Allstate Ins. Co. v. Green

Decision Date06 August 1987
Docket NumberNo. 86-1729,86-1729
Citation825 F.2d 1061
PartiesALLSTATE INSURANCE COMPANY, Plaintiff-Appellant, v. Roger Eugene GREEN; Kevin Dion Green; Frank Prince Middlebrooks, Jr.; Frank Middlebrooks; Irene Middlebrooks; Sheldon Murray; Herbert Murray and Wilma Murray, Defendants-Appellees.
CourtU.S. Court of Appeals — Sixth Circuit

Rosalind Rochkind (argued) Garan, Lucow, Miller, Seward, Cooper & Becker, P.C., Detroit, Mich., Frederick B. Plumb, for plaintiff-appellant.

O'Neal O. Wright, Wright, Fabre, Reed, and Whitfield, Michael Marston (argued), Detroit, Mich., for defendants-appellees.

Before GUY and BOGGS, Circuit Judges; and EDWARDS, Senior Circuit Judge.

RALPH B. GUY, Jr., Circuit Judge.

Plaintiff, Allstate Insurance Company (Allstate), commenced this action for declaratory relief in federal district court. Allstate sought a determination that its homeowners policy of insurance issued to Frank and Irene Middlebrooks as the named insureds, and also insuring their seventeen year old son, Frank Prince Middlebrooks, Jr. (Frank, Jr.), provided no coverage for the Middlebrooks in a pending state court action. The district judge, sua sponte, dismissed the action for lack of jurisdiction, stating as follows:

This being an action for declaratory judgment as to which there is a parallel action arising from the same facts pending in state court;

The Court determin[es] on the authority of American Home Assurance Company v. Evans ... and Manley, Bennett, McDonald & Co. v. St. Paul Fire & Marine Insurance Co. ... that a declaratory judgment is inappropriate in this action.

For the reasons which follow, the judgment of dismissal is reversed and remanded for further proceedings in accordance with this opinion.

I.

The facts relative to this appeal are largely uncontested and may be summarized as follows. The declaratory action arose as a result of claims made against Allstate's insureds concerning an assault and battery committed against Kevin Green, a seventeen year old high school student, by Frank, Jr. and his friend, Sheldon Murray. Middlebrooks and Murray attempted to rob Green at gunpoint and, when Green attempted to run away, Frank, Jr. fired a "volley of shots," one of which hit Green in the right hip. Murray was criminally charged and found guilty in a bench trial on February 27, 1985. On March 29, 1985, a guilty plea was accepted from Frank, Jr. by the Detroit Recorder's Court to assault with intent to do great bodily harm, assault with intent to rob being armed, and felony firearm.

At the time of the incident, Frank, Jr. lived with his parents, the named insureds on the homeowners policy at issue. A tort complaint was filed in Wayne County Circuit Court on June 13, 1985, charging Frank and Irene Middlebrooks and Herbert and Wilma Murray with negligence in (1) allowing the guns to become accessible to the boys; (2) failing to exercise proper control of the use of the gun(s); and (3) failing to exercise proper control over the actions of their children, being "well aware that the children were likely to resort to violence and that they were potentially dangerous to various segearents (sic) of society." The Middlebrooks tendered the defense of the tort complaint to Allstate and demanded coverage under the family liability provisions of the policy. It was Allstate's belief, communicated to the Middlebrooks in a reservation of rights letter, that the policy did not cover their potential liability because of the following exclusion:

Exclusions--Losses We Do Not Cover

1. We do not cover any bodily injury which may reasonably be expected to result from the intentional or criminal acts of an insured person or which is in fact intended by an insured person.

However, Allstate accepted the defense of the tort suit under a reservation of rights, pending a judicial determination of the coverage issue. In an attempt to secure such judicial determination, Allstate commenced this declaratory action pursuant to 28 U.S.C. Sec. 2201 1 on October 17, 1985. Diversity jurisdiction was properly invoked, and Allstate sought a declaration that it had neither the duty to defend the Middlebrooks nor the duty to indemnify them for any liability which might arise in the tort suit. 2 Allstate named as defendants all parties who might have an interest in the outcome of the coverage issue, including the insureds (Middlebrooks), the tort plaintiffs (Greens), and the co-tort defendants (Murrays).

On June 17, 1986, Allstate filed a motion for summary judgment, alleging a lack of any genuine issue of material fact. All parties agreed that Frank, Jr. had attempted to rob Green at gunpoint and that he had fired the weapon in Green's direction when Green attempted to flee. All agreed that one of the bullets hit Green. It was Allstate's position that, based on these undisputed facts, the allegations directed against the Middlebrooks fell within the policy exclusion as a matter of law. Defendants Green (the tort plaintiffs) filed a response requesting that the court find that Allstate had both a duty to defend and the duty to indemnify. Prior to hearing argument on the motion, the district court sua sponte dismissed the claim for lack of jurisdiction. A jurisdictional issue had not been raised previously nor were the parties afforded an opportunity to respond prior to the issuance of the court's order.

II.

In Grand Trunk Western Railroad Co. v. Consolidated Rail Corp., 746 F.2d 323 (6th Cir.1984), we dealt with a declaratory judgment action filed by the plaintiff in federal court following a dismissal on the same issue by a state court. Plaintiff failed to appeal the state court ruling, instead filing its 28 U.S.C. Sec. 2201 federal action almost one and one-half years later. We declined declaratory relief, finding that "Grand Trunk's request for declaratory relief is an attempt to have the federal courts do what the state court has already refused to do. As such, Grand Trunk's request for declaratory relief is not only an impermissible attempt to race with Conrail to obtain a favorable final judgment, but also will create unnecessary friction between federal and state courts." Id. at 326. In Grand Trunk, we adopted the following general considerations governing the grant of declaratory judgments:

(1) when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and (2) when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.

Id. (citing E. Borchard, Declaratory Judgments 299 (2d ed. 1941)). We further refined those considerations into an analytical framework encompassing the following five factors: (1) whether the declaratory action would settle the controversy; (2) whether it 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 a race for res judicata "; (4) whether use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and (5) whether there is an alternative remedy which is better or more effective. Id.

On May 27, 1986, we issued the two decisions upon which the district court relied in dismissing the present action. In American Home Assurance Co. v. Evans, 791 F.2d 61 (6th Cir.1986), plaintiff-insurer filed a Sec. 2201 action shortly before the commencement of trial in state court and after an eight-month adjournment due to substitution of counsel. The insured, William Evans, an attorney, had been sued for malpractice and dishonest conduct of a client's affairs. The insurer sought a declaration that Evans' conduct fell within the policy's "dishonesty" exclusion to coverage. Although the initial complaint was filed in state court in July of 1981, the federal Sec. 2201 action was not filed until October of 1982, and the insurer simultaneously petitioned the state court to have the malpractice action stayed pending a determination of the federal coverage action. That motion was denied, and the state suit proceeded to judgment in favor of the plaintiff prior to the district court's consideration of the declaratory action.

The district judge granted declaratory relief; however, we reversed and ordered dismissal because "we saw the case as an effort to play off the state and federal courts against each other and as a race for res judicata." Id. at 63. We held in American Home that "[w]here complex factual issues are present and the action parallels a state court action arising from the same facts and where alternative remedies are available [i.e., an action for indemnity after conclusion of the state court suit], declaratory judgment is inappropriate." Id. at 64.

Manley, Bennett, McDonald & Co. v. St. Paul Fire & Marine Insurance Co., 791 F.2d 460 (6th Cir.1986), involved a Sec. 2201 action filed by a stock brokerage firm against the issuer of its fidelity bonds. Initially, the firm sought a declaration as to both coverage and indemnification in two state court cases alleging various counts of fraud and securities violations. The district court ruled in favor of Manley, Bennett on the indemnification issue and also granted the firm's motion to voluntarily dismiss the coverage issue, and the insurer appealed. We ruled that the declaratory judgment was improvidently granted and ordered dismissal. In so holding, we considered two factors to weigh against the exercise of federal jurisdiction; the fact that the coverage question would not be resolved and the existence of a "superior alternative remedy" in the form of an action for indemnity after conclusion of the state trial. Once again we stressed, as we had in American Home, that "declaratory judgment actions seeking an advance opinion on indemnity issues are seldom helpful in resolving an ongoing action in another court. Such...

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