Source: https://insuranceclaimsbadfaith.typepad.com/insurance_claims_badfaith/declaratory-judgment-action/
Timestamp: 2019-04-25 11:55:09+00:00

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KENTUCKY RAIN ELVIS SANG ABOUT WASHES AWAY CARRIER'S CAREFUL PLANS.
A liability carrier's decisions to simultaneously defend its policyholder under a reservation of rights, seek declaratory judgment of no coverage, and settle underlying claims against the policyholder, did not bar a bad faith claim nor claims under the Kentucky Unfair Claim Settlement Practices Act and the Kentucky Consumer Protection Act, Kentucky's highest court held in Indiana Ins. Co. v. Demetre, 527 S.W.3d 12 (Ky. 2017).
PATIENCE, PEOPLE. CLAIMING SUBROGATION RIGHTS PREMATURELY IN PENNSYLVANIA: BAD FAITH?
In this declaratory judgment/bad faith action, the Plaintiff insureds sue their own insurance company, claiming that the insurer has jumped the gun by concretely stating/threatening to begin the pursuit of a subrogation claim before the Plaintiffs have resolved their own coverage claims with the insurer Defendant, and certainly before the Plaintiffs have resolved their excess/uninsured claims with the underlying tortfeasor. They also pile on a “bad faith” claim, asserting that the carrier's concretely stated intention to proceed with its subrogation claim now is “bad faith” entitling them to damages. The Defendant carrier responds with a Motion to Dismiss [ECF No. 7] the whole case, relying on its reading of Pennsylvania law for the conclusion that there is no problem with it proceeding with subrogation full steam ahead right now, and because it is allowed to do that, there can be no bad faith. The Motion to Dismiss will be denied without prejudice.
[T]he Pennsylvania appellate courts are not nearly as certain as the Defendant is as to the reach and scope of the “make whole” rule. In Professional Flooring Co. v. Bushar Corp., 2016 WL 7105899, *7-9 (Pa. Super. Dec. 6, 2016), the Pennsylvania Superior Court did not limit the reach of the “make whole” rule to those circumstances in which the underlying tortfeasor had insufficient assets to cover both the subrogation claim and the claim by the tort victim for excess/uncovered losses. In reality, it stated both that the “make whole” rule was the law of the Commonwealth, and that it had no such limitation. Id.
In light of the above, the Court concludes that it would be improvident to dismiss the declaratory judgment claim at this point in the proceedings. Further, in light of the matters set forth above, the Court at this juncture is not in a position to conclude that as a matter of law, the “bad faith” claim is wholly lacking in merit, and the Motion to Dismiss as to that claim will likewise be denied, without prejudice.
The Defendant shall answer the Complaint on or before February 8, 2017.
Gillis v. State Auto. Mut. Ins. Co., No. 2:16-cv-01285, 2017 WL 151637, at *2 (W.D. Pa. January 13, 2017).
So, until your jurisdiction definitively rules to accept, or to reject, the doctrine that subrogation cannot lie until the "subrogor" (in insurance cases, the policyholder/insured) is made whole, then asserting subrogation rights before their time may lead to an unwanted bad faith claim. Patience, people. There is plenty of time to assert subrogation rights later.
COMPELLING TESTIMONY FROM CORPORATE POLICYHOLDERS WHICH SUE FOR DEFENSE EXPENSES.
Maronda Homes, Inc. of Florida is a homebuilder with thirty subsidiaries operating in five States. Maronda obtained a commercial automobile insurance policy from Progressive Express Insurance Co. There came a time when Maronda “and three other defendants” were sued for negligence by a person or persons injured in an automobile accident.
It is unclear who the “three other defendants” were, but apparently Progressive provided all four (4) with a defense in the underlying case. Maronda objected and Progressive hired a separate defense lawyer for Maronda.
After the new lawyer advised Maronda that “’he would be reluctant to take positions in litigation that were adverse to Progressive because he did not want to jeopardize his business relationship with Progressive,’” Maronda declined the defense proffered by Progressive on the ground that the defense was “’legally insufficient.’” Maronda then hired its own defense attorney to defend it in the underlying case.
Maronda filed an action for declaratory relief, urging that as a result of these developments, Progressive had breached the liability insurance policy which Progressive issued to Maronda. Maronda also requested that Progressive pay “damages consisting of the attorney’s fees and costs” which Maronda paid its personal defense counsel in the underlying case. Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *1 (M.D. Fla. April 8, 2015)(Thomas B. Smith, USMJ). It is not known whether the underlying case had concluded, although that result would not have affected the decision at bar.
Progressive filed a motion to compel the deposition of one Gagat, Moranda’s and its subsidiaries’ vice president and controller. Progressive sought “to depose Gagat concerning the allegedly inadequate defense it provided Maronda in the accident case”. Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 (M.D. Fla. April 8, 2015). After reviewing Florida law which is settled on the question, namely, that acting negligently in providing a defense is a breach of the insurance contract, and in this case although the Court did not say so it certainly appears to have been a question of law whether or not there was a breach, the Court stated aloud that “the Court does not know what Progressive hopes to accomplish by asking Gagat for his opinion of the adequacy of the defense it provided Maronda”.
More specifically, Progressive wanted to know about “the ‘existence or non existence [sic] of communications that took place about the defense and claims for which Maronda Homes is now critical of Progressive.’” The Court’s response to this reason was short and to the point: “The Court will not speculate about what this is supposed to mean.” Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 n.1 (M.D. Fla. April 8, 2015).
Whatever Progressive hoped to accomplish by taking Mr. Gagat’s deposition may be unknown, “but that is not a reason to preclude Progressive from taking the deposition.” The Court granted Progressive’s motion to compel Mr. Gagat’s deposition. “Progressive may depose Gagat.” Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *4 (M.D. Fla. April 8, 2015).
Maronda opposed Progressive’s motion on several grounds, one of which was that in setting Mr. Gagat for deposition, Progressive was actually trying to set an impermissible “apex deposition”. The Court in this case helpfully explained, for the benefit of those who, like me, had not heard the term before, that an apex deposition means “the deposition of a high ranking executive or principal in an organization.” Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *2 (M.D. Fla. April 8, 2015). The Court further explained how to support an “apex deposition” objection or, perhaps more accurately, how not to support it, because Maronda did not establish where Mr. Gagat fit within the corporation’s hierarchy, “and without this information, it is impossible to say whether Gagat is sufficiently senior in the company to be considered an apex witness.” Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *3 (M.D. Fla. April 8, 2015). It should be noted that not every “apex deposition” would be impermissible in all cases, because as the Court in this case pointed out, even if Maronda had established that Mr. Gagat was “apex,” under the circumstances of this peculiar case Mr. Gagat’s deposition would still be allowed. Maronda Homes, Inc. v. Progressive Exp. Ins. Co., No. 6:14-cv-1287-Orl-31TBS, 2015 WL 1565299, *3 (M.D. Fla. April 8, 2015).
There you have it. A deposition of an officer of a large corporate policyholder suing for defense expenses was allowed to proceed even though it was at best unclear what if anything the officer could possibly say about “the adequacy of the defense” it was provided by its liability insurance carrier. And an “apex deposition” objection is not enough, by itself, to stop a deposition from happening. So says the Court in this Federal case in Florida.
DJA as Statutory Bad Faith by Another Name.
In the case of Mobley v. Capitol Specialty Ins. Corp., 2013 WL 3794058 (S.D. Fla. July 19, 2013), the U.S. District Court implicitly accepted jurisdiction over a Florida statutory bad faith action which was pled as a declaratory judgment action against a liability carrier.
This may be the most repeated feature of the District Court's decision in this case, as it may be the most frequently cited proposition for which it stands in the eyes of other Courts (although a silent opinion, since the Court did not express an opinion about jurisdiction, the Court instead just simply exercised it).
Please Read The Disclaimer. Copyright © 2013 Dennis J. Wall. No claim to original U.S. Government works.
Catholic Inaction Unexcused And Settlement Without Coverage, No Bad Faith.
A Catholic "priest, youth leader, and counselor" was the cause of a lawsuit for alleged sexual molestation which was filed against the Catholic Diocese of Savannah in South Carolina State Court. The Diocese settled this underlying case before verdict. It claimed insurance coverage under policies it purchased from Commercial Union Insurance Company. Onebeacon America Insurance Co., as successor to Commercial Union v. Catholic Diocese of Savannah, 2011 WL 3878337 *1 (S.D. Ga. September 2, 2011)(authorized password required to access Westlaw).
Commercial Union/OneBeacon filed suit over coverage before the Diocese did. It requested a declaration of no insurance coverage. The Diocese counterclaimed for alleged Bad Faith, in pertinent part, under OCGA § 33-4-6.
As interpreted by a Federal Judge in this case in the Southern District of Georgia, "[u]nder that statute, if an insurer refuses in bad faith to pay a loss within an allotted time after demand has been made by the insured, the insurer becomes potentially liable for the loss, an additional percentage as a penalty, and attorney's fees." Id. at *8.
In this third-party Bad Faith case, there was no underlying verdict, and for that reason alone the Georgia Statute did not apply under the holding of this Federal Court. Id.
Moreover, Georgia law allows for a complete defense to Insurance Bad Faith where "'there is [sic] any reasonable grounds for an insurer to contest the claim'". Id. at *9. The U.S. District Judge concluded that that rule applied here. For reasons discussed below, Commercial Union had no liability for insurance coverage in the underlying case.
Further, there was no prejudice to the Insured from a 'delayed Declaratory Judgment Action'. Id. at *3. But even if the Insured in this case had been the victim of such prejudice, there still would have been no insurance coverage as a result of the prejudice and there was no waiver of the Insurance Company's defenses to coverage even if -- for the sake of argument, said the Federal Court in this case -- it had breached its duty to defend the Insured in the underlying liability case. Id. at *5.
Finally, the notice provisions in the policy at bar which established timely notice as a condition precedent to a valid claim to coverage, were violated as a matter of law in this case. Id. at *6. Delayed notice of 21 months was a greater period than any delay previously found unreasonable as a matter of Georgia law in any case. Id. at *7. The delay of 21 months to provide notice simply could not be excused by the Federal Court.
The 22nd Annual Bad Faith Litigation Conference of the American Conference Institute is being held in 2011 in Orlando, Florida. The author will be speaking including about recent cases involving issues surrounding Insurance Coverage Declaratory Judgment Actions. Here is a link to the American Conference Institute Website Page which features this Conference including registration, if you or someone you know would like to attend.
The link to the Georgia Statute was provided through www.georgiainsurancedefenselawyer.com.
Rooker-Feldman Doctrine: It's a "Doctrine". So Attention Must be Paid.
The Rooker-Feldman Doctrine was addressed in a case posted here on July 19, 2011, "Foreclosure Lawsuits Problems Attempt Overwhelming Courts: No. 2, With Solutions". In basic and simple terms, the "Doctrine" is a short-hand reference to the simple concept that there is only one Federal Court in which appellate review is possible of Judgments issued by State Courts, and that one Court is the United States Supreme Court.
In an interesting twist of this simple concept, some Courts are acknowledging its existence as a "Doctrine" even in cases in which it has no place.
Instead, calling the concept a "Doctrine" assumes that this simple concept has something like a life of its own. In his decision in the case of Download Tri-State Truck Insurance, Ltd. v. First Nat'l Bank of Wamego (D. Kan. Case No. 09.4158, Memorandum and Order Filed August 3, 2011) PUBLIC ACCESS, also published as 2011 WL 3349153 (D. Kan. August 3, 2011)(authorized password required to access Westlaw), a Senior District Judge raised the Rooker-Feldman Doctrine on his own when the parties did not raise it. The Federal Judge determined that the Doctrine did not apply in that case because the "Doctrine" does not apply to nonparties. Tri-State Truck Insurance, Ltd. v. First National Bank of Wamego, 2011 WL 3349153 at *5 & n.9.
Sometimes giving a simple concept a name like "Doctrine" almost infuses it with an imperative to pay attention to it even when the concept clearly has no place in the case at hand. Parenthetically, the decision in that case involved competing Motions for Summary Judgment, one by the Plaintiffs in particular for a Declaratory Judgment and another by the Bank on its Claim for Breach of Contract. The Plaintiffs' Motion was granted, and the Court directed the Clerk to enter a specified Declaratory Judgment including that the Plaintiffs did not breach their contractual obligations at issue in the case. The Federal Court denied the Bank's Motion.
All without dismissing a Federal Case based only on the fact that it involved previously entered State Court Judgments.
When Filing a DJA does NOT Suspend Good Faith Duties.
Filing a Declaratory Judgment Action -- even successfully obtaining a favorable Declaratory Judgment in the Trial Court -- in many jurisdictions effectively is or can be a shield of immunity against Bad Faith Claims. See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:5 (West Publishing Co., Third Edition scheduled for publication in July, 2011). Further, obtaining a favorable Declaration, even if it is later overruled or reversed on appeal, can in some jurisdictions give rise to a Defense of Fairly Debatable Coverage as a matter of law. See generally Wall, id., §§ 5:16, 5:51, 11:17.
Not so in Arizona. The Arizona Court of Appeals has held that "under the circumstances presented, an insurer that seeks a judicial interpretation of a disputed policy term may not ignore its claim-handling responsibilities while the declaratory judgment action proceeds." In such a case, filing a Declaratory Judgment Action does not suspend Duties of Good Faith and Fair Dealing. Download Lennar Corp. v. Transamerica Insurance Co. (Ariz. Ct. App., Div. 1, Dept B, Case No. 1 CA.CV 10.0141, Opinion Filed July 5, 2011) PUBLIC ACCESS, also published as 2011 WL 2673156 *1 ¶1 (Ariz. Ct. App., Div. 1, Dep't B, July 5, 2011)(authorized password required to access Westlaw).
"'It makes no sense that an insurer who asserts a coverage issue that, for any reason, withstands summary judgment, but ultimately fails, would be excused from all the good faith obligations imposed on the insurer who admits coverage.'" Robinson v. State Farm Fire & Casualty Co., 583 So. 2d 1063, 1066 (Fla. 5th DCA 1991), quoted in Lennar Corp. v. Transamerica Insurance Co., 2011 WL 2673156 at *4, ¶ 17. As the heading written by the Arizona Court of Appeals declared preceding this quotation: "An Erroneous Grant of Summary Judgment Does Not Conclusively Establish That Coverage Is Fairly Debatable". Id. at *3 - *4, ¶¶ 14 - 17.
The law of Insurer Good Faith may or may not be similar in neighboring jurisdictions. See, for example, "Kansas Still Recognizes Robust Bad-Faith Law, a Thing of the Past in Texas" posted on April 20, 2010 on "Law and Insurance / An Eye on What's Developing in Insurance Law and Practice" Blog.
Louisiana Federal Court Applies Florida Law, Determines Refusal to Defend.
In the Multidistrict Litigation case of In re FEMA TRAILER FORMALDEHYDE PRODUCTS LIABILITY LITIGATION, 2011 WL 381616 (E.D. La. January 25, 2011)(authorized password required to access Westlaw), a Federal Court in Louisiana was confronted with a Declaratory Judgment Action or DJA. On the surface, the action would determine whether Northfield Insurance Company had a duty to defend its Policyholder, North American Catastrophe Services, Inc. ("NACS"), in an underlying lawsuit filed after Hurricanes Katrina and Rita passed through Louisiana in 2005.
NACS was a broker "between FEMA and modular-home manufacturers in acquiring emergency housing units". The units allegedly were loaded with formaldehyde fumes. NACS was sued as a result. Northfield had previously issued a Commercial General Liability Insurance Policy to NACS. NACS demanded a defense from Northfield. Northfield refused to defend NACS in the underlying litigation. Id. at *1.
As noted, Northfield had already denied any duty to defend NACS. Although NACS's DJA was about the Northfield CGL Policy language, an affirmative determination of Northfield's duty to defend would also determine that its refusal to defend was wrongful and thus generally subject Northfield to the potential risk of so-called "bad faith" or extracontractual damages. See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" §§ 3:46-3:59 (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement, Third Edition scheduled for publication in June, 2011).
The underlying Plaintiffs alleged injuries that "were caused by formaldehyde fumes". Id. at *6. Under Louisiana's choice-of-law rules, Florida law would apply to the Insurance Coverage issue in this case, the Louisiana Federal Court held. Id. at *9.
Based on Louisiana's choice of law provisions and prior jurisprudence, Florida law should be applied to the insurance contract at issue. Under Florida law, it seems clear that the total pollution exclusion unambiguously excludes coverage for these claims. See Deni Associates, 711 So. 2d 1135, 1138 (Fla. 1998)(finding the total pollution exclusion to be clear and unambiguous). Thus, because Plaintiffs['] alleged injuries were caused by formaldehyde fumes, the Northfield policy does not apply, based on the Total Pollution exclusion located therein. The exclusion should be enforced as written and coverage is precluded.
Accordingly, the Federal Court in this case denied NACS's Motion for Partial Summary Judgment on the Duty to Defend, and granted Northfield's Motion for Summary Judgment. Id. at *9-*10.
This lawsuit is not the only effort to resolve formaldehyde issues in FEMA Trailers left in Louisiana. See also "Push is on to Rid Louisiana of FEMA Trailers" (Claims Journal Online, March 14, 2011).
... Will It Now Eliminate Also a Pending Claim Under the North Carolina Unfair and Deceptive Trade Practices Act, and a Pending Claim for Bad Faith?
In ISS Research, LLC v. Federal Insurance Co., Download ISS Research, LLC v. Federal Insurance Co. (W.D.N.C. Case No. 3.10.CV.41, Order Filed November 18, 2010) PUBLIC ACCESS, also published as 2010 WL 4791891 (W.D.N.C. November 18, 2010)(authorized password required to access Westlaw), a Plaintiff Corporation alleged various Claims concerning a Commercial General Liability Insurance Policy and a Commercial Excess and Umbrella Insurance Policy issued to it by the Defendant. The Policyholder-Plaintiff sought a Declaratory Judgment of Breach of Contract for alleged Wrongful Failure to Defend or Indemnify. It also alleged "claims under the North Carolina Unfair and Deceptive Trade Practices Act and for Bad Faith." ISS Research, LLC v. Federal Insurance Co., 2010 WL 4791893 at *1. Both parties filed Motions for Summary Judgment based on the Plaintiff's request for a Declaratory Judgment. Id.
The Federal Court applied a test used by the North Carolina State Courts to determine whether a Liability Insurance Company has a Duty to Defend, known as "a 'comparison test'." "Applying this test, a Court compares the allegations of the Complaint with the provisions of the insurance policy to determine whether the facts as alleged are covered or excluded." Id. at *2. Parenthetically, other jurisdictions employ the same test but some call it "a four corners test" or an "eight corners test". See generally Dennis J. Wall, "Litigation and Prevention of Insurer Bad Faith" § 3:48 (Shepard's/McGraw-Hill Second Edition; West Publishing Company 2010 Supplement).
Applying North Carolina's comparison test in this case, the Federal Court determined that there was no Duty to Defend or Indemnify concerning the Underlying Case, and granted Federal Insurance Company's Motion for Summary Judgment. See id. at *2-*5.
The Claims for alleged violations of the North Carolina Unfair and Deceptive Trade Practices Act, and for Bad Faith, remain pending in that case at this time. In some jurisdictions, Coverage is not required in order to state a claim upon which relief can be granted, or in order to state a cause of action, either for alleged Bad Faith or for an alleged violation of an Unfair and Deceptive Practices Act. See generally Dennis J. Wall, supra, § 3:100, and some Courts are following the same rule in First-Party Cases as well. Id., § 9:25.
Dennis Wall has handled many Insurance Coverage and Bad Faith Cases and Catastrophe Claims. The author of this post, his next speaking engagement is on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010. The author has also been advised by the American Conference Institute that the ACI is continuing to offer its discount to readers of this Blog: Download ACI Advises Readers of the Insurance Claims and Issues and Insurance Claims and Bad Faith Law Blog are entitled to a discount.
Expert Witnesses Allowed, Barred in Insurance DJ Over "Catastrophic Failure".
The City of Chicago filed a Federal Declaratory Judgment Action against Westchester Insurance Company claiming Coverage for a "catastrophic failure" of an uninterruptible power supply ("UPS") which allegedly caused the City's entire 911 system to fail, in City of Chicago v. Westchester Fire Insurance Co., Download City of Chicago v. Westchester Fire Insurance Co. (N.D. Ill. Case No. 08C5535, Opinion and Order Filed September 1, 2010) PUBLIC ACCESS also published as 2010 WL 3516066 (N.D. Ill. September 1, 2010)(Westlaw subscription required to access Westlaw).
In an illuminating Opinion that prefigures the same or similar Expert Witness issues in Insurance Cases yet to come involving Catastrophic Claims, the Federal Court denied Westchester Fire's motion to bar the Expert Witness Testimony of two witnesses as based on an incorrect methodology and as "speculative". The Court held with respect to both Experts that their methodology was acceptable under Federal Expert Witness standards, and that their Reported Testimony and Opinions were not "speculative". City of Chicago v. Westchester Fire Insurance Co., 2010 WL 3516066 at *7-*8. One of these two Experts noted in his Report that the UPS system experienced a "catastrophic failure". Id. at *7. The Court noted in particular that this Declaratory Judgment Action will proceed to a Bench Trial. Id. at *7.
The City of Chicago also filed a Motion to Disqualify an Expert Witness in that case. The City's Motion was granted in part as to Westchester Fire's Expert's proferred Opinions "related to the replacement of the UPS" because the Expert in question was simply not qualified "to testify about the City's decisionmaking process" regarding replacement of the UPS. Id. at *6. On the other hand, the City's Motion to Disqualify was denied regarding the proferred Testimony of this same Expert "as to his opinion that the City's temporary power system was a disproportionate response to the incident." Id.
These and similar issues as to the reception or rejection of various Expert Witness Opinion Testimony will arise again, in Insurance Cases pending and yet to be filed as a result of many Catastrophe Claims resulting from the Gulf Oil Explosion Disaster, and from other Catastrophes as well.
The Insurance Questions including Business Interruption Coverage Issues have largely been experienced before, and they have in general terms been addressed by many Courts, in many decided Cases. Dennis Wall is Co-Author of the leading book on Insurance Coverage for Catastrophe Claims, "CATClaims: Insurance Coverage for Natural and Man-Made Disasters" (West Publishing Company 2008; 2010 Supplement in process). Mr. Wall will be a featured speaker on several panels which will address the BP Oil Spill Catastrophe. On September 15, 2010, he will be a featured speaker on a panel addressing "BP Oil Spill Damages Claims: The Coverage Predicates" at the September 15, 2010 Seminar of the Insurance Law Committee sponsored by the Orange County Bar Association in Orlando, Florida. Mr. Wall will speak on a panel at the American Conference Institute's Bad Faith Litigation Conference in Orlando, Florida on November 30, 2010 on "Dealing With Catastrophic Disasters: How to Properly Investigate and Handle Overwhelming Claims". The American Conference Institute is offering a discount to readers of this Blog: Download ACI Advises Readers of the Insurance Claims and Issues and Insurance Claims and Bad Faith Law Blog are entitled to a discount.
No Federal Declaratory Judgment to Indemnify Pending State Court Lawsuit.
In Colony Insurance Co. v. Nicholson, Download Colony Insurance Co. v. Nicholson (S.D. Fla. Case No. 10.60042.CIV, Order Filed July 19, 2010)FREE ACCESS also published as 2010 WL 2844802 (S.D. Fla. July 19, 2010)(Westlaw subscription required to access Westlaw), the Federal Court issued an Order reflecting holdings that were entirely predictable under Federal and Florida Law. The Nicholson Case was filed in Federal Court by Colony Insurance Company. Colony requested a Declaratory Judgment of no Duty to Defend and no Duty to Indemnify its Insureds (who were two of the Defendants in its Federal Court Action, along with the Plaintiff in the underlying case) in a pending State Court Lawsuit.
First, the Federal Court held in this Declaratory Judgment Action that there is a Duty to Defend the Insured in the pending State Court Case. Nicholson, 2010 WL 2844802 at *3.
Then, for the reason that the State Court Lawsuit is pending, the Federal Court refused to issue a Declaratory Judgment on the other issue presented to it, which was whether there is a Duty to Indemnify for any settlement or Judgment in the State Court Case. Declaratory Relief on that issue would certainly be premature. Since Florida Law always determines a Liability Insurer's Duty to Indemnify based on the actual facts rather than on merely the allegations which determine a Duty to Defend, the Federal Court held that the DJA was not ripe for Declaratory Relief on that issue. Id. at *3.
Accordingly, the Federal Judge granted the Defendants' Motion for Summary Judgment (which was originally filed as a Motion for Judgment on the Pleadings and was "converted" by the Federal Court into a Motion for Summary Judgment).
Title Insurer Faces Bad Faith Claims, Remand From Federal Court.
In Stewart Title Co. v. Investors Funding Corp., Download Stewart Title Co. v. Investors Funding Corp. (D. Haw. Case No. 09.00455, Opinion Filed May 11, 2010), also published as 2010 WL 1904981 (D. Hawaii Case No. 09-00455, Opinion Filed May 10, 2010) (Westlaw subscription required to access Westlaw), a tangled procedural history became easy to understand when a Federal District Judge remanded a title Insurance Company's Dec action to State Court.
Investors Funding Corporation ("IFC") claimed that Stewart Title had issued a Title Insurance Policy that was intended to insure two properties, one located on Middle Street and the other located on School Street. Persons named Chang filed a Foreclosure Lawsuit in Hawaii State Court on the Middle Street property. The Foreclosure Lawsuit was removed to Bankruptcy Court when one of the Defendants filed for Bankruptcy.
IFC demanded a defense and indemnity from Stewart Title. Stewart refused, contending that the Title Insurance Policy listed only the School Street property and not the Middle Street property that was the subject of the Foreclosure-removed-to-Bankruptcy-Court action.
IFC filed a third-party complaint against Stewart Title in the Bankruptcy proceeding. "IFC asserts claims against Stewart Title sounding in negligence, gross negligence, breach of contract, and bad faith. IFC [also] seeks reformation of the policy to include the Middle Street property ...." Id. at *2. [Emphasis added.] The Bankruptcy proceeding was settled, at least in part, coupled with remand to Hawaii State Court of IFC's Bad Faith Action against Stewart Title.
Stewart Title responded to IFC's Bad Faith Action by filing a Declaratory Judgment Action in Federal Court. Stewart Title asked for a declaration that, among other things, the subject Title Insurance Policy did not cover the Middle Street property, and that Stewart Title had acted in Good Faith. Id. at *3. The Federal Judge granted IFC's motion to dismiss based on abstention principles.
1. Whether the Federal Action "Involves Needless Determination of State Law Issues."
3. Whether the Federal Action is "Duplicative" of the pending State Court Action.
4. Whether "The Case Would Resolve Only Part of the Controversy."
6. Whether the Federal Action "Creates the Possibility of Entanglement."
Id. at *5-*7. In the IFC case, as noted, the Federal Court determined that these factors weighed in favor of dismissing Stewart Title Insurance Company's Federal Declaratory Relief Action in favor of IFC's previously filed Bad Faith Action pending in State Court.
Federal DJA Abstention, No Bad Faith Attorney's Fees.
In a recent Federal Court decision, the Judge was faced with a Complaint in two Counts: First, alleged breach of contract based on a claim that Policyholder(s) breached an Insurance Policy's "cooperation clause," and second, for Declaratory Judgment. The Complaint was filed by an Insurance Company against its Policyholders under a Commercial General Liability Policy and the Injured Claimant who sued them.
The Defendants argued for abstention and for "Bad-Faith" attorney's fees under a Federal Statute, in pertinent part.
First, the Federal Judge ruled on the breach of contract claim based on what the Federal Court viewed as settled Texas State Insurance Law that a breach of the cooperation clause does not provide the basis for a cause of action or a claim of breach of contract. Download Evanston Insurance Co. v. Tonmar, L.P. (N.D. Tex. Opinion Filed November 5, 2009), attached Official Slipsheet Opinion at 12.
Download Evanston Insurance Co. v. Tonmar, L.P. (N.D. Tex. Opinion Filed November 5, 2009), at 14.
Finally, the Federal Judge denied the request for "vexatious" and "unreasonable," i.e., "Bad Faith" Attorney's Fees, based upon the Court's holding of an insufficient showing. Download Evanston Insurance Co. v. Tonmar, L.P. (N.D. Tex. Opinion Filed November 5, 2009), at 19-20.

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