Erie Ins. Prop. & Cas. Co. v. Viewpoint, Inc.

Decision Date05 October 2012
Docket NumberCivil Action No. 5:12-CV-81
CourtU.S. District Court — Northern District of West Virginia
PartiesERIE INSURANCE PROPERTY & CASUALTY COMPANY, INC., Plaintiff, v. VIEWPOINT, INC., Defendant.

(Judge Bailey)

ORDER DENYING MOTION TO DISMISS
I. Introduction

Pending before this Court is defendant Viewpoint, Inc.'s Motion to Dismiss [Doc. 7], which was filed on August 20, 2012. The plaintiff filed its Response to the Motion to Dismiss [Doc. 9] on September 4, 2012. The defendant filed its Reply [Doc. 10] on September 11, 2012. Having been fully briefed, the Motion is ripe for adjudication. For the reasons stated below, the Motion is DENIED.

II. Factual and Procedural History

This declaratory judgment action was filed in this Court on June 8, 2012, seeking a declaration by Erie Insurance Property & Casualty Company, Inc. ("Erie"), the defendant's insurer under a commercial general liability policy, that it has no duty to either defend or indemnify the defendant in an underlying action pending in the Circuit Court of Hancock County, West Virginia. On February 9, 2011, the plaintiff in the underlying actioncommenced suit in the Circuit Court of Hancock County alleging, inter alia, that defendant Viewpoint and other defendants conspired to deprive her of money, identified as a "sign-on bonus and proper royalties" through a "common scheme or plan . . .."

At the relevant times, Viewpoint was insured under a Commercial General Liability Policy issued by Erie (the "Erie Policy"). Viewpoint asserts it has requested indemnification and defense for the claims asserted in the underlying State Court action under that policy; however, Erie has denied coverage. Erie states that the issue before this Court is "whether the Erie Policy provides any benefits, coverage or duty to defend or indemnify Viewpoint against the asserted maliciously, willfully, wantonly, knowingly and fraudulently conspiratorial claims and attempted label change." [Doc. 9 at 4].

In its Complaint for Declaratory Judgment [Doc. 1], Erie seeks declaratory judgment to determine coverage in the action pending before the Circuit Court of Hancock County, West Virginia. Viewpoint moves this Court to dismiss this action for failure to state a claim.

III. Applicable Law

As a starting point, federal courts have a "virtually unflagging obligation . . . to exercise the jurisdiction given them." Colorado River Water Conser. Dist. v. United States, 424 U.S. 800, 817 (1976). The Colorado River Court noted that "the pendency of an action in the state court is no bar to proceedings concerning the same matter in the federal court having jurisdiction," Id. at 817, and that a district court may decline to exercise its jurisdiction only under "exceptional circumstances." Id. at 813. However, since 1995, it has been clear that a district court need not be faced with "exceptional circumstances" to stay or dismiss duplicative litigation in the declaratory judgment context. Wilton v.Seven Falls Co., 515 U.S. 277 (1995); Gatewood Lumber, Inc. v. Travelers Indemnity Co., 898 F.Supp. 364 (S.D. W.Va. 1995). The Wilton Court offered the following explanation:

By the Declaratory Judgment Act, Congress sought to place a remedial arrow in the district court's quiver; it created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants. Consistent with the nonobligatory nature of the remedy, a district court is authorized, in the sound exercise of its discretion, to stay or dismiss an action seeking a declaratory judgment before trial or after all arguments have drawn to a close. In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration.

Wilton, 515 U.S. at 288 (footnote omitted).

Since the Wilton decision, the Fourth Circuit has articulated four factors for district courts to consider "[t]o determine whether to proceed with a federal declaratory judgment action when a parallel state court action is pending":

(1) whether the state has a strong interest in having the issues decided in its courts; (2) whether the state court could resolve the issues more efficiently than the federal court; (3) whether the presence of overlapping issues of fact or law might create unnecessary entanglement between the state and federal court; and (4) whether the federal action is mere procedural fencing in the sense that the action is merely the product of forum shopping.

Great Am. Ins. Co. v. Gross, 468 F.3d 199, 211 (4th Cir. 2006) (citing Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 376 (4th Cir. 1994).

IV. Analysis
A. Quarles Criteria

With regard to applying the Quarles criteria in cases involving insurance policy interpretation, the Fourth Circuit noted the following:

[i]t is well established that a declaration of parties' rights under an insurance policy is an appropriate use of the declaratory judgment mechanism. The declaratory judgment action is designed to allay exactly the sort of uncertainty that flows from the threat that ambiguous contractual rights may be asserted. The declaratory judgment action allows the uncertain party to gain relief from the insecurity caused by a potential suit waiting in the wings.

United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 494 (4th Cir. 1998).

In Kapiloff, the insurance company filed a declaratory judgment action in federal court. In response, the insureds filed a state court action against their insurance company and insurance brokers. The state action alleged that the insurer breached the insurance policy, and the insurance brokers were negligent in procuring insurance coverage for the insureds. Though the Kapiloff Court concluded that the Quarles criteria were met, it emphasized the prevailing importance of the Nautilus factors, when there is a pending state action:

[a]lthough the [insureds] brought their state action after [the insurance company] filed its declaratory judgment action, at the time of the district court's decision not to abstain, the state action was pending. The existence of this state action therefore animates the issues of federalism and comity and counsels careful examination of the factors identified in Nautilus.

Kapiloff, 155 F.3d at 494.

Like in Kapiloff, there can be no question that a declaratory judgment from this Court will serve a useful purpose in clarifying and settling the coverage questions at issue. In addition, a declaratory judgment from this Court as to whether Erie must defend and indemnify Viewpoint will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the instant proceeding. However, because the Court is cognizant of the underlying state proceeding, it will carefully weigh each Nautilus factor outlined below.

B. Nautilus Factors
1. West Virginia's Interest

Erie argues that the State of West Virginia does not have a particularly strong interest in having the issues raised in this federal declaratory action decided in state court because there exists extensive state case law on the issue to guide this Court, and the coverage question does not involve novel, unsettled, difficult, or problematic issues. This Court agrees. That the issues, whether the policy provides coverage and whether the policy requires Erie to defend and indemnify, will be controlled by West Virginia state law is not dispositive. In Nautilus, where all of the issues of insurance coverage were governed by the state substantive law, the Court made the following observation:

[that state law governs] alone provides no reason for declining to exercise jurisdiction. In analogous situations in which a federal court possesses discretionary power to abstain from deciding state-law questions otherwise properly within its jurisdiction, that discretion may be exercised only when the questions of state law involved are difficult, complex or unsettled.

Nautilus, 15 F.3d at 378.

Viewpoint has made no specifically-supported argument that the issues before this Court are difficult, complex, or unsettled. In fact, as the United States District Court for the Southern District of West Virginia once indicated, "West Virginia's Supreme Court and the courts of her sister states have provided sufficient guidance in the broader areas of contract interpretation and of the applicability of insurance policy exclusions generally, including whether those exclusions comport with public policy." First Financial Ins. Co. v. Crossroads Lounge, Inc., 140 F.Supp.2d 686, 696 (S.D. W.Va. 2001). Thus, this Court concludes that the State of West Virginia's interest in having these issues decided in West Virginia state court "is not sufficiently compelling to weigh against the exercise of federal jurisdiction." Nautilus, 15 F.3d at 378.

2. Efficiency

When addressing the efficiency factor, a district court should focus on "'whether the questions in controversy between the parties to the federal suit . . . can better be settled in the proceeding[s]' that are already 'pending in the state court[s].'" Nautilus, 15 F.3d at 378 (quoting Brillhart v. Excess Ins. Co., 316 U.S. 491, 495 (1942)). In the Fourth Circuit, this question requires a "careful inquiry into 'the scope of the pending state court proceeding' including such matters as 'whether the claims of all parties in interest [to the federal proceeding] can satisfactorily be adjudicated in [the state proceeding].'" Nautilus, 15 F.3d at 378-379 (quoting Brillhart, 316 U.S. at 495).

Viewpoint argues that the state court is the better forum because "(1) [it] has had this case on its docket for about 1 and ½ years; (2) a good bit of discovery has taken place; and (3) Erie had already injected itself - and sought the same relief it now seeks - in that verysame State Court action before engaging in the forum shopping trip . . .." ([Doc. 10] at 3). This Court questions the extent of this familiarity.

Though a ...

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