NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

 :

AIU INSURANCE COMPANY, et al., : CIVIL ACTION NO. 11-1756 (MLC)

 :

Plaintiffs, : O P I N I O N

 :

v. :

 :

K. HOVNANIAN AT NEWARK URBAN :

RENEWAL CORP. III, INC., et al., :

 :

Defendants. :

 :

AN ENTITY known as Society Hill at University Heights III

Condominium Association, Inc. (“SHUH”) brought an action in New

Jersey state court to recover damages for, inter alia, defective

building construction (“State Construction Action”) against K.

Hovnanian at Newark Urban Renewal Corp. III, Inc., which is

affiliated with Hovnanian Enterprises, Inc., and K. Hovnanian

Enterprises, Inc. (“Insureds”). (Dkt. entry no. 1, Compl. at 9-

10; see dkt. entry no. 10, Disclosure Statement.) The State

Construction Action remains pending. (Compl. at 10.) AIU

Insurance Company and National Union Fire Insurance Company of

Pittsburgh, PA (“Insurers”) provided coverage to the Insureds. 

(Id. at 3-8.) The Insurers brought this separate action against

the Insureds for a judgment declaring that the Insurers are not

obligated to defend and indemnify the Insureds in the State

Construction Action (“Declaratory Judgment Action”). (See id.)

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THE INSURERS could either (1) be named in the State

Construction Action as defendants, as third-party defendants, or

in some other capacity, or (2) bring the declaratory-judgment

claims in the appropriate state court and seek to have them

consolidated with the State Construction Action. A determination

as to any claim in the Declaratory Judgment Action would

necessarily affect — and thus interfere with — the State

Construction Action. As a result, this Court must abstain from

adjudicating the Declaratory Judgment Action. See Wilton v.

Seven Falls Co., 515 U.S. 277, 280-90 (1995) (upholding Brillhart

v. Excess Ins. Co., 316 U.S. 491 (1942)); see also Atl. Mut. Ins.

Co. v. Gula, 84 Fed.Appx. 173, 174-75 (3d Cir. 2003) (affirming

judgment dismissing complaint for, inter alia, reasons discussed

above); Nationwide Mut. Ins. Co. v. Lowe, 95 F.Supp.2d 274, 276-

77 (E.D. Pa. 2000) (abstaining in federal action even though

insurer not named in state action, because deciding insurancecoverage issue raised in federal action would affect — and thus

interfere with — underlying state action).

THE DECLARATORY JUDGMENT ACTION (1) is, as the Court’s

shorthand reference suggests, a declaratory-judgment action

involving insurance-coverage issues under state law, (2) concerns

issues that will be raised in the State Construction Action, and

(3) could be adjudicated by the same judge overseeing the State

Construction Action. As a result, the Complaint in the

2

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Declaratory Judgment Action should be dismissed. See Williams v.

State Auto Prop. & Cas. Ins. Co., No. 08-4983, 2009 WL 1119502,

at *2-3 (E.D. Pa. Apr. 24, 2009) (remanding action concerning

insurance coverage, and noting “the possibility of interfering

with the state court cases regarding the same matter is

substantial” because the conduct of certain parties would need to

be addressed in both the underlying state action and the removed

declaratory-judgment action). The dismissal will be without

prejudice to the plaintiffs to recommence the Declaratory

Judgment Action in the appropriate state court within 30 days, as

the limitations period is tolled by the filing of a federal

complaint. See Jaworowski v. Ciasulli, 490 F.3d 331, 333-36 (3d

Cir. 2007); Galligan v. Westfield Ctr. Serv., 82 N.J. 188, 191-95

(1980).1

THE COURT, in view of the pending State Construction Action,

must “promote judicial economy by avoiding duplicative and

piecemeal litigation”. State Auto Ins. Cos. v. Summy, 234 F.3d

 The Court notes that SHUH and the Insureds’ co-defendants 1

in the State Construction Action (“Construction Action CoDefendants”) should have been named in the Declaratory Judgment

Action. See N.J.S.A. § 2A:16-56 (stating that when declaratory

relief is sought, all those having an interest that would be

affected by the declaration must be made parties to the

proceeding). For instance, the interests of SHUH and the

Construction Action Co-Defendants would certainly be affected if

the Insureds are found to be liable in the State Construction

Action, but have no insurance coverage related to any claims or

cross-claims.

3

Case 3:11-cv-01756-MLC-DEA Document 12 Filed 04/27/11 Page 3 of 4 PageID: 41
131, 135 (3d Cir. 2001). It appears that “[t]he desire of

insurance companies and their insureds to receive declarations in

federal court on matters of purely state law has no special call

on the federal forum”. Id. at 136. For good cause appearing,

the Court will issue an appropriate order and judgment.

 s/ Mary L. Cooper 

MARY L. COOPER

United States District Judge

Dated: April 27, 2011

4

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