Government Employees Ins. Co. v. Dizol, 95-17393

• Decision Date: 28 February 1997
• Docket Number: No. 95-17393,95-17393
• Citation: 108 F.3d 999
• Parties: , 97 Cal. Daily Op. Serv. 1470, 97 Daily Journal D.A.R. 2223 GOVERNMENT EMPLOYEES INSURANCE COMPANY, Plaintiff-Appellee, v. Alexander DIZOL, Special Administrator of the Estate of Kevin Tate Dizol, Deceased, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 999

108 F.3d 999

65 USLW 2605, 97 Cal. Daily Op. Serv. 1470,

97 Daily Journal D.A.R. 2223

GOVERNMENT EMPLOYEES INSURANCE COMPANY, Plaintiff-Appellee, v. Alexander DIZOL, Special Administrator of the Estate of

Kevin Tate Dizol, Deceased, Defendant-Appellant.

No. 95-17393.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 5, 1996.

Decided Feb. 28, 1997.

James Ireijo, Hilo, Hawaii, for defendant-appellant.

Carleton B. Reid, Reid, Richards & Miyagi, Honolulu, Hawaii, for plaintiff-appellee.

Appeal from the United States District Court for the District of Hawai'i, Alan C. Kay, District Judge, Presiding. D.C. No. CV-94-00977-ACK.

Before WALLACE, SCHROEDER, and ALARCON, Circuit Judges.

Opinion by Judge ALARCON; Dissent by Judge SCHROEDER.

ALARCON, Circuit Judge.

Alexander Dizol, as special administrator of the estate of Kevin Tate Dizol (the "Dizol Estate"), appeals from the district court's grant of summary judgment in favor of Government Employees Insurance Company ("GEICO"). GEICO filed an action in this matter pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, seeking a declaration that it was not liable to the Dizol Estate as a beneficiary of an underinsured motorist's policy. At the time this federal action was filed, an action was pending in state court between the Dizol Estate and the alleged tort-feasors.

In its order granting summary judgment on the merits of GEICO's claim, the district court made no reference to the pending state We must decide whether, pursuant to controlling case law, we should vacate the judgment, without reaching the merits of this appeal, and remand this matter to the district court with directions that it consider whether this case presents circumstances that make it an appropriate case for the exercise of its discretionary jurisdiction under the Declaratory Judgment Act. As we explain below, we conclude that we must vacate and remand with directions, because the district court failed to indicate that it had considered, among all the other relevant factors, whether it is clear, under Hawaii law, that GEICO could not have obtained a resolution of its novel state law issues in the tort law proceeding that was pending in state court at the time the complaint for declaratory relief was filed, or in a separate action for a declaration under Hawaii law.

court proceeding, or that it had the discretion to decline to exercise its jurisdiction under the Declaratory Judgment Act. The district court did not point to any facts or circumstances that warranted the assertion of its discretionary jurisdiction to reach the merits of GEICO's novel state law question.

I

This action arises from a single-car collision in which the driver of the vehicle, Vernell Adams, and his passenger, Kevin Tate Dizol, were killed on September 14, 1991. Adams had consumed alcoholic beverages at the Highlands Bar & Grill ("Highlands Bar") immediately prior to the accident. The Dizol Estate filed separate actions in Hawaii state court seeking damages for tort liability against the estate of Vernell Adams in 1991, and against Highlands Bar in 1993. These actions were later consolidated (the "state court tort action").

The vehicle driven by Adams was insured by the Fireman's Fire Insurance Company of Hawaii ("FFIC"). The liability limit on the FFIC policy was $35,000. Kevin Dizol had an underinsured motorist policy issued by USAA Insurance Company ("USAA") in the amount of $35,000. The policy at issue in the federal declaratory judgment action was issued by GEICO to Dizol's brother. This underinsured motorist policy had a face value of $70,000. ¹

The Dizol Estate first notified GEICO of the pending state court actions in a letter dated August 12, 1994. The Dizol Estate demanded coverage under the insurance policy issued by GEICO. In a December 1, 1994 telephone conversation between counsel for GEICO and the Dizol Estate, GEICO's counsel was informed that the Dizol Estate had settled with Highlands Bar for $255,000. This amount is less than the policy limits. Highlands Bar was released from any further liability.

In a letter dated December 2, 1994, the Dizol Estate confirmed that it had accepted $15,000 in no-fault benefits; $255,000 from Highlands Bar; and would soon receive $35,000 from FFIC on behalf of Adams. The letter also notified GEICO that the Dizol Estate had released Highlands Bar and FFIC from any further liability, and had obtained leave of the state court to release Adams's estate. In addition to these payments, the record reveals that the Dizol Estate received $35,000 from Kevin Dizol's underinsurance policy with USAA.

On December 29, 1994, GEICO filed a complaint in the district court in this diversity action for a declaration under the Declaratory Judgment Act that the Dizol Estate had violated various provisions of the underinsurance policy. GEICO moved for summary judgment on the ground that it was not liable under the policy because the Dizol Estate violated the consent to settlement provision, ² by settling the state court claims without first notifying GEICO; the exhaustion provision, ³ The district court granted summary judgment in favor of GEICO. The court held that the claim of Dizol's Estate was not barred by the statute of limitations, but GEICO was not liable because the Dizol Estate violated the consent to settlement condition of the policy.

by settling with Highlands Bar for less than the total coverage available under the FFIC policy; and the notice requirement, ⁴ by failing to notify GEICO of the accident until over three years after its occurrence, and by failing to provide timely copies of the pleadings filed in the state court actions. Alternatively, GEICO contended that any amount payable to the Dizol Estate under the underinsurance policy should be offset by the $35,000 policy limits received on behalf of Adams's estate, and the full amount of the policy coverage available to Highlands Bar. Finally, GEICO claimed that the Dizol Estate's claim was barred by the statute of limitations.

Neither party made any reference before the district court to the fact that the court's jurisdiction under the Declaratory Judgment Act was discretionary, nor did they point to any special circumstances in this case that weighed in favor of reaching the merits of GEICO's contentions. Thus, the parties did not inform the district court that it had to decide whether it should exercise its discretion to grant a declaration in view of the fact that a related proceeding was pending in state court at the time this action was filed. The district court's written order makes no reference to the discretionary nature of its jurisdiction. This issue was not discussed by either party in the initial briefs filed before this court.

On September 20, 1996, we directed the parties to file supplemental briefs "addressing the question whether the district court properly exercised jurisdiction over a request for a declaratory judgment that raises only questions of state law and was brought during the pendency of a related state court proceeding, and, if not, whether the court should remand with directions to dismiss the complaint."

In its response to our request, the Dizol Estate urged us to vacate the judgment of the district court and remand with instructions to dismiss. The Dizol Estate argued that this action presents novel state law issues that should have been resolved in the state court tort action that was pending at the time this action was filed in the district court. Finally, the Dizol Estate asserts that there is no evidence in the present record of any circumstances that warrant the district court's exercise of its discretionary jurisdiction.

GEICO urges us to affirm because the underlying state court tort action was settled prior to the filing of this matter in the district court on December 29, 1994. GEICO argues that although the state court action was not dismissed until April 24, 1995, "[p]ractically, no 'pending' state action existed at the time GEICO filed its declaratory relief action in federal district court on December 29, 1994." GEICO also asserts that the action was not parallel because the state court dispute did not arise out of the same factual transaction or occurrence. GEICO points out that the state action concerned the tort liability of the driver of the car and the establishment that had served him alcohol, while the matter before this court involves the question whether GEICO is contractually liable to a beneficiary of the policy, in view of the fact that the Dizol Estate allegedly failed to give proper notice of the proposed settlement,

and did not obtain GEICO's consent to settle.

II

Before we can review the merits of this appeal, we must decide if the district court should have considered abstaining from the exercise of its discretionary jurisdiction to issue a declaration in light of all the relevant factors, including the remedies available under Hawaii law at the time this action was filed.

Prior to 1934, an insurance company, involved in a dispute with its insured over coverage, could not invoke the jurisdiction of a federal district court by filing an action to seek a judicial declaration of its liability under the policy. Instead, an insurance company was required to wait until the insured filed an action for breach of contract. If the insured filed in state court, the insurance company could remove the action to federal court if the parties were diverse and the matter in controversy exceeded the jurisdictional amount. If, however, the insured delayed the filing of an action in state or federal court for a protracted period of time, the insurance company risked losing "the benefit of evidence through disappearance, illness, or death of witnesses." Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239, 57 S.Ct. 461, 463, 81 L.Ed. 617 (1937). In addition, the insurance company was compelled to maintain reserves indefinitely...