Admiral Ins. Co. v. Niagara Transformer Corp.
| Decision Date | 06 January 2023 |
| Docket Number | 21-2733,August Term 2021 |
| Parties | ADMIRAL INSURANCE COMPANY, Plaintiff-Appellant, v. NIAGARA TRANSFORMER CORPORATION, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Second Circuit |
Justin N. Kinney (Michael S. Chuven, on the brief), Kinney Lisovicz Reilly & Wolff PC, New York, NY, for Plaintiff-Appellant Admiral Insurance Company.
Rodman E. Honecker, Windels Marx Lane & Mittendorf, LLP, New York, NY, for Defendant-Appellee Niagara Transformer Corporation.
Before: Calabresi, Cabranes, and Sullivan, Circuit Judges.
In this declaratory-judgment action, Admiral Insurance Co. ("Admiral") sought a declaration that it need not defend or indemnify its historical insured, Niagara Transformer Corp. ("Niagara"), in potential litigation between Niagara and nonparties Monsanto Co., Pharmacia LLC, and Solutia Inc. (collectively, "Monsanto") over harms caused by polychlorinated biphenyls ("PCBs") that Monsanto had sold to Niagara in the 1960s and 1970s. Admiral now appeals from the order of the district court (Carter, J. ) dismissing its action for lack of a justiciable "case of actual controversy" within the meaning of the Declaratory Judgment Act (the "DJA"), 28 U.S.C. § 2201(a). In reaching this jurisdictional ruling, the district court relied principally on (1) the fact that Monsanto has not commenced or explicitly threatened formal litigation against Niagara, and (2) its assessment that Monsanto would not be likely to prevail in such litigation.
While the district court properly concluded that it lacked jurisdiction to declare Admiral's duty to indemnify Niagara, it did not adequately distinguish between that duty (which is triggered by a determination of the insured's liability to the third party) and the insurer's separate duty to defend its insured (which is triggered by the third party's filing suit against the insured). Because a declaratory-judgment action concerning either duty becomes justiciable upon a "practical likelihood" that the duty will be triggered, see, e.g. , Associated Indem. Corp. v. Fairchild Indus., Inc. , 961 F.2d 32, 35 (2d Cir. 1992), the justiciability of Admiral's duty-to-defend claim turns on the practical likelihood that Monsanto will file suit against Niagara – not on whether Monsanto has already in fact done so or explicitly threatened to do so. As a result, we AFFIRM the district court's order dismissing Admiral's action to the extent that it sought a declaration of Admiral's duty to indemnify Niagara, and REMAND , pursuant to our practice under United States v. Jacobson , 15 F.3d 19 (2d Cir. 1994), for the district court to determine – as relevant to its jurisdiction to declare Admiral's duty to defend Niagara – whether there exists a practical likelihood that Monsanto will file suit against Niagara. Consistent with that practice, appellate jurisdiction will be restored to this panel after the district court has supplemented the record and reconsidered its prior decision on remand.
Should the district court determine on remand that it has jurisdiction to declare Admiral's duty to defend Niagara, it may nevertheless decline to exercise such jurisdiction. To that end, we clarify the standard governing a district court's discretion to decline jurisdiction under the DJA. We previously held in Continental Casualty Co. v. Coastal Savings Bank , 977 F.2d 734 (2d Cir. 1992), and Broadview Chemical Corp. v. Loctite Corp. , 417 F.2d 998 (2d Cir. 1969), that a district court must exercise jurisdiction if the issuance of a declaratory judgment would serve a useful purpose in settling the legal relations in issue or afford relief from the uncertainty giving rise to the proceeding. But our caselaw following Wilton v. Seven Falls Co. , 515 U.S. 277, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995), has treated the factors established by Broadview as only two among other factors that district courts should balance in determining whether to exercise jurisdiction under the DJA. Our caselaw suggests, and we now clarify, that district courts have discretion to decline jurisdiction upon the application of an open-ended, multi-factor balancing test in which no one factor necessarily mandates the exercise of jurisdiction.
Defendant-Appellee Niagara is a manufacturer of electrical transformers and the historical insured of Plaintiff-Appellant Admiral. Throughout the 1960s and 1970s, Niagara purchased PCBs from nonparty Monsanto for use in its transformers. PCBs are highly toxic and carcinogenic chemical compounds, the manufacture, processing, and distribution of which are now largely banned under federal statute. See 15 U.S.C. § 2605(e)(2)(A), (3)(A) ; see also 40 C.F.R. § 761.20 (). Monsanto's sales of PCBs to Niagara were made pursuant to a "Special Undertaking" agreement, which provided that Niagara would "defend, indemnify, and hold harmless Monsanto ... from and against any and all liabilities, claims, damages, [etc.] arising out of ... the ... use, sale[,] or disposition of such PCB[ ]s by, through[,] or under [Niagara]." J. App'x at 19. Monsanto also required Niagara to maintain "adequate insurance protection." Id. at 17. In keeping with this agreement, Niagara purchased a general liability policy from Admiral that ran from 1976 to 1977.
Beginning in 2009, various individuals, businesses, municipalities, and states commenced actions against Monsanto in state and federal courts across the country, asserting claims for personal injuries, environmental clean-up costs, property damage, and other harms allegedly caused by exposure to or contamination by PCBs originally manufactured by Monsanto. In August 2016, after losing an eight-figure judgment in one such case (and while countless other such cases were in active litigation or settlement negotiations, with still more being filed anew), Monsanto sent Niagara a letter, through counsel, "demand[ing]" that Niagara "defend, indemnify[,]and hold harmless" Monsanto "in connection with all current and future PCB-related litigation wherein ... Monsanto is, or will be, named as a defendant, and for the amount of any resulting judgments (if any) and settlements, to the full extent required by the Special Undertaking." Id. at 22. Monsanto further stated that "Niagara ... will be held liable for the amount of the resulting settlements or judgments (if any) [in the PCB-related actions against Monsanto,] as well as the incurred costs, expert witness fees, attorney's fees, and all other reasonable expense incurred in defending [such] actions." Id. (emphasis added). Appended to this letter was a chart enumerating forty-six relevant cases pending against Monsanto. Niagara responded with a letter from its own counsel, denying any and all liability to Monsanto. To date, Monsanto has not commenced formal legal action against Niagara.
In early 2020, Niagara learned that Magnetek, Inc. – another industrial manufacturer that had sourced PCBs from Monsanto pursuant to a contract substantially identical to the Special Undertaking – had been sued by Monsanto but was able to obtain coverage from its historical insurance carrier. This prompted Niagara to further investigate and to ultimately identify Admiral as its own historical liability insurance carrier from the 1970s. Thus, in March 2020, Niagara gave Admiral notice of Monsanto's underlying demands and tendered its own "demand[ ]" that Admiral "defend and indemnify Niagara ... in connection with any and all claims made by Monsanto." Id. at 35. One month later, Admiral denied coverage for reasons including Niagara's putative failure to timely notify Admiral of Monsanto's underlying demands.1
Shortly thereafter, in May 2020, Admiral filed its complaint in district court, seeking a declaration that it has no obligation to defend or indemnify Niagara in connection with the claims asserted in or arising out of Monsanto's 2016 demand letter. On September 1, 2020, Niagara moved to dismiss the complaint for lack of subject-matter jurisdiction, arguing principally that Admiral's action did not present a justiciable "case of actual controversy" under the DJA. 28 U.S.C. § 2201(a). The same day, Admiral cross-moved for summary judgment. On September 29, 2021, the district court issued an opinion and order granting Niagara's motion to dismiss and thus declining to reach the merits of Admiral's cross-motion for summary judgment. The district court concluded that there was no "case or controversy" under the DJA because there was no "practical likelihood" that "Niagara will incur liability ... to Monsanto in connection with the PCB-related litigation." Sp. App'x at 9–10. For support, the district court noted, among other things, that (1) "to date, Monsanto ha[d] filed no lawsuit against Niagara" and "never explicitly threatened to sue Niagara," and (2) "questions over the validity, scope, and enforceability of the Special Undertaking" remain. Id. at 5, 10.
Admiral timely appealed.
On appeal from a dismissal for lack of subject-matter jurisdiction, we review the district court's legal conclusions de novo, Amidax Trading Grp. v. S.W.I.F.T. SCRL , 671 F.3d 140, 145 (2d Cir. 2011), and its factual findings for clear error, Zappia Middle E. Constr. Co. v. Emirate of Abu Dhabi , 215 F.3d 247, 249 (2d Cir. 2000). In so doing, "we draw all facts – which we assume to be true unless contradicted by more specific allegations or documentary evidence – from the complaint and from the exhibits attached thereto," and "we construe all reasonable inferences ... in [the non-movant's] favor." Amidax Trading Grp. , 671 F.3d at 145.
Article III of the Constitution limits the "judicial Power of the United States" to "Cases" and "Controversies." U.S. Const. art. III, §§ 1 –2; see Spokeo, Inc. v. Robins , 578...
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