St. Paul Fire and Marine Ins. Co. v. Runyon

• Decision Date: 01 May 1995
• Docket Number: No. 94-6265,94-6265
• Citation: 53 F.3d 1167
• Parties: ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff-Appellant, v. Philip H. RUNYON, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1167

53 F.3d 1167

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff-Appellant, v. Philip H. RUNYON, Defendant-Appellee.

No. 94-6265.

United States Court of Appeals Tenth Circuit.

May 1, 1995.

Glynis C. Edgar (Reggie N. Whitten and Barbara K. Buratti on the briefs), of Mills & Whitten, Oklahoma City, OK, for plaintiff-appellant.

Robert N. Naifeh, Jr. (R. Wade Cole with him on the brief), of Derryberry, Quigley, Parrish, Solomon & Blankenship, Oklahoma City, OK, for defendant-appellee.

Before BRORBY, Circuit Judge, McKAY, Senior Circuit Judge, and OWEN, ^* Senior District Judge.

BRORBY, Circuit Judge.

St. Paul Fire and Marine Insurance Company ("St. Paul") sought, in federal court, a declaration under the Declaratory Judgment Act, 28 U.S.C. Sec. 2201, that it had no obligation to defend Philip H. Runyon under the terms of a professional liability insurance policy. The district court refused to exercise jurisdiction over this action because of the existence of a related state court action. St. Paul appeals this decision. Our jurisdiction arises under 28 U.S.C. Sec. 1291, and we affirm.

BACKGROUND

Mr. Runyon, a nurse anesthetist, held a professional liability insurance policy with St. Paul. The policy provided St. Paul would defend and indemnify against covered professional liability claims. Two coworkers sued Mr. Runyon alleging Mr. Runyon abused patients, caused the coworkers' discharges, and withheld vital and medically necessary services to patients because either they lacked insurance or because of their race. Mr. Runyon asked St. Paul to provide a defense for him, but St. Paul refused. St. Paul maintained the coworkers' lawsuit did not implicate professional liability and, therefore, was not covered under the insurance policy.

After three years of haggling, Mr. Runyon informed St. Paul that if it would not assume his defense, he would initiate a suit in state court for breach of contract and bad faith by February 18, 1994. On February 17, 1994, St. Paul filed a diversity action for declaratory judgment. As promised, Mr. Runyon proceeded with his bad faith and breach of contract suit against St. Paul in state court the next day. ¹

In response to a motion by Mr. Runyon in this case, the federal district court abstained from exercising jurisdiction over St. Paul's suit for declaratory judgment. The district court found (1) all of the issues in this suit will be resolved in the pending state court action; (2) St. Paul is using the federal action for procedural fencing; and (3) the declaratory judgment action is likely to create friction between the federal and state courts and may encroach improperly upon the jurisdiction of the state court. St. Paul appeals this ruling.

DISCUSSION

I

The federal declaratory judgment statute provides "[i]n a case of actual controversy within its jurisdiction ... any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. Sec. 2201. While this statute vests the federal courts with power and competence to issue a declaration of rights, see Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112, 82 S.Ct. 580, 581-82, 7 L.Ed.2d 604 (1962) (per curiam), the question of whether this power should be exercised in a particular case is vested in the sound discretion of the district courts. Id.; see also Sierra Club v. Yeutter, 911 F.2d 1405, 1420 n. 8 (10th Cir.1990). Accordingly, our review of a district court's decision to abstain from exercising federal declaratory judgment jurisdiction is limited to deciding whether the district court abused its discretion. See ARW Exploration Corp. v. Aguirre, 947 F.2d 450, 453-54 (10th Cir.1991). ² Under that standard, we ask only

whether the district court made a clear error in judgment or exceeded the permissible bounds of choice in its decision to abstain from exercising its jurisdiction. See McEwen v. City of Norman, 926 F.2d 1539, 1553-54 (10th Cir.1991).

II

Assuming the district court has subject matter jurisdiction, the court should weigh various factors to determine whether or not to hear a declaratory judgment action. Such factors may include

whether a declaratory action would settle the controversy; whether it would serve a useful purpose in clarifying the legal relations at issue; whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race to res judicata "; whether use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and whether there is an alternative remedy which is better or more effective.

Mhoon, 31 F.3d at 983. The district court, in this case, refused jurisdiction because the same issues were involved in the pending state proceedings, and therefore, there existed a more effective alternative remedy.

The parties have a pending state contract action, which incorporates the identical issue involved in the declaratory judgment action. Mr. Runyon's state breach of contract complaint against St. Paul alleges the coworkers' lawsuit is a "covered claim" pursuant to the insurance policy. In resolving the insurance contract, the state court will necessarily determine rights and obligations under the contract. St. Paul is seeking a declaration by the federal court that the coworkers' lawsuit is not a covered claim. The issue in the federal declaratory judgment action is identical to what would be a defense to the state court contract action--whether Mr. Runyon's insurance contract with St. Paul protects him from the coworkers' lawsuit. Because the state court will determine, under state contract law, whether the tort action is covered by the insurance contract, it is not necessary for the federal court to issue a declaration on the insurance contract. See Brillhart v. Excess Ins. Co., 316 U.S. 491, 495, 62 S.Ct. 1173, 1176, 86 L.Ed. 1620 (1942).

St. Paul argues that by Oklahoma statute courts are prohibited from issuing declaratory judgments "concerning obligations alleged to arise under policies of insurance covering liability or indemnity against liability," and therefore St. Paul cannot receive relief through the state court contract proceeding. Okla.Stat. tit. 12 Sec. 1651. Although the state court cannot issue a declaratory judgment, the contract case will resolve the question of insurance coverage under the insurance contract. The state court has already determined it has subject matter jurisdiction to resolve the question of whether the coworkers' lawsuit is covered by the insurance agreement.

The present case is inapposite to the cases relied upon by St. Paul. Horace Mann Ins. Co. v. Johnson, 953 F.2d 575 (10th Cir.1991) (the Tenth Circuit reversed the district court's decision to abstain from entertaining insurance declaratory judgment actions in the state of...