Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-01587/USCOURTS-caed-2_05-cv-01587-0/pdf.json

Parties Involved:
Columbia Casualty Company
Defendant
Continental Casualty Company
Defendant
Encompass Power Services, Inc.
Defendant
North American Capacity Insurance Company
Plaintiff
Zurich American Insurance
Defendant

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1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

NORTH AMERICAN CASUALTY

INSURANCE COMPANY,

Plaintiff,

v.

ENCOMPASS POWER SERVICES, INC.,

CONTINENTAL CASUALTY COMPANY,

COLUMBIA CASUALTY COMPANY,

ZURICH AMERICAN INSURANCE, AND

DOES 1 through 100, 

Defendants.

CIV-S-05-1587 DFL GGH 

MEMORANDUM OF OPINION

AND ORDER

North American Capacity Insurance Company (“NAC”) seeks

declaratory relief against Encompass Power Services, Inc.

(“Encompass”), Continental Casualty Company (“Continental”),

Columbia Casualty Company (“Columbia”), and Zurich American

Insurance (“Zurich”). Continental moves to dismiss, stay, or

transfer the action. Zurich moves for dismissal from the action. 

For the reasons stated below, the court dismisses the claims

against Zurich and stays the action.

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I.

The events giving rise to this litigation took place in May

and June 2002 at the Valero refinery in Benecia, California. 

Valero hired Encompass to build a co-generation facility at the

refinery. Encompass contracted out the electrical work on the

project to ECCO. There were two power outages at the refinery

while Encompass and ECCO were building the plant. During an

investigation of the outages, a fire broke out at the refinery

causing approximately $2.9 million in property damage. Since

then, Encompass has filed for bankruptcy and Valero, ECCO, and

Encompass have been litigating and arbitrating issues related to

the fires and plant construction. 

Zurich, Continental, Columbia and NAC all insured

Encompass’s work at the refinery. Zurich issued a first-party

property insurance policy to Encompass that included Valero as an

additional insured. Continental issued a liability policy to

Encompass. Columbia issued a professional liability insurance

policy to Encompass. NAC issued a liability policy to ECCO that

named Encompass as an additional insured. The principal purpose

of this litigation is to determine which insurers must defend

Encompass in the ongoing arbitration in Texas. 

NAC seeks a declaration from the court that: (1) NAC has no

duty to defend or indemnify Encompass; (2) Continental and

Columbia have the primary duty to defend Encompass; (3) Zurich

provided primary property damage coverage to Encompass and, as an

additional insured, Valero; and (4) Zurich has waived its right

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 The Declaratory Judgment Act provides, in pertinent part, 1

“In 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, whether or not further relief is or could be

sought.” 28 U.S.C. § 2201(a). 

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to subrogation against ECCO. If the court finds that NAC must

defend Encompass, then NAC seeks a declaration that it is only

responsible for the costs over and above those that Continental

covers, or that the costs must be spread equitably between NAC,

Columbia, and Continental. 

Zurich moves to dismiss the claims against it because: (1)

there is no case or controversy between NAC and Zurich; (2) NAC

lacks standing to bring a claim for declaratory relief against

Zurich; and (3) the relief NAC seeks does not satisfy the

requirements for federal subject matter jurisdiction. 

Continental moves to dismiss, stay, or transfer the case

because: (1) there is a first-filed, parallel action proceeding

in the Southern District of Texas (the “Texas action”); (2) venue

in the Eastern District of California is improper; and (3) Texas

provides a proper and superior forum. 

II.

A. Zurich’s Motion to Dismiss

Zurich and NAC agree that the Declaratory Judgment Act

governs the claims against Zurich. The Act permits a party to 1

“forestall the accrual of potential damages by suing for a

declaratory judgment, once the adverse positions have

crystallized and the conflict of interests is real and

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immediate.” Societe de Conditionnement en Aluminium v. Hunter

Eng’g Co., Inc., 655 F.2d 938, 942 (9th Cir. 1981) (citation

omitted). “The ‘actual controversy’ requirement of the act is

the same as the ‘case or controversy’ requirement of Article III

of the United States Constitution.” Id. Therefore, to obtain

declaratory relief, NAC must show that there is a substantial

controversy between it and Zurich that is immediate and real. 

Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61

S.Ct. 510 (1941). Similarly, NAC must also show that it has

standing to bring the action. Lujan v. Defenders of Wildlife,

504 U.S. 555, 560-61, 112 S.Ct. 2130 (1992). To show standing,

NAC must demonstrate that it has suffered an “injury in fact” –

an injury that is “concrete and particularized” – which will be

redressed by a favorable decision. Id. (internal quotations and

citations omitted).

NAC seeks the following declarations from the court

regarding Zurich: (1) that Zurich provided primary property

damage coverage to Encompass and, as an additional insured,

Valero; and (2) that Zurich waived its subrogation rights against

ECCO. (Compl. at 8.) Zurich argues that the court lacks

jurisdiction over these claims because none of the requested

declarations rests upon an “immediate and real” controversy

between Zurich and NAC, and because NAC has not suffered injury

in fact. As a result, Zurich moves to dismiss these claims under

Fed.R.Civ.P. 12(b)(1). 

NAC argues that without a determination that Zurich provided

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 In addition, it is unclear what injury a determination 2

that Zurich provided primary property insurance to Encompass

would remedy. NAC asserts that the court’s declaration would

relieve it of the obligation to compensate Valero for damages

that arose out of ECCO’s work. However, Zurich contends that its

coverage is limited to the co-generation facility itself, not the

refinery, and that there was no damage at the co-generation

facility. Therefore, even if the court granted NAC the relief it

seeks, it would not be relieved from compensating Valero until

the parties determined: (1) whether Zurich’s policy covered the

damage; and (2) whether NAC could force Valero to recover from

Zurich before Valero exercised its rights against Encompass. 

5

primary property insurance to Encompass it will be injured

because it “will be responsible, to its policy limits for damages

assessed against ECCO and potentially Encompass if the claim is

not resolved by way of a payment by Zurich.” (Zurich Opp’n at

7.) However, no damages have been assessed against ECCO or

Encompass at this juncture. Moreover, NAC alleges that ECCO is

not liable for any damages, and that NAC will not be responsible

for any damages assessed against Encompass. 

Although it is possible that, at some point in the future,

NAC will be forced to indemnify Encompass or ECCO for Valero’s

damages, NAC has not suffered an injury at this time. Such

“hypothetical” injuries do not satisfy the case or controversy

requirement or establish standing. This claim must be dismissed 2

for lack of jurisdiction.

In addition, NAC seeks a determination that Zurich waived

its right to subrogation against ECCO. (Compl. at 8.) NAC

argues that this determination would prevent Zurich from seeking

contribution against NAC for damages Zurich covered that arose

out of ECCO’s work. However, NAC lacks standing to bring this

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26 Valero submitted a claim to Zurich for the property 3

damage. Zurich denied the claim. Valero has not challenged the

propriety of Zurich’s denial. See note 2, supra.

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claim because: (1) there is no impending lawsuit between Zurich

and ECCO and no impending contribution claim by Zurich against

NAC; (2) Valero has not been awarded damages against Zurich,

Encompass, or ECCO; (3) and Zurich has not paid a claim to

Valero. (Zurich Mot. at 20.) Therefore, NAC has not suffered 3

an injury in fact. Lujan, 504 U.S. at 560.

For the reasons stated above, Zurich’s motion to dismiss for

lack of jurisdiction is GRANTED.

B. Continental’s Motion

Continental moves to dismiss or stay NAC’s complaint under

the first-filed doctrine. In the alternative, Continental moves

to transfer the case to the Southern District of Texas under the

doctrine of forum non conveniens. Because the first-filed

doctrine applies, the court declines to decide the forum issue. 

This case is STAYED pending the outcome of the Texas action.

1. First-Filed Doctrine

The first-filed doctrine is “a generally recognized doctrine

of federal comity which permits a district court to decline

jurisdiction over an action when a complaint involving the same

parties and issues has already been filed in another district.” 

Pacesetter Sys. Inc. v. Medtronic, Inc., 678 F.2d 93, 94-95 (9th

Cir. 1982). The three issues a court evaluates in determining

whether to apply the first-filed doctrine are: “the chronology of

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 Obviously, enforcing so strict a rule would create a 4

gaping loophole in the first-filed doctrine. If the doctrine

only applied when the parties in both cases were identical, a

party could easily circumvent it by filing a subsequent action

addressing the same issues that added a new party or omitted an

existing one. Thus, the doctrine would be virtually ineffective

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the two actions, the similarity of the parties, and the

similarity of the issues.” Ward v. Follett Corp., 158 F.R.D.

645, 648 (N.D. Cal. 1994); See also Z-Line Designs , Inc. v.

Bell’O Intern., LLC, 218 F.R.D. 663, 665 (N.D. Cal. 2003) (noting

that complete identity of the parties and issues is not required

as long as both are “similar”); Guthy-Renker Fitness, L.L.C. v.

Icon Health & Fitness, Inc., 179 F.R.D. 264, 271 (C.D. Cal. 1998)

(same); Alaris Med. Sys., Inc. v. Filtertek Inc., 2001 WL

34053241 at *1956 (S.D. Cal. 2001) (same); Alibaba.com, Inc. v.

Litecubes, Inc., 2004 WL 443712 at *2 (N.D. Cal. 2004); Save

Power Ltd. v. Syntek Fin. Corp., 121 F.3d 947, 951 (5th Cir.

1997) (“Complete identity of parties is not required for

dismissal or transfer of a case filed subsequently to a

substantially related action.”). 

a. Chronology

It is undisputed that Continental filed the Texas action

before NAC filed this suit. Therefore, the court finds that the

Texas action is the first-filed suit.

b. Similar Parties 

NAC argues that if a party is present in only one of the

cases, the first-filed doctrine does not apply. However, the

rule is not so rigid nor so vulnerable. See Ward, 165 F.R.D. at 4

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in preventing duplicative litigation.

 In the complaint, Continental refers to NASIC and NAC 5

collectively as “NAC”. NAC argues that NASIC did not issue an

insurance policy to Encompass and should be dismissed from the

Texas action. Royal issued an excess insurance policy to ECCO

and, according to Continental, “may be called upon to step into

the role of NAC in providing a defense [to Encompass].” 

(Grabouski Decl. Ex. A.)

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648. The parties and issues in this case are similar to those in

the Texas action. The point of both cases is to determine

whether NAC’s contract with ECCO obligates it to defend Encompass

in the ongoing arbitration. Because Continental is currently

funding Encompass’s defense, Continental and NAC are the

appropriate parties to litigate the issue. Both are parties to

each case. 

NAC’s suit, however, names three parties who are not

involved in the Texas action and omits two that are. The two

omitted parties are North American Specialty Insurance Company

(“NASIC”), an affiliate of NAC, and Royal Indemnity Company. 

Both parties are of secondary importance in the case. The three 5

parties NAC added are Encompass, Columbia, and Zurich. It does

not appear that NAC asserts a single significant claim against

Encompass in the complaint. Although NAC does assert claims

against Columbia, these claims appear to be the same ones that it

asserts against Continental. Because the claims against Zurich

are not justiciable, the court disregards its presence in the

case for the purpose of evaluating the similarity of the parties. 

Therefore, the court finds that the parties involved in the Texas

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 To the extent that NAC believes Columbia and Encompass 6

must be made parties to completely resolve the issues, it can

join them in the Texas action. NAC’s contention that Zurich is

not subject to personal jurisdiction in Texas is contradicted by

Continental’s evidence that it entered into the contract with

Encompass in Houston, Texas, and is immaterial because NAC has

not stated a claim against Zurich.

 Because they are not justiciable, the court disregards 7

NAC’s claims against Zurich for the purpose of this analysis.

 At oral argument, Continental and NAC agreed that there is 8

no barrier to joining Columbia to the Texas action. 

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action and this case are similar.6

c. Similar Issues

This case and the Texas action seek to resolve the same

fundamental issues: (1) whether Encompass is an additional

insured under NAC’s contract; and (2) whether NAC is obligated to

contribute to the defense of Encompass. However, NAC argues that

applying the first-filed doctrine will leave the following issues

outstanding: (1) whether Continental is obligated to defend

Encompass; (2) whether Columbia is obligated to defend Encompass;

and (3) how to apportion the multiple defense and indemnity

obligations to Encompass. 

7

Even if NAC were correct, these additional issues would not

justify departing from the first-filed doctrine because the core

issues of each case are the same and these peripheral concerns

can be resolved in the Texas action by joining Columbia.8

Allowing similar actions to proceed concurrently in two different

federal courts, when a single action could more efficiently

resolve all claims, wastes judicial resources. The court finds

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that the issues in both cases are sufficiently similar to satisfy

the requirements of the first-filed doctrine. 

2. Bad Faith

Although there is a presumption in favor of applying the

first-filed rule, its application is not automatic. Pacesetter,

678 F.2d at 95. Instead, a court must consider fairness and

judicial economy when deciding whether to dismiss, stay, or

transfer a second-filed action. Id. In particular, the firstfiled doctrine does not apply to actions filed in bad faith. 

Alltrade, Inc.v. Uniweld Prods. Inc., 946 F.2d 622, 628 (9th Cir.

1991). 

NAC argues that Continental filed the Texas action in bad

faith because: (1) the Texas action was “anticipatory”; (2) “it

does not seek to comprehensively resolve the insurance coverage

issues”; and (3) the reason Continental filed the suit was to

prevent Columbia from having to provide coverage under its policy

with Encompass. NAC’s arguments do not support a finding of bad

faith.

NAC contends that Continental’s action was anticipatory

because NAC had informed Continental that it did not intend to

participate in a mediation on behalf of Encompass. However,

Continental was never informed that NAC intended to file suit to

resolve this issue. To deem the Texas action an anticipatory

filing, Continental must have been presented with a more direct

indication of an impending lawsuit than just NAC’s expression of

an intent not to mediate. See, e.g., Amerada Petroleum Corp. v.

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Marshall, 381 F.2d 661 (5th Cir. 1967) (finding that a suit was

anticipatory where the defendant sent a letter to the plaintiff

informing him that the defendant intended to sue in a less

convenient forum unless the plaintiff consented to suit); Ward,

158 F.R.D. at 648 (finding that an anticipatory filing resulted

from the “receipt of specific, concrete indications that a suit

by the defendant was imminent”); Guthy-Renker Fitness, 179 F.R.D.

at 271 (same). Because NAC never disclosed an intent to file a

lawsuit, the Texas action was not an anticipatory filing.

NAC also alleges that Continental filed the Texas case in

bad faith because Continental did not sue Columbia, even though,

according to NAC, Columbia’s involvement is necessary to resolve

the insurance issues related to the fire. NAC contends that

Continental’s failure to sue Columbia is part of a scheme to

insulate Columbia from any claim Valero might make against

Encompass. To support this contention, NAC points to the fact

that Continental and Columbia are owned by the same corporation,

Continental’s contract with Encompass has a $1 million policy

limit on liability, Columbia’s contract with Encompass has a $20

million policy limit on liability, and Valero claims that it

suffered approximately $40 million in damages. 

Continental explains that it refrained from filing suit

against Columbia because the only issues in the Texas action are:

(1) whether Encompass is an additional insured under NAC’s policy

with ECCO; and (2) if so, what the priority of NAC’s coverage is

relative to Continental’s. Continental contends that including

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Columbia in the suit would have been improper because, as

Encompass’s professional liability carrier, Columbia has no

interest in the suit. 

Bad faith “implies the conscious doing of a wrong because of

dishonest purpose or moral obliquity.” U.S. v. Manchester

Farming P’ship, 315 F.3d 1176, 1185 (9th Cir. 2003) (citation

omitted). Even if Continental intentionally omitted Columbia

from the Texas action for the reasons NAC suggests, that conduct

would not injure NAC because NAC can easily join Columbia to the

Texas litigation. NAC does not allege that Continental deceived

it or concealed the fact that Columbia also issued a policy to

Encompass. At worst, Continental is attempting to reduce

Columbia’s litigation costs by resolving the dispute with NAC

independently. Although this approach may not further NAC’s

interests, it does not constitute bad faith. Because NAC has not

shown bad faith, applying the first-filed doctrine is

appropriate.

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III.

For the reasons stated above, the claims against Zurich are

DISMISSED and the case is STAYED pending the outcome of the Texas

action. 

IT IS SO ORDERED.

Dated: 12/16/2005

DAVID F. LEVI

United States District Judge

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