Ironshore Specialty Ins. Co. v. Haines & Kibblehouse, Inc.

• Decision Date: 13 March 2014
• Docket Number: Civil Action No. 12–06710.
• Citation: 3 F.Supp.3d 303
• Parties: IRONSHORE SPECIALTY INSURANCE COMPANY, Plaintiff, v. HAINES & KIBBLEHOUSE, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

3 F.Supp.3d 303

IRONSHORE SPECIALTY INSURANCE COMPANY, Plaintiff,

v.HAINES & KIBBLEHOUSE, INC., et al., Defendants.

Civil Action No. 12–06710.

United States District Court,

E.D. Pennsylvania.

Signed March 13, 2014.

Kevin M. Haas, Clyde & Co U.S. LLP, Florham Park, NJ, Nancy Stuart Portney, William F. Stewart, Stewart Bernstiel Rebar & Smith, Blue Bell, PA, for Plaintiff.

Jay M. Levin, Lauren Angelucci, Reed Smith LLP, Philadelphia, PA, for Defendants.

MEMORANDUM

STENGEL, District Judge.

This is a declaratory judgment action concerning the parties' rights and obligations under an excess liability insurance policy issued by Ironshore to Haines & Kibblehouse, under which Reading Materials, Inc. and Haines & Kibblehouse are named as insureds. This action relates to insurance coverage for a Pennsylvania state court tort action. The defendants filed a motion to dismiss or stay this action under Brillhart. For the foregoing reasons, I will grant the motion to dismiss.

I. BACKGROUND

a. State Court Tort Action

On October 9, 2009, John Hanlon was an electrician employed by Haines & Kibblehouse (H & K), who was working on an electrical problem at an asphalt production facility operated by Reading Materials, Inc. (RMI) in Reading, Pennsylvania. H & K is the corporate parent of RMI.¹ An explosion occurred during the course of his work, injuring Hanlon. On June 21, 2011, Hanlon and his wife filed suit in Pennsylvania state court against Current Connection & Mechanical Services, Inc., Current Connection Electrical Contractor, Inc., and Metropolitan Edison Company—the electrical service providers to the RMI plant—seeking tort recovery.²

On September 7, 2011, Metropolitan Edison filed a Joinder Complaint against RMI in order to hold it liable to Metropolitan Edison to the extent Metropolitan Edison may be held liable to the Hanlons.³ Current Connection & Mechanical Services, Inc., Current Connection Electrical Contractor, Inc., and Metropolitan Edison Company were to be dismissed from the suit, leaving RMI as the only defendant in the Hanlons' action. Neither Metropolitan Edison nor any other party had joined H & K in the Hanlons' action.

b. The Ironshore Policy and Federal Declaratory Judgment Action

Ironshore issued a Commercial Excess Liability Policy No. OWC 30913001 to H & K, effective January 1, 2009 through January 1, 2010. Both H & K and RMI are named as insureds under that Policy. By letter dated October 26, 2012, Ironshore agreed to defend the Hanlons' action under a reservation of rights and RMI tendered the defense to it.⁴ In its letter, Ironshore specifically reserved the right to deny coverage and terminate its defense of the Hanlons' action based on two policy exclusions related to workers' compensation and the employer's liability.

In a letter dated November 13, 2012, Hanlons' counsel issued a settlement demand to RMI for payment of $3.9 million under the Policy by November 30, 2012. The letter also stated that, should the demand not be accepted and should the Hanlons obtain a judgment in excess of $3.9 million, the Hanlons would seek an assignment from RMI of a purported bad faith claims against Ironshore.⁵ The Policy would be limited to $3.1 million because $1.9 million of the $5 million policy limit has been paid out for other claims. ⁶

On December 3, 2012, Ironshore filed this declaratory judgment complaint in this court.⁷ The Hanlons are not parties to this action. Ironshore seeks a judicial declaration that it has no duty to defend or indemnify the defendants in the Hanlons' tort action under the policy exclusions based on workers' compensation laws and the employer's liability. ⁸ Ironshore relies on the two policy exclusions under which it reserved the right to deny coverage in its October 26, 2012 letter. The sole count in the complaint is for declaratory relief pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, et seq. Subsequently, the defendants moved to dismiss.

c. State Court Declaratory Judgment Action

On January 30, 2013, H & K and RMI filed a complaint in the Court of Common Pleas of Philadelphia County.⁹ In that action, H & K and RMI sued Ironshore and CBIZ Benefits & Insurance Services, Inc., the insurance broker and consultant who agreed to provide H & K and RMI with complete liability coverage. H & K and RMI also joined the Hanlons in the Philadelphia action because they are indispensable parties under the Pennsylvania Declaratory Judgment Act and Pennsylvania state law.¹⁰ That complaint includes three counts: 1) Count I: declaratory judgment against Ironshore and the Hanlons, seeking a declaration of the rights and obligations of H & K and Reading Materials, the Hanlons, and Ironshore under the Policy; 2) Count II: a claim for breach of contract against CBIZ; and 3) Count III: a claim for negligence against CBIZ.¹¹

On April 16, 2013, the state court judge overruled the parties' preliminary objections and ordered Ironshore to file an answer in that action.¹² Ironshore appealed. The Superior Court stayed the appeal, pending the outcome of this action.¹³

II. DECLARATORY JUDGMENT ACT DISCRETION

This court has jurisdiction over this federal declaratory judgment action pursuant to 28 U.S.C. § 1332.¹⁴ When diversity is the basis for federal jurisdiction,a district court's decision to exercise jurisdiction under the Federal Declaratory Judgment Act is discretionary, not compulsory.¹⁵Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942). “Ordinarily it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties.” ¹⁶Brillhart, 316 U.S. at 495, 62 S.Ct. 1173; see also State Auto Ins. Companies v. Summy, 234 F.3d 131, 133 (2000). The Supreme Court in Brillhart cautioned that “[g]ratuitous interference with the orderly and comprehensive disposition of a state court litigation should be avoided.” Brillhart, 316 U.S. at 495, 62 S.Ct. 1173.

“The central question is whether the controversy may ‘better be settled’ in the state court and this may entail consideration of whether the claims of all parties in interest can satisfactorily be adjudicated in the state court proceeding.” ¹⁷U.S. v. Com. of Pa., Dept. of Environmental Resources, 923 F.2d 1071, 1075 (3d Cir.1991).

III. DISCUSSION

a. State Auto Ins. Companies v. Summy

The defendants argue that State Auto Ins. Companies v. Summy, 234 F.3d 131 (3d Cir.2000), warrants abstention in this case under Brillhart. Summy addressed the use of Brillhart in diversity cases involving requests for declaratory judgments in insurance coverage disputes with only state law claims.¹⁸Summy, 234 F.3d at 131–33. In Summy, the Third Circuit found that the “assumption of jurisdiction under the Declaratory Judgment Act in this case was not consistent with a sound exercise of discretion” when a pending state court declaratory judgment action existed. Summy, 234 F.3d at 136. The Third Circuit also instructed district courts to consider the following when deciding whether the retain jurisdiction in this context:

1) The general policy of restraint when the same issues are pending in a state court;

2) Inherent conflicts of interest between an insurer's duty to defend in a state court and its attempt to characterize the suit in federal court as falling within the scope of a policy exclusion; and

3) Avoidance of duplicative litigation.

Summy, 234 F.3d at 134 (citing Com. of Pa., Dept. of Environmental Resources, 923 F.2d at 1075–76). Summy also cautioned federal courts to hesitate in exercising jurisdiction over declaratory judgment actions when the state law involved is close or unsettled. Summy, 234 F.3d at 135.

I agree with the defendants that this action falls under the purview of Summy. This is a federal declaratory judgment action in the context of insurance coverage. The basis for jurisdiction is diversity with the claims based only in state law. There is a state court declaratory judgment action pending as well. All these factors make Summy directly on point with how this court should analyze whether abstention under Brillhart is warranted.

b. Application of Summy to Determine Brillhart Abstention

In considering the guidance offered by Summy, I find that abstention under Brillhart is warranted.¹⁹ With regard to the first Summy factor, a state court declaratory judgment action which addresses the same issues as this action is pending; therefore, the general policy of restraint in this situation weighs in favor of abstention.

The second factor also weighs in favor of abstention. Though the plaintiff argues disingenuously to the contrary, there is an inherent conflict of interest.²⁰ Ironshore is currently defending the Hanlons' action in state court under a reservation of rights yet has filed this declaratory judgment action seeking a determination that the Hanlons' action is not covered under two policy exclusions.

Lastly, the third factor weighs in favor of abstention because a parallel declaratory judgment action is already pending in state court. “A federal court should also decline to exercise its discretionary jurisdiction when doing so would promote judicial economy by avoiding duplicative and piecemeal litigation.” Summy, 234 F.3d at 135. The state court action has progressed beyond what this action has, with that court already addressing preliminary objections. To address the same objections in this forum would be a waste of judicial resources.²¹ The state court declaratory judgment complaint also more fully explores and addresses the potential liability of all the parties who may be involved in this insurance dispute. Allowing the state court to adjudicate the claims before it—as opposed to having this court only adjudicate the declaratory judgment action—would prevent piecemeal litigation.

The plaintiff argues that the order of...