that was not covered by the policy. See Harford Mut. Ins. Co. v. Jacobson, 73 Md.App. 670, 536 A.2d 120, 127 (Md.Ct.Spec.App.1988). Lloyd's also contended that Harris' failure to advise it that the property had been cited for lead paint violations voided his coverage and that the alleged injuries fell within the policy's pollution exclusion. In response to these contentions, Harris argued that the time of the first occurrence should be judged by when the injuries were first diagnosed, Jacobson, 536 A.2d at 127, and that there had been a second occurrence during the policy's coverage period. Harris also argued under Jacobson that Lloyd's had, at a minimum, a duty to defend him because the uncertainties over the circumstances surrounding the lead poisoning were "enough to indicate a potentiality that the injury in question occurred during the time the policy was in effect." Id. 536 A.2d at 123; see also Brohawn v. Transamerica Ins. Co., 276 Md. 396, 347 A.2d 842, 850 (1975).

Lloyd's moved for summary judgment on May 17, 1990. Harris opposed the motion and moved to dismiss the lawsuit. Focusing primarily upon the operative term "occurrence," the district court held that Maryland law did not obligate Lloyd's either to defend or indemnify Harris and accordingly granted summary judgment to the insurer. Harris now appeals those rulings.

II.

We acknowledge at the outset that the district court did possess diversity jurisdiction under 28 U.S.C. § 1332(a) to entertain this declaratory judgment action. The critical question, however, is whether the district court should have exercised the jurisdiction it possessed. Under the Declaratory Judgment Act, federal courts have discretion in deciding whether to hear a declaratory action. 28 U.S.C. § 2201 ("In a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." (emphasis added)); see also A.L. Mechling Barge Lines, Inc. v. United States, 368 U.S. 324, 331, 82 S.Ct. 337, 341, 7 L.Ed.2d 317 (1961); 10A Charles A. Wright et al., Federal Practice and Procedure § 2759 (2d ed. 1983). In reviewing a district court's decision on whether to entertain such an action, an appellate court does not approach the case in a wholly deferential posture. Rather, as numerous circuits have agreed, the appellate court must exercise its own judgment in reviewing the various interests at stake. See, e.g., Cincinnati Ins. Co. v. Holbrook, 867 F.2d 1330, 1333 (11th Cir.1989) (per curiam); Fireman's Fund Ins. Co. v. Ignacio, 860 F.2d 353, 354 (9th Cir.1988) (per curiam); International Harvester Co. v. Deere & Co., 623 F.2d 1207, 1217 (7th Cir.1980); Beacon Constr. Co. v. Matco Elec. Co., 521 F.2d 392, 397 (2d Cir.1975); 6A James W. Moore et al., Moore's Federal Practice p 57.08 (2d ed. 1991).

In our review of the district court's decision to entertain this declaratory action, we focus on two significant state interests that weigh in favor of dismissal.

A.

The first concern supporting dismissal of the declaratory action is the state's interest in deciding questions of state law--an interest that not surprisingly has its jurisprudential roots in Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). As was well established by Erie and its progeny, state law ordinarily provides the rule of decision in pure diversity cases. There exists an interest in having the most authoritative voice speak on the meaning of applicable law, and that voice belongs to the state courts when state law controls the resolution of the case.

Obviously, the interest in having the law of a given sovereign determined by the courts of that sovereign is not absolute; there are countless examples of federal courts interpreting state law and vice versa. In conferring federal jurisdiction under Article III, Congress can plainly supersede the state interest in having state courts interpret state law. In the ordinary diversity case, for example, there are paramount federal interests in having federal courts resolve questions of state law and accord protection to out-of-state parties. In declaratory actions, however, Congress has diminished the strength of these interests by making the exercise of such diversity jurisdiction discretionary with the court. The obligation of the federal judiciary to resolve all questions within its jurisdiction absent special circumstances, see Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817-18, 96 S.Ct. 1236, 1246, 47 L.Ed.2d 483 (1976), must thus be qualified in a declaratory action. Indeed the Third Circuit has stated that "by the terms of the Declaratory Judgment Act itself, a fundamental reason for the exceptional nature of a Colorado River stay--the 'virtually unflagging obligation of the federal courts to exercise the jurisdiction given them,'--is not present in declaratory judgment cases." Terra Nova Ins. Co. v. 900 Bar, Inc., 887 F.2d 1213, 1222 (3d Cir.1989) (quoting Colorado River, 424 U.S. at 817, 96 S.Ct. at 1246); see also Mission Ins. Co. v. Puritan Fashions Corp., 706 F.2d 599, 601 n. 1 (5th Cir.1983) (statute, not exceptional circumstances test, controls exercise of discretion in declaratory actions); Allstate Ins. Co....

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