Builders Mut. Ins. Co. v. the Futura Group

• Decision Date: 21 April 2011
• Docket Number: Civil Action No. 2:10cv324.
• Citation: 779 F.Supp.2d 529
• Parties: BUILDERS MUTUAL INSURANCE COMPANY, Plaintiff,v.The FUTURA GROUP, L.L.C., and Bay Reflections, L.L.C., and Benjamin R. Proto and Holly Proto, Defendants.
• Court: U.S. District Court — Eastern District of Virginia

779 F.Supp.2d 529

BUILDERS MUTUAL INSURANCE COMPANY, Plaintiff,

v.The FUTURA GROUP, L.L.C., and Bay Reflections, L.L.C., and Benjamin R. Proto and Holly Proto, Defendants.

Civil Action No. 2:10cv324.

United States District Court,E.D. Virginia,Norfolk, Virginia.

April 21, 2011.

Danny M. Howell, Esq., Kelly B. LaPar, Esq., Mikhael D. Charnoff, Esq., for Plaintiff.

James T. Lang, Esq., for Defendant.

OPINION AND ORDER

MARK S. DAVIS, District Judge.

On July 2, 2010, Plaintiff Builders Mutual Insurance Company (“Plaintiff” or “Builders Mutual”) filed a Complaint in this Court, seeking a declaratory judgment that it has no duty to defend or indemnify The Futura Group, L.L.C. (“Futura”) with respect to claims brought against Futura in state court by Benjamin R. Proto and Holly Proto (the “Protos”). On October 11, 2010, the Protos filed a motion to stay the action brought by Builders Mutual pending resolution of the Protos' underlying state court case. After examining the motion and the associated briefs, the Court finds that oral argument is unnecessary because the facts and legal contentions are adequately presented and oral argument would not aid in the decisional process. Fed.R.Civ.P. 78(b); E.D. Va. Loc. R. 7(J). Therefore, the matter is now ripe for decision and, for the reasons set forth below, the Court DENIES the Protos' motion to stay.

I. Facts and Procedural History

On April 21, 2009, the Protos filed a complaint (“Original Complaint”) in the Circuit Court for the City of Virginia Beach, Virginia, styled Benjamin R. Proto and Holly Proto v. The Futura Group, L.L.C., et al., Case No. CL09–2455. The Defendants in that state court action are Futura, Venture Supply, Inc., Scott Taylor Plastering, Inc., and Metropolitan Property and Casualty Insurance Company. See Compl. ¶ 8; Ex. A. The Original Complaint alleged a number of counts stemming from the construction of the Protos' residence in Virginia Beach, Virginia. Compl. ¶ 8; Ex. A ¶ 2. On or about February 6, 2010, the Protos filed a First Amended Complaint (“Protos' Complaint”) in the state action, which merely replaces certain paragraphs alleged in the Original Complaint, the remainder of which is incorporated by reference in the amended pleading. Compl. ¶ 9. The Protos' Complaint asserts causes of action against Futura for breach of contract, breach of certain warranties, negligence, unjust enrichment, private nuisance, equitable and injunctive relief, medical monitoring, and violation of the Virginia Consumer Protection Act. Compl. ¶ 8; Ex. A.

These allegations are based on the premise that the “Chinese drywall used in the Protos' home is ‘inherently defective because it emits various sulfide gases and/or chemicals through ‘off-gassing’ that create noxious, ‘rotten-egg-like’ odors, and causes damage and corrosion ... to the structural, mechanical, and plumbing systems of the Proto's home ..., as well as personal and other property....' ” Compl. ¶ 10. The Protos' Complaint also alleges “that ‘[t]he compounds emitted by the drywall at issue are also capable of, among other things, harming the health of individuals subjected to prolonged exposure.’ ” Compl. ¶ 11.

Builders Mutual is not a party to the state action brought by the Protos. However, it did issue insurance policies to Futura that relate to the Protos' home. As a result, Builders Mutual has been “providing Futura with a defense in the Protos' lawsuit, subject to a reservation of rights.” Compl. ¶ 14.

On July 2, 2010, Builders Mutual filed a Complaint in this Court, seeking a declaratory judgment, pursuant to the federal Declaratory Judgment Act, 28 U.S.C. § 2201, finding that under the relevant insurance policies it has no duty to defend or indemnify Futura with respect to the claims alleged in the Protos' Complaint. Compl. ¶ 27. Specifically, Builders Mutual alleges that it has no duty to defend or indemnify Futura in the underlying state court action because the injuries of which the Protos complain are either not within the general terms of coverage in the insurance policies, or they are expressly excluded from coverage by either the “Total Pollution Exclusion” or the “Your Work” exclusion. Compl. ¶¶ 22–27. In response to this request for a declaratory judgment, on October 11, 2010, the Protos filed a motion to stay all proceedings pending the resolution of the underlying state action. It is this motion to stay that the Court addresses below.

II. Standard of Review

The Protos assert, and Builders Mutual does not dispute, that Virginia law applies to the resolution of this motion. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Buchanan v. Doe, 246 Va. 67, 70–71, 431 S.E.2d 289 (1993). “Under Virginia law, an insurer's duty to defend arises ‘whenever the complaint against the insured alleges facts and circumstances, some of which, if proved, would fall within the risk covered by the policy.’ ” Penn–America Ins. Co. v. Coffey, 368 F.3d 409, 413 (4th Cir.2004) (quoting Brenner v. Lawyers Title Ins. Corp., 240 Va. 185, 397 S.E.2d 100 (1990)). Duty to defend questions do “not require the district court to resolve factual questions at all. It need only decide such coverage by comparing what [the state court Plaintiff] has alleged in the state court action with the language of the [provider's] insurance policy.” Id. “[T]here is no duty to defend ‘if it appears clearly that the insurer would not be liable under its contract for any judgment based upon the allegations.’ ” Id. (quoting Brenner, 240 Va. at 189, 397 S.E.2d 100). Since courts must only compare the allegations contained within the four corners of the complaint to the terms contained within the four corners of the insurance contract, this standard of review for duties to defend is often referred to as the “Eight Corners Rule.” See CACI Int'l, Inc. v. St. Paul Fire & Marine Ins. Co., 566 F.3d 150, 155 (4th Cir.2009); Capitol Envtl. Servs., Inc. v. N. River Ins. Co., 536 F.Supp.2d 633, 640 n. 14 (E.D.Va.2008) [hereinafter Capitol I ] (explaining that the Eight Corners Rule is a combination of the Exclusive Pleading Rule and the Potentiality Rule).

The duty to indemnify, on the other hand, is different than the duty to defend. It is a narrower obligation. Minn. Lawyers Mut. Ins. Co. v. Antonelli, Terry, Stout & Kraus, LLP, 355 Fed.Appx. 698, 704 (4th Cir.2009) (“ Antonelli ”) (unpublished). “While the duty to defend is based on the allegations in the underlying complaint, the duty to indemnify relies on litigated facts.” CACI Int'l, Inc., 566 F.3d at 155. “ ‘An insurer's duty to defend is triggered if there is any possibility that a judgment against the insured will be covered under the insurance policy[,]’ ” id. (quoting Bohreer v. Erie Ins. Grp., 475 F.Supp.2d 578, 584 (E.D.Va.2007)), whereas “[t]he duty to indemnify ... refers to an insurer's responsibility to pay a monetary award when its insured has become liable for a covered claim.” Perdue Farms, Inc. v. Travelers Cas. & Sur. Co. of Am., 448 F.3d 252, 257–58 (4th Cir.2006). With these general principles of insurance law in mind, the Court must now turn to the applicable standard for determining whether to stay such a declaratory judgment proceeding.

“Under the Declaratory Judgment Act, a district court, in a case or controversy otherwise within its jurisdiction, ‘ 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.’ ” Penn–America Ins. Co., 368 F.3d at 412 (quoting 28 U.S.C. § 2201(a)). Of significance, the decision regarding whether to hear a federal declaratory judgment action is discretionary. Id. According to the United States Court of Appeals for the Fourth Circuit, “ ‘a declaratory judgment action is appropriate ‘when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and ... when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.’ ' ” Id. (quoting Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 256 (4th Cir.1996)). However, when a related state court proceeding is pending, “ ‘considerations of federalism, efficiency, and comity’ should inform the district court's decision whether to exercise jurisdiction over a declaratory judgment action.” Id. (quoting Centennial Life Ins. Co., 88 F.3d at 257).

The Fourth Circuit has focused on four factors to guide its analysis when determining “whether to proceed with a federal declaratory judgment action when a parallel state action is pending.” Id.; see also United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493 (4th Cir.1998) (“To aid district courts in balancing the state and federal interests when a parallel state action is pending, we have articulated four factors for consideration....”). These factors, referred to as the Nautilus factors,¹ apply to both motions to dismiss declaratory judgment actions and motions to stay the proceedings. See Riley v. Dozier Internet Law, PC, 371 Fed.Appx. 399, 402 (4th Cir.2010) (unpublished); Auto–Owners Ins. Co. v. Waters, Case No. 3:09CV134, 2009 WL 3378657, at *1, *3, 2009 U.S. Dist. LEXIS 96993, at *2–3, *11 (E.D.Va. Oct. 20, 2009). Accordingly, when evaluating a motion to stay, district courts must consider:

(1) whether the state has a strong interest in having the issues decided in its courts; (2) whether the state courts could resolve the issues more efficiently than the federal courts; (3) whether the presence of “overlapping issues of fact or law” might create unnecessary “entanglement” between the state and federal courts; and (4) whether the federal action is mere “procedural fencing,” in the sense that the action is merely the product of forum-shopping.Penn–America Ins. Co., 368 F.3d at 412 (quoting Kapiloff, 155 F.3d at 493–94). These factors are each analyzed below.

III. Discussion

A. State's Interest

The first...