Itt Industries, Inc. v. Pacific Employers Ins. Co.
| Decision Date | 13 April 2006 |
| Docket Number | Civ.A. No. 05-5223. |
| Parties | ITT INDUSTRIES, INC., Plaintiff, v. PACIFIC EMPLOYERS INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Carol Choate Carty, Morgan, Lewis & Bockius, Philadelphia, PA, Harvey Bartle. IV, Paul Anton Zevnik, Morgan Lewis & Bockius LLP, Washington, DC, for Plaintiff.
Jerrald J. Hochman, Melvin R. Shuster, Siegal Napierkowski & Park, Mt. Laurel, NJ, for Defendant.
Plaintiff ITT Industries, Inc. ("ITT") brought this action under an insurance policy issued to ITT in 1985 by defendant Pacific Employers Insurance Company ("PEIC"). ITT contends that under a claims handling agreement between ITT and PEIC, PEIC has been obligated, for at least the last twenty years, to pay defense, investigation, and settlement costs arising from suits brought against ITT's former subsidiary, Pennsylvania Glass Sand Corporation ("PGS") seeking damages for bodily injury arising out of alleged exposure to silica (the "Silica Suits"). ITT is subject to claims of indemnification for the Silica Suits brought against PGS, pursuant to a contractual agreement with Pacific Coast Resources ("PCR"), the entity that purchased PGS on September 12, 1985.
Before the Court today is PEIC's motion to dismiss the action or stay the proceedings. PEIC's motion to dismiss is based on the contention that the instant action is only a part of a much larger and more comprehensive coverage dispute involving more parties and issues than are named in the operative complaint. This comprehensive dispute, argues PEIC, is the subject of a contemporaneous declaratory judgment action in New York state court, and this Court should abstain from adjudicating this action in favor of the New York action.
For the reasons that follow, the Court will grant PEIC's motion, and stay the proceedings.
In 1985, PEIC issued an insurance policy to ITT for the period of January 1, 1985 through January 1, 1986 (the "Policy"). ITT alleges, and PEIC does not dispute, that under the Policy, PEIC has a duty to pay ITT's damages including defense and investigation costs, for Silica Suits alleging bodily injury during the Policy Period.
On September 12, 1985, ITT sold the capital stock of its subsidiary, Pennsylvania Glass Sand ("PGS"), to Pacific Coast Resources ("PCR"). Pursuant to the Agreement of Purchase and Sale of the Capital Stock ("Sale Agreement"), ITT entered into a contractual obligation to PCR to indemnify PCR for Silica Suits brought against PGS prior or subsequent to the closing date alleging that acts or omissions of ITT or PGS that took place prior to the closing date caused bodily injury. Sale Agreement, § 5.1(b).
On September 13, 1985, PEIC and ITT entered into an Amendatory Endorsement to the Contractual Liability portion of the Policy ("Endorsement # 44"). Endorsement # 44 provides:
It is understood and agreed that the contractual liability coverage provided by the policy shall apply to those liabilities assumed by ITT Corporation in the "Contract of Sale" Section 5.1(b) Lung Disease.
It is further agreed that those losses covered by the above-mentioned "Contract of Sale" shall be considered as occurring during this policy period regardless of when the claim actually occurs.
"Contract of Sale" means the sales agreement entered into between ITT Corporation and the Buyers of Pennsylvania Glass Sand.
ITT alleges that PEIC agreed to pay, and has actually paid, a portion of its obligations under the Policy for the Silica Suits but that on or about August 24, 2005, PEIC declared it would no longer honor its insurance obligations.
ITT filed this action against PEIC on October 4, 2005. The initial complaint was never served. On January 12, 2006, ITT filed an amended complaint, asserting five counts regarding the 1985 insurance policy issued by PEIC to ITT.1 The counts are for: (1) breach of contract; (2) a declaratory judgment that PEIC is obligated to pay or reimburse the costs and expenses of the Silica Suits; (3) statutory remedies under 42 Pa.C.S. § 8371;2 (4) a declaratory judgment that the product liability limits of certain insurance policies be replenished to the extent PEIC has impaired them; and (5) a declaratory judgment that to the extent any Silica Suits are asserted directly against ITT, and not against PGS, PEIC is obligated to provide coverage to ITT. ITT seeks damages and attorneys' fees and costs for Counts One and Five, and declarations and orders for Counts Two, Three, and Four.
On February 6, 2006, defendant moved to dismiss the action pursuant to Federal Rule of Civil Procedure 12(b), or for a stay of proceedings.
On January 13, 2006, PEIC, along with two other insurance companies,3 filed an action in the Supreme Court of the State of New York for the County of New York against ITT (plaintiff in the action before this Court), U.S. Silica (formerly PGS, a former subsidiary of ITT) ("PGS-USS"), and various defendant insurers (the "New York action"). ACE Fire Underwriters Insurance Company, et al. v. ITT Industries, U.S. Silica Corporation, et al., Index No. 600133/06. Plaintiffs in the New York action (including the defendant in the instant action) seek a declaratory judgment regarding their obligation to cover ITT and PGS for Silica Suits, and regarding reimbursement for amounts already paid that the insurers allege should not have been paid.
The counts in the New York action are as follows: (1) Against ITT and PGS-USS — what obligation, if any, plaintiffs have to defend and indemnify ITT and PGS-USS in connection with the Silica Suits; (2) Against ITT and PGS-USS — whether ITT is insured under any PEIC policy for Silica Suits for its indemnity agreement with PCR (purchaser of PGS-USS) for Silica Claims made against PGS-USS after September 12, 1995; (3) Against PGS-USS — what the effect is of PGS-USS's agreement to tender any Silica Claims not covered under the ITT indemnity to its own insurers; (4) Against ITT, PGS-USS, and defendant insurers-whether, and to what extent, ITT, PGS-USS, and the defendant insurers are obligated to share payment with plaintiffs of any defense or indemnity payments or obligations for which plaintiffs have paid, or will pay in the future, in connection with the Silica Claims; and (5) Against ITT — whether ITT must reimburse PEIC for money paid by PEIC to ITT pursuant to contractual liability coverage for Silica Claims made against PGS-USS between September 12, 1995 and September 12, 2005.
On February 16, 2006, ITT filed two motions to dismiss or stay the proceedings in New York. The ACE plaintiffs filed their responses, and the motion is set for oral argument on or about April 21, 2006. In addition, various other defendant insurers have filed answers to the complaint.
There is also an action pending in West Virginia state court. USS-PGS brought the West Virginia action against various insurance companies on January 6, 2006. Neither PEIC nor ITT is named in the action. Plaintiff seeks declaratory relief that the defendant insurers have a duty to provide coverage for the Silica Suits, and damages for breach of contract against certain of the defendant insurers that plaintiff has designated as primary insurers.
On February 28, 2006, some of the defendant insurers filed a joint motion to stay or dismiss the action. Responses were due on or before March 16, 2006, and any rebuttal was due ten days thereafter.
Defendant PEIC requests the Court abstain from hearing this action, and to dismiss the complaint, or, in the alternative, enter a stay of proceedings pending the entry of final judgment in the New York action.
In the usual turn of events, a district court has a "virtually unflagging obligation" to exercise its jurisdiction, and may only decline to exercise or postpone this jurisdiction "in the exceptional circumstances where the order to the parties to repair to the state court would clearly serve an important countervailing interest." Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).
However, in declaratory judgment cases, the Supreme Court has explained that "[d]istinct features of the Declaratory Judgment Act, we believe, justify a standard vesting district courts with greater discretion in declaratory judgment actions than that permitted under the `exceptional circumstances' test of Colorado River and Moses H. Cone." Wilton v. Seven Falls Company, 515 U.S. 277, 286, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). See also Brillhart v. Excess Insurance Company of America, 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942).
Therefore, the standard the Court will apply to determine whether to maintain jurisdiction over the action turns on whether the action at issue is a declaratory judgment action. The case before the Court today, however, contains both declaratory claims and coercive claims, that is, claims for bad faith and breach of contract.
Although the Third Circuit has not spoken on whether actions containing both coercive and declaratory claims should be governed by Colorado River or Wilton, the Fifth and the Ninth Circuits have crafted different approaches to this situation.
The Fifth Circuit has fashioned a strict standard, stating that "when an action contains any claim for coercive relief, the Colorado River abstention doctrine is ordinarily applicable." Kelly Investment, Inc. v. Continental Common Corp., 315 F.3d 494, 497 n. 4 (5th Cir. 2002). The court looks to such factors as whether the claim(s) for coercive relief are frivolous, or were added solely to defeat Brillhart. If not, the Colorado River standard applies. Id.
The Ninth Circuit directs district courts seeking to determine...
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