Hartford Fire Ins v. Rhode Island Public Transit Auth., 00-1521

• Decision Date: 08 November 2000
• Docket Number: No. 00-1521,00-1521
• Parties: (1st Cir. 2000) HARTFORD FIRE INSURANCE COMPANY, Plaintiff, Appellant, v. RHODE ISLAND PUBLIC TRANSIT AUTHORITY, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 127

233 F.3d 127 (1st Cir. 2000)

HARTFORD FIRE INSURANCE COMPANY, Plaintiff, Appellant, v. RHODE ISLAND PUBLIC TRANSIT AUTHORITY, Defendant, Appellee.

No. 00-1521.

United States Court of Appeals, For the First Circuit.

Heard Nov. 8, 2000.

Decided December 5, 2000.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND.

Hon. Mary M. Lisi, U.S. District Judge.

John A. Donovan, III with whom Robert H. Gaynor and Sloane & Walsh, LLP were on brief for appellant.

James E. Kelleher with whom Revens, Lanni, Revens & St. Pierre was on brief for appellee.

Before Boudin, Circuit Judge, Bownes, Senior Circuit Judge, and Stahl, Circuit Judge.

BOUDIN, Circuit Judge.

At issue on this appeal is the refusal of the district judge, as a matter of discretion, to entertain a declaratory judgment action brought by the Hartford Fire Insurance Company against the Rhode Island Public Transit Authority ("RIPTA"). Hartford insures RIPTA under a commercial general liability policy. The pertinent background of this appeal are two different actions brought against RIPTA in state court by individuals injured by RIPTA buses, Jean Kelly and Robert Heckman. These cases in turn gave rise to two further lawsuits by Hartford against RIPTA in federal court.

The first accident occurred on June 8, 1995, when a pedestrian, Jean Kelly, was badly injured by a RIPTA bus in Cranston, Rhode Island. She then sued RIPTA in Rhode Island Superior Court. Kelly v. RIPTA, C.A. No. 95-4588 (Providence Super. Ct.) ("the Kelly case"). In an amended complaint incident to a second trial, Kelly charged not only negligence in the operation of the bus (counts I, II, and V), but also negligence by RIPTA in maintaining the bus "turnaround" station where the accident occurred (count III) and breach of common carrier duty of care (count IV).¹ RIPTA notified Hartford of Kelly's lawsuit.

The liability policy issued by Hartford to RIPTA contained the usual obligations to pay damages adjudged against RIPTA (the duty to indemnify), and to defend any suit seeking such damages (the duty to defend). However, a provision in the policy excluded coverage for bodily injury or property damage "arising out of the ownership, maintenance, use or entrustment to others" of any motor vehicle designed for travel on public roads.

Although Hartford assigned defense counsel to represent RIPTA, it also sent a reservation of rights letter stating that the counts alleging negligent operation of the bus were outside the policy. It later amended the letter to reserve its right to deny coverage to RIPTA for all of the claims, on the ground that Kelly's injuries ultimately arose out of RIPTA's ownership and use of a motor vehicle. Trial in the state court began on February 9, 1998, and the jury returned a verdict for RIPTA on the three negligent operation of a motor vehicle counts and for Kelly on the premises maintenance and common carrier counts.

On February 20, 1998, Hartford filed a complaint in the federal district court in Rhode Island seeking a declaratory judgment that it owed RIPTA no duty under the policy either to defend or to indemnify RIPTA in the Kelly case. On summary judgment, the district court held that the motor vehicle exclusion clause negated any duty of Hartford to indemnify, regardless of the way the counts were framed, because the accident grew out of the operation of the bus. Hartford Fire Ins. Co. v. RIPTA, C.A. No. 98-094ML, slip op. at 15-16 (D.R.I. Mar. 31, 1999) ("the Hartford (Kelly) case").

However, the district court also held that under Rhode Island precedent, the premises negligence and common carrier counts in the Kelly state-court complaint did trigger Hartford's duty to defend RIPTA. Hartford (Kelly), slip op. at 10-11. The district court held that in Rhode Island, the insurer's duty to defend is tested by mechanically comparing the policy and the pertinent count of the complaint; and if the complaint alleges facts even arguably within the risk coverage in the policy, the insurer has a duty to defend regardless of the actual facts or the case's ultimate outcome. Id. at 7-8. The court deemed the premises negligence and common carrier counts sufficiently distinct from the policy exclusion to impose a duty to defend. Id. at 10-11.

RIPTA appealed to this court, arguing that Hartford did have a duty to indemnify on the "premises" counts because its original reservation of rights letter had not named those counts as excluded from coverage. This court rejected RIPTA's appeal in a per curiam opinion relying on the reasoning of the district court. Hartford Fire Ins. Co. v. RIPTA, Nos. 99-1525 & 99-1637, 2000 WL 231253 (1st Cir. Feb. 14, 2000) (per curiam). Hartford had taken a cross-appeal challenging the district court's decision that Hartford had a duty to defend in Kelly; but this was dismissed as moot--it appears that the Kelly case had come to an end so that the duty to defend was deemed of no further consequence.

We now turn to the second accident which occurred on February 3, 1996, when a RIPTA bus struck Robert Heckman while he was entering his car on a street in Providence, Rhode Island. In August 1997, Heckman filed a lawsuit against RIPTA in Rhode Island Superior Court. Heckman v. RIPTA, C.A. No. 97-3839 (Providence Super. Ct.) ("the Heckman case"). As amended in January 1999, Heckman's complaint sought to hold RIPTA liable for the driver's negligence in operating the bus (count II), but also charged RIPTA with negligent entrustment (count III), negligent hiring (count IV) and negligent supervision, training and assignment (count V).

Hartford received notice of the Heckman suit in February 1999 and issued a denial letter advising RIPTA that the Heckman claims were excluded by the policy's motor vehicle exclusion. RIPTA responded by asserting that each of the negligence claims, other than negligent operation, were covered by the policy and that Hartford's coverage position was taken in bad faith. Hartford says that RIPTA threatened to bring suit in federal court if Hartford did not take responsibility for defending the case.

Hartford sent a reservation of rights letter to RIPTA agreeing to provide counsel but reserving its right to disclaim coverage, to withdraw from the defense at any time, and to seek reimbursement from RIPTA for defense costs if the exclusion were found to apply. Hartford then brought the present action in the federal district court on July 9, 1999, seeking a declaration that it had no duty to indemnify in the Heckman case and that it had a right to withdraw from further representation and to recover money spent on the defense to date in that case. Heckman v. RIPTA, C.A. No. 99-326ML, slip op. at 1 (D.R.I. Mar. 14, 2000) (the "Hartford (Heckman) case").

In this new action, Hartford filed a motion for summary judgment which RIPTA opposed on the merits. On March 14, 2000, the district court entered an order "declin[ing] to exercise its jurisdiction over this declaratory judgment action." Hartford (Heckman), slip op. at 1. The district court said that under well-established law, a declaratory judgment action would be justified if useful to clarify and settle legal relations and to eliminate uncertainty, insecurity and controversy. It then continued:

Since this Court has already ruled on this CGL policy and this exclusionary provision in Hartford I [i.e., Hartford (Kelly)], a declaratory judgment would neither clarify the legal relations in issue nor afford relief from uncertainty. Furthermore, the parties in Hartford I appealed this Court's decision and the court of appeals affirmed. The purpose of the Declaratory Judgment Act is to address unresolved disputes. This Court has already determined the rights, duties and obligations to the parties under this same policy. The Court therefore declines the invitation to give an encore performance.

Id. at 2-3 (citation omitted).

Hartford now appeals to this court. It concedes that the decision to entertain a declaratory judgment action under 28 U.S.C. 2201(a)(1994) is a "discretionary" one, Wilton v. Seven Falls Co., 515 U.S. 277, 289-90 (1995), but it argues that the district court has abused its discretion in this case. A refusal to entertain a suit for declaratory relief is reviewed for abuse of discretion, id. at 289; DeNovellis v. Shalala, 124 F.3d 298, 313 (1st Cir. 1997), and that concept can encompass either an outright mistake of law or a serious misjudgment in the weighing of pertinent considerations, I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 33 (1st Cir. 1998).

On appeal, Hartford says that, because of the differences in the claims made in the Kelly and Heckman state-court actions, the district court erred in thinking that the duty to defend in Kelly--that it had found to exist in Hartford (Kelly)--also established a duty to defend in Heckman. As we have noted, the claims that triggered the duty to defend in the Kelly state-court case were the maintenance of premises and common carrier claims. No such claims have been made in the Heckman case, and the duty to defend in Heckman turns on the presence of negligent entrustment, hiring, supervision, training and assignment.

Because the critical counts in the two cases differ, no one could properly invoke collateral estoppel, often now called issue preclusion, to say that the decision in Hartford (Kelly) controls Hartford (Heckman). See generally Restatement (Second) of Judgments 17, 27 (1982). And RIPTA makes no such claim: at oral argument, it agreed that collateral estoppel did not apply.² Further, in the district court, RIPTA stressed that the counts were different although it urged that the reasoning in Hartford (Kelly) would, if applied to the admittedly different counts in Hartford (Heckman), warrant the...