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1 There are currently six active lawsuits in state

court. At the hearing on February 15, 2006, defendants

requested a stay until the resolution of Robison Prezioso, Inc.

v. Beeche, et al., CGC-03-42656 and California Engineering

Contractors/Modern Continental Construction v. Beeche, et al., CGC-04-428416.

1

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

ST. PAUL REINSURANCE COMPANY

LIMITED LONDON,

Plaintiff(s),

v.

THE FORT MILLER GROUP, INC.

and BEECHE SYSTEMS

CORPORATION,

Defendant(s).

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No. C05-1912 BZ

ORDER GRANTING DEFENDANTS’

MOTION TO STAY

Before me is defendants’ motion to stay this action

until the underlying lawsuits filed in state court are

resolved.1

Although neither side has briefed the issue, the

question of whether to grant a stay is one of federal law. 

Wells Dairy, Inc. v. Travelers Indemnity Co. of Ill., 241

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F.Supp.2d 945, 975 (N.D. Iowa, 2003)(“The issue of the

appropriateness of staying declaratory relief actions

concerning insurance coverage pending resolution of the

underlying state cases is a question that is controlled by

federal civil procedure.”). District courts have discretion

to dismiss or stay an action for declaratory judgment, but

the decision must rest on “considerations of practicality and

wise judicial administration.” Wilton v. Seven Falls Co.,

515 U.S. 277, 288 (1995). In this case, as in Wells Dairy,

the Court’s discretion is informed by a well-developed body

of state law on this issue.

In California, a party simultaneously defending a

declaratory relief coverage action and one or more actions

for which insurance coverage is sought may obtain a stay of

the declaratory relief action upon a showing of prejudice. 

See Montrose Chemical Corp. of Cal. v. The Superior Court of

Los Angeles County, 6 Cal.4th 287, 301 (Nov. 22,

1993)(“Montrose I”)(“To eliminate the risk of inconsistent

factual determinations that could prejudice the insured, a

stay of the declaratory relief action pending resolution of

the third party suit is appropriate when the coverage

question turns on facts to be litigated in the underlying

action.”). See also Montrose Chemical Corp. of Cal. v. The

Superior Court of Los Angeles County, 25 Cal.App.4th 902, 909

(Jun. 8, 1994)(“Montrose II”)(A stay may be appropriate

because “the duty to defend . . . lasts until (a) the

underlying lawsuit is resolved or (b) the coverage issue can

be determined without prejudice to the insured.”). Prejudice

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3

may occur if the insured would be collaterally estopped in

the underlying actions from arguing facts decided in this

action or when the insured is compelled to defend against

plaintiffs in the underlying actions as well as its insurance

carrier in a coverage action. Id. at 910.

Defendants contend that they face both types of

prejudice. Defendants argue that they would be prejudiced by

being forced to fight a two-front war against plaintiffs in

the state actions at the same time as they are defending

themselves against St. Paul’s claims. Id. St. Paul replies

that defendants are only paying for one defense; insurance

carriers are funding the defenses in the state actions. The

fact remains that for companies of their size, defendants are

being required to commit their employees, time and energy

into defending this action when they could be used elsewhere

(Schumaker Decl. ¶¶ 11, 12).

This action will involve discovery on and determinations

regarding the manufacture, installation and use of

defendants’ products. Therefore, defendants argue, they

might be “collaterally estopped from relitigating any adverse

factual findings” in the underlying state court actions. 

Montrose II, 25 Cal.App.4th at 909. St. Paul’s rescission

claim is based on allegations that defendants materially

misrepresented the value of their products (Compl. ¶¶ 39, 40)

and that defendants’ insurance does not cover damages that

“do not arise out of or constitute an ‘occurrence’ and/or do

not arise out of or constitute ‘property damage’” (Compl. ¶

42). In particular, St. Paul alleges that defendants falsely

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4

represented that the highest value of the products they

manufactured was $100,000, and the average value of their

products was less than $1000 (Compl. ¶ 29), whereas the

ultimate or true value of defendants’ products is

substantially greater. Defendants contend that contractors

who purchase defendant’s modular units assemble them at the

job site, and the cost of each unit does not exceed $500

(Schumaker Decl. ¶¶ 17, 18). St. Paul claims that the value

of defendants’ products is actually the value of the platform

systems, which are composed of the modular units. Plaintiffs

in the state actions allege breach of warranty and negligence

regarding defendants’ products; one of defendants’ defenses

is that plaintiffs in the state actions did not properly

assemble, install and/or use the platform systems. If this

action proceeds, this Court might be asked to find that

defendants were manufacturing assembled platform systems with

values substantially greater than $100,000, and not modular

units to be assembled into platform systems. Plaintiffs in

the state actions might be able to use such a finding to

argue that defendants were responsible for all aspects of the

access platforms, precluding defendants from arguing such

plaintiffs’ improper assembly or installation. Thus, issues

in this action and the state actions may overlap. Adverse

factual determinations in this action could harm defendants

in the underlying state court actions, and issues that could

affect the question of coverage are more properly decided in

state court. Allstate Ins. Co. v. Harris, 445 F.Supp. 847,

852 (N.D. Cal., 1978)(staying federal action to avoid “an

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unwarranted interference with the state court proceeding and

with state policies governing the administration of insurance

disputes”).

In response, St. Paul relies on the following language

in Montrose II: In the event the insurer has more than one

defense to coverage, “the trial court will need to consider

each defense separately to decide whether it can be

determined without prejudice to the insured . . . .” 

Montrose II, 15 Cal.App.4th at 908 (citing Justice Kennard’s

concurring opinion in Montrose I, 6 Cal.4th at 306). St.

Paul argues that its rescission claim does not present the

risks of prejudice that the coverage claims do. Thus, St.

Paul argues, the Court “should not hesitate to fashion orders

which attempt to balance [the] conflicting concerns” of

potential prejudice to the insured against the burden on the

insurance carrier, by severing the rescission claim from the

coverages claim and trying it first. Id. at 910-11. 

Severing St. Paul’s rescission claim from its coverage

claims presents practical complications. I am not persuaded

that a clear line exists between St. Paul’s rescission claim

and the coverage claims since they all involve the nature of

defendants’ products. As I noted above, a core dispute in

the rescission claim is how to define defendant’s product

which may overlap with some of the coverage issues. Ongoing

and numerous discovery disputes could easily arise, as

illustrated by the parties’ current disagreements over

discovery. For example, St. Paul’s second set of requests

for documents in this action includes requests such as “All

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2 St. Paul counters that defendants have already

produced in this action many of the same documents produced in

discovery in the underlying state court actions. That St.

Paul’s discovery requests produced the same documents as those

produced in the underlying state court actions suggests that

the rescission and coverage issues and the issues in the state

actions are not easily separable.

6

DOCUMENTS RELATING TO the MARKETING of YOUR products sold for

use at the PROJECT”, “All DOCUMENTS RELATING TO the design of

products YOU sold for use on the PROJECT”, “All DOCUMENTS

RELATING TO the manufacture of products YOU sold for use on

the PROJECT” and “All DOCUMENTS that RELATE TO the

discussions and/or negotiations YOU conducted with RobisonPrezioso, Inc. regarding the products YOU sold for use on the

PROJECT” (Schumaker Decl., Exh. H). St. Paul propounded

these requests even though it had offered to try to limit its

requests to address only the rescission issues (Keller Decl.,

Exh. B at 2). How defendants design their products or

instruct purchasers on assembly or installation might show

how defendants view their products, relevant for St. Paul’s

rescission claim, but these discovery requests also could

have implications for St. Paul’s coverage claims regarding

the definitions of “property damage” or “occurrence.”2

Because the coverage issues are not easily separable from the

rescission issues, discovery disputes and requests for court

intervention are to be expected. Severing the claims or

imposing a protective order in this action could result in

extensive case management at best and duplicative discovery

and litigation at worst. 

Nor has St. Paul shown any compelling reason for the

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MOT.STAY2.ORD.wpd 7

Court to embark on this ambitious undertaking. St. Paul is a

“gap” insurer, which provides additional insurance to fill in

any gaps in defendants’ general liability insurance. 

Defendants have primary commercial general liability

insurance, secondary insurance and excess insurance, all with

substantial limits, and those insurers are actively defending

the state actions subject to a reservation of rights

(Schumaker Decl. ¶¶ 2-6). St. Paul has not introduced any

evidence that it would be harmed if this action were stayed. 

Defendants submitted a declaration that St. Paul has thus far

expended roughly $200,000 in defense costs (Gohn Decl. ¶ 4,

Exh. A), amounting to about $11,000 per month. Even if these

costs were to rise, St. Paul has expressly reserved its

rights to seek recovery of any payments made (Schumaker

Decl., Exh. F), and St. Paul has given the Court no reason to

believe that St. Paul would not be reimbursed should it

prevail on its rescission or declaratory relief claims. 

Weighing the interests on both sides, I conclude that

the minimal harm St. Paul faces if this case is stayed is

outweighed by the more substantial harms defendants face if

the case proceeds. Considerations of practicality and wise

judicial administration also dictate this case be stayed. 

Therefore, IT IS ORDERED that defendants’ motion is GRANTED. 

IT IS FURTHER ORDERED that all pending dates are VACATED and

that a status conference is scheduled for September 25, 2006

at 4:00 p.m. One week prior to the conference, the parties 

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MOT.STAY2.ORD.wpd 8

shall submit a joint statement explaining the status of the

state actions. 

Dated: February 15, 2006

 Bernard Zimmerman

United State Magistrate Judge

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