Benchmark Ins. Co. v. Sustainable Energy Solutions, Inc.

• Decision Date: 28 June 2019
• Docket Number: CASE NO. 1:19-CV-94-WKW [WO]
• Parties: BENCHMARK INSURANCE COMPANY, Plaintiff, v. SUSTAINABLE ENERGY SOLUTIONS, INC., and DANNY LOONEY, Defendants.
• Court: U.S. District Court — Middle District of Alabama

BENCHMARK INSURANCE COMPANY, Plaintiff, v. SUSTAINABLE ENERGY SOLUTIONS, INC., and DANNY LOONEY, Defendants.

CASE NO. 1:19-CV-94-WKW [WO]

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF ALABAMA SOUTHERN DIVISION

June 28, 2019

MEMORANDUM OPINION AND ORDER

Plaintiff Benchmark Insurance Company seeks a declaratory judgment that it has a right to rescind an insurance policy it issued to Defendant Sustainable Energy Solutions, Inc. (Doc. # 1.) Sustainable and its employee, Defendant Danny Looney, move to stay or dismiss this action in favor of ongoing litigation in the Circuit Court of Geneva County, Alabama. (Docs. # 12, 21.) Their motions to stay are due to be granted.

I. JURISDICTION AND VENUE

"The Declaratory Judgment Act does not, of itself, confer jurisdiction upon the federal courts. Rather, a suit brought under the Act must state some independent source of jurisdiction." FEC v. Reform Party of U.S., 479 F.3d 1302, 1307 n.5 (11th Cir. 2007) (per curiam) (citing Borden v. Katzman, 881 F.2d 1035, 1037 (11th Cir. 1989)). Benchmark invokes diversity jurisdiction. 28 U.S.C. § 1332(a)(1). Because Benchmark does not pray for damages, it must show that "the monetary value of the object of the litigation" exceeds $75,000. Federated Mut. Ins. Co. v. McKinnon Motors, LLC, 329 F.3d 805, 807 (11th Cir. 2003) (quoting Cohen v. Office Depot, Inc., 204 F.3d 1069, 1077 (11th Cir. 2000)). Benchmark makes little effort to carry its burden — it just says that "the matter in controversy exceeds the sum of $75,000." (Doc. # 1, at 2.) But given the apparent seriousness of Danny Looney's injuries and the terms of the insurance policy at issue, the court finds that it has subject-matter jurisdiction. See Stonewall Ins. Co. v. Lopez, 544 F.2d 198, 199 (5th Cir. 1976) (per curiam). The parties do not contest personal jurisdiction or venue.

II. BACKGROUND

Sustainable Energy Solutions, Inc., is an Alabama company that waterproofs commercial and residential buildings. (Doc. # 1, at 2; Doc. # 1-3, at 1.) Its principal place of business is in Geneva County. (Doc. # 1-1, at 1; Doc. # 12-2, at 1.) In 2012, Sustainable applied for a workers' compensation and employer's liability insurance policy through Slingluff United Insurance Agency in Dothan. April Parker was Slingluff United's insurance agent. (Doc. # 1-1, at 1; Doc. # 1-4, at 1.)

To get a quote on a policy, an initial application was submitted to Benchmark Insurance Company. According to a note on that application, Sustainable's business involved the "application of waterproofing material via spray gun [or] roller." Onequestion on this initial application asked if Sustainable did "any work . . . above 15 feet." Answer: No. (Doc. # 1-1, at 3.) Sometime later, a supplemental application asked the same question about doing "any work above 15 feet." That query was also answered in the negative. (Doc. # 1-3, at 1.) Benchmark ultimately gave Sustainable a quote "subject to the following" condition: "On ground only for the applying [of] waterproofing; no height work or roof work." (Doc. # 1-2, at 1.)

Benchmark issued Sustainable an insurance policy (No. WC044-0040108) in October 2012. The policy covered workers' compensation claims. It also provided Sustainable with up to $100,000 of liability insurance per accident. (Doc. # 1-4, at 1.) The policy itself does not seem to restrict the type of work that Sustainable may perform. Sustainable renewed the policy each year. Its most recent policy covered work performed on October 3, 2018. (Doc. # 1, at 4.)

October 3 matters because of a workplace accident that happened on that day. A Geneva County resident named Danny Looney was working for Sustainable on a jobsite in Montgomery. (Doc. # 12-1, at 1.) According to an accident report, Looney "was helping put materials on [a] roof" when he stepped onto — and through — a skylight. (Doc. # 1-5, at 1.) As a result of that fall, Looney allegedly suffered serious and permanent injuries. (Doc. # 12-1, at 1.)

Three lawsuits ensued after the October 3 accident. Benchmark fired the first shot when it filed this declaratory judgment action against Sustainable and Looneyon January 30 of this year. (Doc. # 1.) Benchmark says Sustainable misrepresented the nature of its business on the 2012 insurance policy applications, and Benchmark insists that it would not have insured Sustainable if it had known Sustainable worked on roofs. Benchmark thus claims that the insurance policy is "void ab initio," and it seeks a declaratory judgment that it may rescind the policy. (Doc. # 1, at 5.) Though Benchmark does not spell out the legal support for its claim, it is possibly relying on Alabama Code § 27-14-7(a). Under that statute, misrepresentations on an insurance application may prevent recovery under the policy. See Nationwide Mut. Ins. Co. v. Pabon, 903 So. 2d 759, 766-67 (Ala. 2004). Interestingly, though, § 27-14-7(a) "is an affirmative defense" under Alabama law. Patterson v. Liberty Nat'l Life Ins. Co., 903 So. 2d 769, 779 (Ala. 2004).

Less than a week later, on February 4, Danny Looney filed the second lawsuit. He sued Sustainable in the Circuit Court of Montgomery County under the Alabama Workers' Compensation Act, Ala. Code § 25-5-1 et seq. (Doc. # 12-1.)¹ In response to that lawsuit, Benchmark says that it is paying Looney partial disability benefits. Benchmark also says it is defending Sustainable against Looney's claim. (Doc. # 1, at 5; Doc. # 18, at 8.) Looney asserts that Benchmark is not paying his medical benefits. (Doc. # 21, at 2-3; Doc. # 22-1, at 1.)

Sustainable filed the third lawsuit on April 24 in the Circuit Court of Geneva County. (Doc. # 12-2.)² It sued Benchmark, Slingluff United, and April Parker. In short, Sustainable alleges that it told Parker that it worked on roofs, that Parker filled out the applications, and that Parker said the policy would cover "all injuries." (Doc. # 12-2, at 2-3.) Sustainable seeks to hold Benchmark liable for Parker's actions and misrepresentations. Sustainable also alleges Benchmark has "refused to pay benefits owed to" Sustainable. (Doc. # 12-2, at 4.) Sustainable thus brings claims for breach of contract, bad faith, fraud, failure to disclose, negligence, and wantonness. (Doc. # 12-2, at 4-8.)

On the same day that it filed its Geneva County lawsuit, Sustainable moved to dismiss or stay this declaratory judgment action. (Doc. # 12.) Later, Looney filed a similar motion. (Doc. # 21.) Then on May 22, Benchmark moved to dismiss the Geneva County lawsuit, asserting that it has not denied coverage and that the claims in the Geneva County case are compulsory counterclaims in this action. (Doc. # 20.) Slingluff United and Parker then filed a similar motion to dismiss the Geneva County case. The Circuit Court of Geneva County has scheduled a hearing for July 11, 2019, about the motions to dismiss.

III. DISCUSSION

Under the Declaratory Judgment Act, a federal court "may declare the rights and other legal relations of any interested party." 28 U.S.C. § 2201(a) (emphasis added). But Brillhart v. Excess Insurance Co. of America held that courts are "under no compulsion to exercise that jurisdiction." 316 U.S. 491, 494 (1942). Or as the Supreme Court put it in Wilton v. Seven Falls Co., the Act "confers a discretion on the courts rather than an absolute right upon the litigant." 515 U.S. 277, 287 (1995) (quoting Pub. Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 241 (1952)). This discretion results in the so-called Wilton-Brillhart Abstention Doctrine.

Under the Wilton-Brillhart Abstention Doctrine, federal courts should avoid "gratuitous interference with the orderly and comprehensive disposition of a state court litigation." Brillhart, 316 U.S. at 495 (cleaned up). Moreover, "considerations of practicality and wise judicial administration" may lead a court to stay or dismiss a declaratory judgment action that would waste judicial resources. Wilton, 515 U.S. at 288. Accordingly, a federal district court "is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment." Id.

Several factors guide a federal court's decision to stay or dismiss a declaratory judgment action. Here, the Geneva County action may well resolve the issue in this case — plus several others. None of those issues involve federal law, and Alabama courts have an interest in applying Alabama law to Alabama injuries. There is agood chance that issuing a declaratory judgment will create friction with state court, and it is possible that Benchmark filed this action to avoid litigating in Alabama courts. So the court will stay this federal action pending litigation in Circuit Court of Geneva County.

A. The court, in its discretion and after weighing the relevant factors, may stay or dismiss this action in favor of the Geneva County litigation.

Before a federal court can abstain in favor of a state court case, there must be a related state court proceeding. See Fed. Reserve Bank of Atl. v. Thomas, 220 F.3d 1235, 1247 (11th Cir. 2000) ("It is an abuse of discretion . . . to dismiss a declaratory judgment action in favor of a state court proceeding that does not exist."). But see Stevens v. Osuna, 877 F.3d 1293, 1313 (11th Cir. 2017) (affirming the dismissal of a declaratory judgment action without identifying any state court action). It matters how similar the federal action is to the state court case. A federal court's discretion to abstain is more pronounced when the federal and state actions are "parallel" — that is, when they "involve substantially the same parties and substantially the same issues." Ambrosia Coal & Const. Co. v. Pagés Morales, 368 F.3d 1320, 1330 (11th Cir. 2004).³ But as the Eleventh Circuit once explained, "nothing in the DeclaratoryJudgment Act suggests that a district court's discretionary authority exists only when a pending state proceeding shares substantially the same parties and issues. Rather, the district court must...