Horace Mann Ins. Co. v. Johnson By and Through Johnson

• Decision Date: 17 December 1991
• Docket Number: No. 91-6124,91-6124
• Citation: 953 F.2d 575
• Parties: HORACE MANN INSURANCE COMPANY, Plaintiff-Appellant, v. Sean JOHNSON, By and Through his parents and legal guardians Rudy JOHNSON and Susan Johnson; Rudy Johnson and Susan Johnson, individually; Candy Crittenden, Defendants-Appellees, The Oklahoma Association of Defense Counsel; Aetna Casualty and Surety Company; Farmers Insurance Company, Inc.; Hanover Insurance Company; and Shelter Insurance Company, Amici Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 575

953 F.2d 575

HORACE MANN INSURANCE COMPANY, Plaintiff-Appellant, v. Sean JOHNSON, By and Through his parents and legal guardians Rudy JOHNSON and Susan Johnson; Rudy Johnson and Susan Johnson, individually; Candy Crittenden, Defendants-Appellees The Oklahoma Association of Defense Counsel; Aetna Casualty and Surety Company; Farmers Insurance Company Inc.; Hanover Insurance Company; and Shelter Insurance Company, Amici Curiae.

No. 91-6124.

United States Court of Appeals Tenth Circuit.

Dec. 17, 1991.

Mort G. Welch and Norman Lemonik of Abowitz & Welch, Oklahoma City, Okl., for plaintiff-appellant.

Ronald A. Schaulat and Michael H. Brady, Oklahoma City, Okl., and Danny B. Nichols, Midwest City, Okl., for defendants-appellees.

Scott M. Rhodes, Gerald P. Green, and Larry G. Cassil, Jr. of Pierce, Couch, Hendrickson, Johnston & Baysinger, Oklahoma City, Okl., for amici curiae.

Before ANDERSON, BARRETT and BRORBY, Circuit Judges.

STEPHEN H. ANDERSON, Circuit Judge.

After examining the briefs and appellate record, this panel has determined unanimously that oral argument would not materially assist the determination of this appeal. See Fed.R.App.P. 34(a); 10th Cir.R. 34.1.9. The case is therefore ordered submitted without oral argument.

Plaintiff Horace Mann Insurance Company appeals the district court's decision declining to exercise jurisdiction over an action Horace Mann instituted pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202, to determine whether a mobile homeowners insurance policy it issued to Defendant Candy Crittenden covered injuries sustained by Defendant Sean Johnson while in Ms. Crittenden's care. Horace Mann Ins. Co. v. Johnson ex rel. Johnson, 758 F.Supp. 1456 (W.D.Okla.1991). The district court refused to exercise jurisdiction over the action because it concluded that the public policy of Oklahoma "manifestly expressed" in Oklahoma's declaratory judgment statute militated against doing so. Id. at 1458.

The Federal Declaratory Judgment Act provides that "[i]n a case of actual controversy within its jurisdiction ... any court of the United States, upon the filing of an appropriate pleading, 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." 28 U.S.C. § 2201(a). " 'Whether to entertain a justiciable declaratory judgment action is a matter committed to the sound discretion of the trial court.' The district court's decision will not be overturned absent a clear abuse of discretion." ARW Exploration Corp. v. Aguirre, 947 F.2d 450, 453-54 (10th Cir.1991) (quoting Kunkel v. Continental Casualty Co., 866 F.2d 1269, 1273 (10th Cir.1989)). Whether the district court correctly interpreted the law and public policy of Oklahoma, however, is a matter that we review de novo. Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991).

Oklahoma's declaratory judgment statute, adopted in 1961, specifically excludes declaratory judgment actions to construe coverage under liability insurance policies.

District courts may, in cases of actual controversy, determine rights, status, or other legal relations, including but not limited to a determination of the construction or validity of any foreign judgment or decree, deed, contract, trust, or other instrument or agreement or of any statute, municipal ordinance, or other governmental regulation, whether or not relief is or could be claimed, except that no such declaration shall be made concerning liability or nonliability for damages on account of alleged tortious injuries to persons or to property either before or after judgment or for compensation alleged to be due under workmen's compensation laws for injuries to persons or concerning obligations alleged to arise under policies of insurance covering liability or indemnity against liability for such injuries.

Okla.Stat. tit. 12, § 1651.

The district court concluded that because the Oklahoma legislature did not provide a remedy for parties seeking a declaration of rights under a liability insurance policy in the state courts of Oklahoma, the federal courts in Oklahoma should not provide such a remedy, either. The district court acknowledged our holding in Farmers Alliance Mutual Insurance Co. v. Jones, 570 F.2d 1384, 1386 (10th Cir.), cert. denied, 439 U.S. 826, 99 S.Ct. 97, 58 L.Ed.2d 119 (1978), that the Erie ¹ doctrine does not preclude an Oklahoma federal court from hearing a declaratory judgment action on liability insurance coverage because the Oklahoma declaratory judgment statute is procedural, not substantive. See Horace Mann, 758 F.Supp. at 1457. Nonetheless, the court held that it should exercise its discretion to decline jurisdiction "in recognition of principles of federalism and comity." Id. at 1460.

The basis for the court's decision was two-fold. First, the district court reasoned that "[t]o allow these suits for declarations in the federal forum results in a discrimination limiting such relief to those able to invoke diversity jurisdiction, a situation where the federal district court, for all practical purposes, sits only as another court of the State." Id. at 1459.

The district court acknowledged that before Oklahoma enacted its declaratory judgment statute, no one could obtain declaratory relief on any matter in the state courts of Oklahoma, yet those who were able to invoke diversity jurisdiction could secure relief in the federal courts in Oklahoma. See Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 674, 70 S.Ct. 876, 880, 94 L.Ed. 1194 (1950) (holding that declaratory action against diverse party brought in Oklahoma federal court was proper; "that the declaratory remedy which may be given by the federal courts may not be available in the State courts is immaterial"). The district court, however, distinguished the propriety of allowing resort to federal court prior to the enactment of the Oklahoma Declaratory Judgment Act from the propriety of allowing resort to federal court under the present circumstances.

The Supreme Court was commenting on the absence of any declaratory remedy in Oklahoma. That situation is not equivalent to present circumstances, where the remedy is generally available, but application of the remedy in cases such as the one under consideration today is expressly prohibited in firm expression of state policy.

Horace Mann, 758 F.Supp. at 1459 n. 3.

Second, the court noted that "Oklahoma comprehensively regulates the insurance industry," and determined that "[t]he bar against State-court declaratory judgment actions on coverage issues is part of the regulatory fabric." Id. at 1459. Therefore, the district court concluded, federal courts should abstain from permitting declaratory judgment actions on liability insurance coverage pursuant to the rationale of Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). Horace Mann, 758 F.Supp. at 1459.

At the heart of the district court's analysis is its determination that by excluding declaratory judgment actions on liability insurance coverage from the Oklahoma Declaratory Judgment Act, the Oklahoma legislature was making a policy decision relating to its regulation of the insurance industry. We disagree.

The exclusions in the Oklahoma Declaratory Judgment Act are not directed at actions involving the insurance industry, but at actions involving recompense for tortious injuries to persons or property in general. Thus, the Act is entitled

[a]n Act relating to civil procedure and authorizing courts of this State to determine rights, status, or other legal relations, except where tortious injury to persons or property or workmen's compensation or insurance for such injury is involved; preserving the right to a jury trial; authorizing supplemental relief; and providing Act shall not apply to orders, judgments, or decrees made by certain State agencies.

Tit. 12, ch. 2, 1961 Okla.Sess.Laws 58 (emphasis added). The Act is not part of Oklahoma's extensive insurance code, but one of its civil procedure statutes. Cf. Metropolitan Life Ins. Co. v. Hanslip, 939 F.2d 904, 907 (10th Cir.1991) (determining that statute at issue in ERISA case was "not directed toward the insurance industry" as evidenced by fact statute was not part of Oklahoma's insurance code).

Furthermore, we think it unlikely that the Oklahoma legislature intended to make a policy that would inject as much uncertainty into the process of resolving liability insurance claims as would closing the federal courts to parties seeking a declaration of their rights and liabilities under liability insurance policies. A liability insurance carrier owes a duty to its insured not only to provide a defense, but to conduct settlement negotiations, and to pay any settlement amount or judgment entered against its insured. See ACandS, Inc. v. Aetna Casualty & Sur. Co., 666 F.2d 819,...