Nationwide Ins. v. Zavalis

• Decision Date: 14 April 1995
• Docket Number: No. 94-1306,94-1306
• Citation: 52 F.3d 689
• Parties: NATIONWIDE INSURANCE, Plaintiff-Appellant, v. Aleck ZAVALIS, Astroturf Industries, Inc., Safeco Insurance Company of America, and the Board of Trustees of the University of Illinois, an Illinois Public Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 689

52 F.3d 689

63 USLW 2648

NATIONWIDE INSURANCE, Plaintiff-Appellant, v. Aleck ZAVALIS, Astroturf Industries, Inc., Safeco Insurance Company of America, and the Board of Trustees of the University of Illinois, an Illinois Public Corporation Defendants-Appellees.

No. 94-1306.

United States Court of Appeals Seventh Circuit.

Argued Nov. 9, 1994.

Decided April 14, 1995.

Ralph Swanson, Sebat, Swanson, Banks, Garman & Townsley, Danville, IL, for Nationwide Ins.

J. Steven Beckett, Kelly K. James, Holly Clemons, Beckett & Webber, Urbana, IL, for Aleck Zavalis.

Traci E. Nally, Lorna K. Geiler, Meyer, Capel, Hirschfeld, Muncy, Jahn & Aldeen, Champaign, IL, George T. Lewis, III, Michael C. Patton, Heiskell, Donelson, Bearman, Adams, Williams & Caldwell, Memphis, TN, for Astroturf Industries, Inc., and Safeco Ins. Co. of America.

John E. Cassidy, III, Cassidy & Mueller, Peoria, IL, for Board of Trustees of University of Illinois.

Before CUMMINGS, FLAUM, and ROVNER, Circuit Judges.

ILANA DIAMOND ROVNER, Circuit Judge.

Aleck Zavalis and two other students at the University of Illinois, Champaign-Urbana, set fire to the astroturf covering the University's football field. Nationwide Insurance, which insured the Zavalis family, brought this diversity action seeking a declaratory judgment that it had no duty to defend or indemnify Zavalis in the state court suit filed against him by the University. The district court dismissed the declaratory suit, believing that it required resolution of a key factual question about the nature of Zavalis' conduct that was also presented in the state suit. Because we conclude that Nationwide's duty to defend may be determined from the face of the state court complaint, we vacate the dismissal in part.

I.

In the early morning hours of September 24, 1989, Aleck Zavalis, Glenn Schicker, and Conor Gorman, all students at the University of Illinois, Champaign-Urbana, stole into the University's Memorial Stadium, dispensed lighter fluid over a portion of the football field, and set the astroturf ablaze. The flames quickly spread, and a sizable portion of the northerly fifty yards of the playing surface was destroyed.

The University, which incurred damages in excess of $600,000, filed suit in Illinois state court against the three students as well as Astroturf Industries, Inc. and Safeco Insurance Company of America. The University's third amended complaint seeks to hold Astroturf (which manufactured the artificial turf) and Safeco (which issued a performance and warranty bond on the astroturf) liable for breach of warranty as to the flammability of the turf. The complaint asserts negligence claims against Zavalis, Schicker, and Gorman, alleging that the three intended solely to burn the letters "F-O-O" ¹ into the astroturf, but carelessly permitted the fire to spread out of control. The complaint attributes the following specific negligent acts and omissions to the students:

a. attempting to emblazon the lettering on the astroturf without first determining that they could do so without the fire spreading;

b. allowing the fire to spread beyond the area they intended to burn;

c. failing to extinguish the flames once it became apparent that the fire was spreading;

d. failing to contact the local fire department or take other steps to ensure that the fire would be extinguished once they became aware that it was causing damage beyond that which they intended.

(University's Third Amended Complaint at 10.)

At the time of the mishap, Zavalis' parents, who live in Pennsylvania, maintained a homeowner's insurance policy with Nationwide. That policy provides public liability coverage for all residents of the Zavalis household (including Aleck), but expressly excludes property damage "which is expected or intended by the insured."

Nationwide filed this diversity suit pursuant to the Declaratory Judgment Act, 28 U.S.C. Section 2201, contending that it has no duty to defend Zavalis against the University's tort action and no duty to indemnify him in the event he is found liable. Invoking the policy's exclusion for expected or intentional property damage, Nationwide alleged that Zavalis and his cohorts had knowingly and intentionally set fire to the stadium astroturf and reasonably expected that damage would result from their actions. Consequently, Nationwide asserted, both the policy terms and public policy barred coverage and relieved the company of any duty to defend or indemnify. (Nationwide presently is supplying Zavalis with a defense in the state action under a reservation of rights.)

The defendants moved to dismiss the suit, contending that the action was premature so long as the state suit remained unresolved. The magistrate judge recommended that the motion be denied, but the district court rejected the recommendation and dismissed the suit. The court began with the observation that its authority under the Declaratory Judgment Act was discretionary, and that it was not compelled to issue a judgment, particularly where parallel state litigation was implicated. Order at 1-2 (quoting Crowley Cutlery Co. v. United States, 849 F.2d 273, 279 (7th Cir.1988)). In view of the potential overlap between the two suits here, the district court reasoned, the prudent course to take was to dismiss Nationwide's suit without prejudice:

While the issues to be resolved in the declaratory judgement action are not identical to the issues in the state tort case, they are so closely related that the court is persuaded to exercise its discretion to refuse to grant a declaratory judgement. Nationwide is already defending Zavalis in state court. In this court, Nationwide seeks a declaration about the nature of Zavalis' conduct--namely, did he act intentionally or negligently? The outcome of the state proceeding will in due course determine the nature of Zavalis' conduct. The state court may also determine whether Nationwide must indemnify Zavalis for any judgement entered in the tort case. Nationwide may contest the issue of coverage in the state court at no greater expense to Nationwide than this suit would be, and without asking a federal court to interfere with a state court's proceedings. Intervention by a federal court at this time would contradict the policy of the Younger doctrine. State court is the proper forum for these disputes.

Order at 2. From the dismissal, Nationwide appeals.

II.

The Declaratory Judgment Act provides, in relevant part, that "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. Sec. 2201(a). Of course, this statute does not dispense with the Article III case or controversy requirement (Trippe Mfg. Co. v. American Power Conversion Corp., 46 F.3d 624, 627 (7th Cir.1995); Deveraux v. City of Chicago, 14 F.3d 328, 330 (7th Cir.1994)), nor does it supply the court with subject matter jurisdiction (Lawline v. American Bar Ass'n, 956 F.2d 1378, 1387 (7th Cir.1992), cert. denied, --- U.S. ----, 114 S.Ct. 551, 126 L.Ed.2d 452 (1993)). And even when these jurisdictional prerequisites are satisfied, as they are here, the district court is not compelled to declare the rights and relations of the parties. Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494, 62 S.Ct. 1173, 1175, 86 L.Ed. 1620 (1942). ² By its terms (in particular, "may"), the Act grants the district court "wide discretion" in deciding whether or not to exercise this authority. A.G. Edwards & Sons, Inc. v. Public Building Comm'n of St. Clair County, Ill., 921 F.2d 118, 120 (7th Cir.1990). Despite that discretion, in the interest of consistency, we review the court's decision to dismiss Nationwide's suit de novo. Tempco Elec. Heater Corp. v. Omega Eng'g, Inc., 819 F.2d 746, 747-49 (7th Cir.1987). ³

When a related state action is pending, concerns about comity, the efficient allocation of judicial resources, and fairness to the parties come into play. Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1367 (9th Cir.1991). As the Supreme Court admonished in Brillhart, "[g]ratuitous interference with the orderly and comprehensive disposition of a state court litigation should be avoided." 316 U.S. at 495, 62 S.Ct. at 1176. Yet, "the mere pendency of another suit is not enough in itself to refuse a declaration." Sears, Roebuck & Co. v. Zurich Ins. Co., 422 F.2d 587, 590 (7th Cir.1970). Instead, the federal court should consider (among other matters) whether the declaratory suit presents a question distinct from the issues raised in the state court proceeding, whether the parties to the two actions are identical, whether going forward with the declaratory action will serve a useful purpose in clarifying the legal obligations and relationships among the parties or will merely amount to duplicative and piecemeal litigation, and whether comparable relief is available to the plaintiff seeking a declaratory judgment in another forum or at another time. State Farm Fire & Casualty Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir.1994) (White, Associate Justice (Ret.), sitting by designation); NUCOR Corp. v. Aceros y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 577-78 (7th Cir.1994); American States Ins. Co. v. Kearns, 15 F.3d 142, 145 (9th Cir.1994) (Garth, J., concurring); American Casualty Co. of Reading, Pa. v. Continisio, 819 F.Supp. 385, 393 (D.N.J.1993), judgment aff'd, 17 F.3d 62 (3d Cir.1994); Sears, 422 F.2d at 590; see also Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 126-28, 88 S.Ct. 733, 746-47, 19 L.Ed.2d 936 (1968); Brillhart, 316 U.S. at 495, 62 S.Ct. at 1176.

Nationwide's declaratory suit presents a dispute that is fundamentally distinct from the matters before the state court. In the Illinois court, the University seeks to establish the liability of Zavalis and his cohorts for the damage to its...