St. Paul Fire and Marine Insurance Company v. Town of Gurley, Alabama et al

Filing 31

MEMORANDUM OPINION AND ORDER that this court holds that the issue of whether St.Paul has a duty to defend the Town is ripe for adjudication, while the issue of whether St. Paul has a duty to indemnify the Town is not; thus, as to the duty to defend, the MOTION by M&N to dismiss the case is DENIED; MOTION by M&N to stay the case is DENIED; and the JOINT MOTION of the Town and Simpson to stay the case is DENIED; as to the duty to indemnify, M&Ns MOTION to stay the resolution of that question is GRANTED, the alternative MOTION by M&N to dismiss the case is DENIED AS MOOT, and JOINT MOTION of the Town andSimpson to stay is GRANTED; as more fully set out in order. Signed by Judge C Lynwood Smith, Jr on 8/22/2012. (AHI)

FILED
2012 Aug-22 PM 01:17
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
NORTHEASTERN DIVISION
ST. PAUL FIRE AND MARINE
INSURANCE CO.,
Plaintiff,
vs.
TOWN OF GURLEY,
ALABAMA, STAN SIMPSON,
and M&N MATERIALS, INC.,
Defendants.

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Civil Action No. CV-11-S-4356-NE

MEMORANDUM OPINION AND ORDER
Plaintiff, St. Paul Fire and Marine Insurance Company (“St. Paul”), is seeking
a declaratory judgment that it has no contractual duty under two insurance policies
that it issued to the Town of Gurley, Alabama (the “Town”) to defend or indemnify
the Town in connection with the issues raised in the state court action styled M&N
Materials, Inc. v. Town of Gurley, Alabama, et al., which was commenced in the
Circuit Court of Madison County, Alabama as Civil Action No. CV-2005-000731, and
which is currently pending before the Supreme Court of Alabama.
Defendant M&N Materials, Inc. (“M&N”) has filed a motion to dismiss this
action for failure to state a claim under Fed. R. Civ. P. 12(b)(6), arguing that the issues
are not ripe for adjudication. Alternatively, M&N asks this court to stay all

proceedings pending resolution of the appeal before the Alabama Supreme Court.
Likewise, the Town and defendant Stan Simpson (“Simpson”) have filed a joint
motion to stay all proceedings pending resolution of the appeal.
For the reasons discussed below, this court holds that the issue of whether St.
Paul has a duty to defend the Town is ripe for adjudication, while the issue of whether
St. Paul has a duty to indemnify the Town is not. Thus, as to the duty to defend, this
court will: (1) deny the motion by M&N to dismiss the case; (2) deny the alternative
motion by M&N to stay the case; and (3) deny the joint motion of the Town and
Simpson to stay the case. As to the duty to indemnify, this court will: (1) grant
M&N’s motion to stay the resolution of that question; (2) deny as moot the alternative
motion by M&N to dismiss the case; and (3) grant the joint motion of the Town and
Simpson to stay.
I. FACTUAL BACKGROUND
A.

Town Insurance Policies
St. Paul issued the Town two “public entity composite”1 insurance policies in

2003, both of which contained a “Public Entity General Liability Protection”
component and a “Public Entity Management Liability Protection” component.2 The

1

See doc. no. 1 (Complaint), at 5.

2

See doc. nos. 1-6 - 1-13 (2003 Policy); doc. nos. 1-14 - 1-20 (2004 Policy).

2

first policy bore policy number GP09311290 and provided coverage from October 14,
2003 to the same date in 2004,3 and the second policy bore policy number
GP09312976 and provided coverage from October 14, 2004 to the same date in 2005.4
B.

Underlying State Litigation
1.

Original Complaint

On April 14, 2005, M&N filed an inverse condemnation claim in the case styled
M&N Materials, Inc. v. Town of Gurley, Alabama, et al., Civil Action No. CV-2005000731, in the Circuit Court of Madison County, Alabama.5 The complaint alleged
that M&N purchased a parcel of real property in Madison County, Alabama for
purposes of operating a limestone quarry,6 and obtained all necessary state and federal
regulatory approvals for the operation of a quarry on the property.7
The Town then enacted an ordinance annexing the property into its municipal
limits,8 refused to approve a business license for operating the quarry,9 and imposed
a moratorium on issuing business licenses to annexed Town property.10 Accordingly,

3

See doc. no. 1-7 (2003 Policy, Part 2), at 14.

4

See doc. no. 1-14 (2004 Policy, Part 1), at 35.

5

See doc. no. 1-1 (State Court Complaint).

6

Id. at 1.

7

Id.

8

Id. at 2.
Id.
10
Id.
9

3

M&N asserted an inverse condemnation claim and alleged that the actions of the
Town constituted a taking without just compensation in violation of the Fifth
Amendment to the United States Constitution and Alabama Code § 18-1A-1 et seq.11
2.

Amended Complaint

On October 30, 2005, M&N filed an amended complaint adding four
defendants: Stan Simpson (“Simpson”), the Mayor of the Town of Gurley; as well as
Vulcan Materials Company, Vulcan Construction Materials, L.P., and Vulcan Lands,
Inc (collectively, the “Vulcan defendants”).12

M&N alleged that the Vulcan

defendants owned an interest in the quarry property, and that they were added as
defendants “pursuant to Ala. Code § 6-6-227 (1975)[,] which requires that all persons
be made parties to actions brought pursuant to Ala. Code § 6-6-222 et seq.”13
The amended complaint incorporated all of the allegations of the original
complaint,14 but added claims against the Town and Simpson for wrongful
interference with contractual or business relations; negligence and wantonness;
negligent or wanton hiring, retention, and supervision; a declaratory judgment; and
an injunction.15 St. Paul provided a defense to the Town and Simpson in that action,
11

Doc. no. 1-1 (State Court Complaint), at 4.

12

See doc. no. 1-2 (Amended State Court Complaint), at 1.

13

See id. at 2 (alteration supplied).

14

See id. at 1.

15

See id. at 2-8.

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subject to full reservation of rights under the policies.16
3.

Jury Trial, Judgment, and Appeal

A jury heard the inverse condemnation claim against the Town and the
wrongful interference claim against Simpson in February of 2011,17 and found in favor
of M&N on the inverse condemnation claim against the Town. Damages were
assessed against the Town in the amount of $2,750,000 plus interest.18 The circuit
court entered a judgment in favor of M&N in accordance with the jury’s verdict, and
ordered the Town to pay damages in the amount of $2,750,000, interest in the amount
of $966,493.15, and litigation expenses in the amount of $1,200,169.20.19
The Town filed an appeal to the Alabama Supreme Court,20 and M&N cross16

See doc. no. 1-3 (Reservation of Rights Letters from St. Paul to the Town of Gurley).

17

See doc. no. 1-5 (Madison County Circuit Court Amended Judgment), at 3.

18

See doc. no. 1 (Complaint) ¶ 19; doc. no. 11 (Answer) ¶ 18. The jury also returned a
verdict in favor of Simpson on the wrongful interference claim. See Complaint ¶ 20; Answer ¶ 18.
19

See doc. no. 1-5 (Madison County Circuit Court Amended Judgment), at 3. The court also
entered judgment in favor of Simpson with respect to the wrongful interference claim, and dismissed
without prejudice all declaratory relief claims asserted by M&N. See id.
20

See doc. no. 12, Ex. A (Notice of Appeal). The Town appealed the following issues:

(1) Whether an inverse condemnation claim be based on a “regulatory taking”
under § 235 of the Alabama Constitution of 1901, and whether plaintiff met the
elements that would be required even if such a cause of action existed — e.g.,
whether pre-sale events constituted a taking, whether damages were established, and
whether other standards were met.
(2) Whether plaintiff is the real party in interest in this case under Ala. R.
Civ. P. 17.
(3) Whether defendant is entitled to a new trial given inconsistent jury

5

appealed.21 St. Paul elected not to appeal the judgment,22 and opted to continue to pay
the Town’s attorney’s fees, but again subject to full reservation of rights under the
policies.23 St. Paul argues in this case that “no coverage exists for the claims or
damages asserted by M&N or the judgment entered against Gurley . . . ,”24 and that
it owes no obligation to defend the Town.25
charges and the improper admission of testimony.
(4) Whether plaintiff is entitled to attorney’s fees, and whether the trial
court’s fee award is excessive.
Id. at 14.
21

See doc. no. 12, Ex. B (Notice of Cross-Appeal). M&N Materials cross-appealed on the
following issues:
1. Dismissal of plaintiff’s claims of negligence and wantonness and negligent
and wanton hiring, training, supervision.
2. The trial court’s limitation of the claim of wrongful interference to the
denial of the Vulcan business license.
3. The trial court’s dismissal of plaintiff’s claim arising out of a violation of
Art. I, § 23 of the Alabama Constitution.
4. The trial court’s jury charges including re: “taking” in inverse condemn,
and the affirmative defense of justification.
5. The trial court’s rulings on motions in limine, including allowing evidence
of alleged impact quarry on health without expert testimony and excluding relevant
evidence regarding a defendant’s background.
Id. at 20.
22

See doc. no. 1-21 (St. Paul Correspondence Concerning Appeal).

23

Id.

24

See doc. no. 1 (Complaint) ¶ 45; see also id. at ¶ 54 (same).

25

See id. ¶¶ 49, 58.

6

II. DISCUSSION
The question of whether St. Paul is entitled to receive a declaratory judgment
defining its duty to defend or indemnify the Town is governed by the Declaratory
Judgment Act, which states that a court “may declare the rights and other legal
relations of any interested party seeking this declaration.” 28 U.S.C. § 2201. “Except
for one early decision to the contrary, all courts that have considered the issue
expressly in the context of insurance coverage disputes have held that the propriety of
disputes for declaratory relief in federal court is an issue of federal law.” Alan M.
Posner, Prematurity of Declaratory Judgment Actions: Does State or Federal Law
Apply?, 25 The Brief 15, 18 (1995).
Indeed, the Eleventh Circuit has repeatedly decided an insurer’s duty to defend
or indemnify its insured under the Declaratory Judgment Act as governed by the
relevant federal law. Specifically, the Eleventh Circuit held that an invocation of the
Declaratory Judgment Act is “neither precluded nor controlled” by state procedural
law. Cincinnati Ins. Co. v. Holbrook, 867 F.2d 1330, 1332 (11th Cir. 1989). Several
years later, this Circuit reaffirmed Holbrook and held that “‘the federal court has
jurisdiction to entertain a declaratory judgment petition in the circumstances of this
case whether or not authorized by the procedures of the state.’” Allstate Ins. Co. v.
Prasad, 991 F.2d 669, 671 (11th Cir. 1993); see also Posner, supra, at 18.
7

A.

“Actual Controversy” Requirement
Article III, Section 2 of the United States Constitution limits the judicial power

of federal courts to “cases or controversies,” a limitation that courts have interpreted
to include a requirement that suits be “ripe” for adjudication. Because a suit that lacks
ripeness is not justiciable, the absence of ripeness precludes the federal courts from
exercising jurisdiction. 16 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d
§ 227:21 (1997).
As a result, the question of whether St. Paul is entitled to declaratory relief raises
the question of whether there is an “actual controversy” within the meaning of the
Declaratory Judgment Act. See Maryland Casualty Co. v. Pacific Coal & Oil Co., 312
U.S. 270, 272 (1941). When assessing the “actual controversy” requirement in
complaints that invoke the Declaratory Judgment Act,
the question in each case is whether the facts alleged, under all the
circumstances, show that there is a substantial controversy, between
parties having adverse legal interests, of sufficient immediacy and reality
to warrant the issuance of a declaratory judgment. See Aetna Life Ins.
Co. v. Haworth, 300 U.S. 227, 239-242. It is immaterial that frequently,
in the declaratory judgment suit, the positions of the parties in the
conventional suit are reversed; the inquiry is the same in either case.
Nashville, C. & St. L. Ry. Co. v. Wallace, [288 U.S. 249,] 261 [(U.S.
1933)].
Id. at 273 (alterations supplied).
In weighing the issue of whether a declaratory judgment involving a third-party
8

insurer satisfies the “actual controversy” requirement, it is important to understand the
difference between a claim that concerns the duty to defend and a claim that concerns
the duty to indemnify: i.e., the duty of an insurer to pay a judgment against its insured.
16 Couch on Insurance 3d § 227:21 (footnotes omitted). In essence:
The duty to defend is based on the potential that the trial of the
underlying suit against the insured may develop facts showing that the
occurrence is within the coverage; the duty to pay the judgment or
reasonable settlement is based on facts having been established which
show the occurrence to actually have been within the coverage.
Id. (emphasis supplied).
Under this rule, “[a]n insurer’s duty to indemnify under a policy is not as
extensive as its duty to defend.” State Farm & Cas. Co. v. Myrick, 611 F. Supp. 2d
1287, 1291 (M.D. Ala. 2009) (citing Hartford Cas. Ins. Co. v. Merchants & Farmers
Bank, 928 So. 2d 1006, 1009 (Ala. 2005) (per curiam)) (alteration supplied). Thus,
“the duties must be analyzed separately.” Myrick, 611 F. Supp. 2d at 1291(citing
Tanner v. State Farm Fire & Cas. Co., 874 So. 2d 1058, 1066 (Ala. 2003)).
Because St. Paul is seeking a declaratory judgment that the two policies it
issued to the Town do not create a duty to defend or indemnify the Town in the
underlying state lawsuit,26 the following discussion will consider each duty separately.
B.

Duty to Defend
26

See doc. no. 1 (Complaint).

9

“The duty to defend is . . . broader than the duty to pay, arises well before any
duty to pay is conclusively established, and may well exist in a case in which the
insurer is ultimately deemed not to be liable on the policy.” 16 Lee R. Russ & Thomas
F. Segalla, Couch on Insurance 3d § 227:27 (1997) (footnotes omitted). “Accordingly,
whether an insurer has a duty to defend a suit against its insured is generally
considered a controversy ripe for declaratory relief, even when the issue of the
insurer’s actual liability in the underlying suit may not be considered until after a
resolution of that suit.” Id. § 227:29.
“An insurance company’s duty to defend its insured from suit is determined by
the language of the insurance policy and by the allegations in the complaint filed
against the insured.” Allstate Indem. Co. v. Lewis, 985 F. Supp. 1341, 1344 (M.D. Ala.
1997) (citing ALFA Mut. Ins. Co. v. Morrison, 613 So. 2d 381, 382 (Ala. 1993);
Ladner & Co. v. Southern Guaranty Ins. Co., 347 So. 2d 100, 102 (Ala. 1977)). This
is because:
“As long as the complaint comprehends an injury which may be within
the scope of the policy, the company must defend the insured until the
insurer can confine the claim to a recovery that the policy does not
cover.” United Services [Auto. Asso. v. Elitzky], 517 A.2d [982,] 985
[(Pa. Super. Ct. 1986)]; see also Terra Nova Ins. Co. v. 900 Bar, Inc., 887
F.2d 1213, 1226 (3d Cir. 1989) (applying Pennsylvania law); [Pacific
Indem. Co. v.] Linn, 766 F.2d [754,] 760 [(3d Cir. 1985)]; Erie Ins. Exch.
v. Transamerica Ins. Co., 533 A.2d 1363, 1368 (1987); [Aetna Casualty
& Sur. Co. v.] Roe, 650 A.2d [94,] 99 [(Pa. Super. Ct. 1994)]; Heffernan
10

& Co. [v. Hartford Ins. Co.], 614 A.2d [295,] 297-98 [(Pa. Super. Ct.
1992)]. Any doubts on this score are to be resolved in favor of the
insured. Antrim Mining, Inc. v. Pennsylvania Ins. Guar. Ass’n, 648 A.2d
532, 535 (Pa. Super. 1994) (quoting O’Brien Energy Sys., Inc. v.
American Employers’ Ins. Co., 629 A.2d 957, 960 (Pa. Super. 1993)).
Thus, a court ordinarily will have no reason to immerse itself in the facts
surrounding the incident in question; it need only look to the allegations
made against the insured and decide whether, if proven, those allegations
would establish an injury that the policy would cover.
Nationwide Ins. v. Zavalis, 52 F.3d 689, 694 (7th Cir. 1995) (alterations supplied).
Indeed, the federal courts in Alabama have repeatedly resolved the issue of an
insurer’s duty to defend based upon the pleadings prior to resolution of the underlying
lawsuit. See Lewis, 985 F. Supp. at 1344-49 (granting request for judgment on
pleadings); Guaranty National Insurance Co. v. Beeline Stores, Inc., 945 F. Supp.
1510, 1513-14 (M.D. Ala. 1996) (granting request for declaratory judgment); AutoOwners Insurance Co. v. Toole, 947 F. Supp. 1557, 1561-65 (M.D. Ala. 1996)
(granting request for declaratory judgment).
As in Beeline and Toole, this court can resolve the question of whether St. Paul
has a duty to defend the Town as a declaratory judgment on the basis of the complaint
and the policies without awaiting any further factual findings on appeal. Here, the
Alabama Supreme Court must decide the Town’s liability on M&N’s claims, but not
determine St. Paul’s duty to defend those claims. Because the resolution of the issue
of the Town’s liability will not inform the issue of St. Paul’s duty to defend, this court
11

will follow the approach in Beeline and Toole to deny the motions to dismiss or stay
the case as to the duty to defend.
C.

Duty to Indemnify
Unlike the duty to defend, “the duty to indemnify is not ripe for adjudication

until the insured is in fact held liable in the underlying suit.” Nationwide Insurance
v. Zavalis, 52 F.3d 689, 693 (7th Cir. 1995) (citing Heffernan & Co. v. Hartford Ins.
Co., 614 A.2d 295, 298 (Pa. Super. 1992); United Services Auto. Asso. v. Elitzky, 517
A.2d 982, 992 (Pa. Super. 1986)). This is based upon the following considerations:
Although the existence of a duty to defend may be established by
the allegations in the injured party’s complaint, the insurer’s liability to
the insured is ultimately established by what is developed at trial. So a
determination of the duty to indemnify cannot be made at a preliminary
stage in the proceedings, when it is still possible for the plaintiff in the
underlying lawsuit to change the theory of liability and assert a claim that
is covered by the policy at issue.
Guaranty National Insurance Co. v. Beeline Stores, Inc., 945 F. Supp. 1510, 1514
(M.D. Ala. 1996) (citing Ladner & Co. v. Southern Guaranty National Ins. Co., 347
So. 2d 100, 104 (Ala. 1977); Home Ins. Co. v. Rice, 585 So. 2d 859, 861 (Ala. 1991);
Tapscott v. Allstate Ins. Co., 526 So. 2d 570, 573-75 (Ala. 1988)).
If the insured prevailed in the underlying lawsuit, the court would not have to
reach the issue of whether the insured was entitled to indemnification, and the “time
and effort the court and the parties would have expended in resolving the issue would
12

be wasted.” Auto-Owners Ins. Co. v. Toole, 947 F. Supp. 1557, 1566 (M.D. Ala.
1996) (citing Beeline, 945 F. Supp. at 1514).
On these grounds, the courts in Beeline and Toole both declined to resolve the
issue of indemnity pending the resolution of the underlying lawsuit on the insured’s
liability. See Beeline, 945 F. Supp. at 1514-15 (denying without prejudice the
insurer’s motion for declaratory judgment); Toole, 947 F. Supp. at 1565-66
(dismissing without prejudice the insurer’s motion for declaratory judgment).
As in Beeline and Toole, this court will not resolve the question of whether St.
Paul has a duty to indemnify the Town in the absence of a decision by the Alabama
Supreme Court on the question of whether the Town is liable for any of the claims in
M&N’s state action. Accordingly, this court will grant defendants’ motions to stay
the case, and deny as moot M&N’s motion to dismiss the case as to the duty to
indemnify.
D.

Arguments for Abstention
Defendants urge this court to abstain from deciding the issues of whether St.

Paul must defend or indemnify the Town under two doctrines: abstention under the
Declaratory Judgment Act, and abstention under the Colorado River rule. Each
doctrine is addressed separately.
1.

Abstention under the Declaratory Judgment Act
13

The Declaratory Judgment Act provides that “any court of the United States,
upon the filing of an appropriate pleading, 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) (emphasis supplied).27 The jurisdiction
thus conferred on federal courts, however, is neither absolute nor even mandatory:
Of course, this statute does not dispense with the Article III case or
controversy requirement (Trippe Mfg. Co. v. American Power
Conversion Corp., 46 F.3d 624, 627 (7th Cir. 1995); Deveraux v. City of
Chicago, 14 F.3d 328, 330 (7th Cir. 1994)), nor does it supply the court
with subject matter jurisdiction (Lawline v. American Bar Ass’n, 956
F.2d 1378, 1387 (7th Cir. 1992), cert. denied, 126 L. Ed. 2d 452, 114 S.
Ct. 551 (1993)). And even when these jurisdictional prerequisites are
satisfied, as they are here, the district court is not compelled to declare
the rights and relations of the parties. Brillhart v. Excess Ins. Co. of
America, 316 U.S. 491, 494 (1942). By its terms (in particular, “may”),
the Act grants the district court “wide discretion” in deciding whether or
not to exercise this authority.
Nationwide Ins. v. Zavalis, 52 F.3d 689, 691-92 (7th Cir. 1995).
In explaining the discretionary nature of declaratory judgments, the United
States Supreme Court held that:
“[T]here is . . . nothing automatic or obligatory about the assumption of
‘jurisdiction’ by a federal court” to hear a declaratory judgment action.
[E.] Borchard, Declaratory Judgments, at 313 [(2d ed. 1941)]. By the
Declaratory Judgment Act, Congress sought to place a remedial arrow
in the district court’s quiver; it created an opportunity, rather than a
duty, to grant a new form of relief to qualifying litigants. Consistent
27

Emphasis was added to the word “may” because it is a precatory, not a mandatory, term.

14

with the nonobligatory nature of the remedy, a district court is
authorized, in the sound exercise of its discretion, to stay or to dismiss
an action seeking a declaratory judgment before trial or after all
arguments have drawn to a close. In the declaratory judgment context,
the normal principle that federal courts should adjudicate claims within
their jurisdiction yields to considerations of practicality and wise
judicial administration.
Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995) (footnote omitted, alterations
supplied).
“In its discretion, a district court may decline to entertain a declaratory
judgment action on the merits when a pending proceeding in another court will fully
resolve the controversy between the parties.” Ven-Fuel, Inc. v. Dept of the Treasury,
673 F.2d 1194, 1195 (11th Cir. 1982) (citing Hollis v. Itawamba County Loans, 657
F.2d 746, 750 (5th Cir. 1981)28). The question of whether a court should exercise its
discretion to abstain from issuing a declaratory judgment may arise in the context of
a pending state proceeding like the one on appeal in the underlying case.
When a related state action is pending, concerns about comity, the efficient
allocation of judicial resources, and fairness to the parties come into play. Zavalis, 52
F.3d at 692 (citing Chamberlain v. Allstate Ins. Co., 931 F.2d 1361, 1367 (9th Cir.
1991)). The United States Supreme Court is adamant that “[g]ratuitous interference
28

Hollis was decided on September 30, 1981. See Hollis, 657 F.2d 746. In Bonner v. City
of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh Circuit adopted as
binding precedent all decisions of the former Fifth Circuit handed down prior to the close of
business on September 30, 1981.

15

with the orderly and comprehensive disposition of a state court litigation should be
avoided.” Brillhart, 316 U.S. at 495.
As a result, district courts should decline jurisdiction “in deference to orderly
and comprehensive disposition of state court litigation when ‘another suit is pending
in state court presenting the same issues, not governed by federal law, between the
same parties.’” Coregis Ins. Co. v. McCollum, 955 F. Supp. 120, 122 (M.D. Fla.
1997) (citing Brillhart, 316 U.S. at 495). District courts should also consider
“whether the controversy between the parties ‘can be better settled in the proceeding
in the state court’ and whether the claims of ‘all parties in interest can satisfactor[il]y
be adjudicated’ in the state court proceeding.” Id. (citing Brillhart, 316 U.S. at 495)
(alteration supplied).
It must be remembered, however, that the purpose of the Declaratory Judgment
Act is “to settle ‘actual controversies’ before they ripen into violations of law or a
breach of some contractual duty.” Hardware Mutual Casualty Co. v. Schantz, 178
F.2d 779, 780 (5th Cir. 1949). Thus, “[a]lthough the district court has an area of
discretion in deciding whether to grant or deny declaratory relief, that discretion
should be exercised liberally in favor of granting such relief in order to accomplish
the purposes of the Declaratory Judgment Act.” Cincinnati Insurance Co. v.
Holbrook, 867 F.2d 1330, 1333 (11th Cir. 1989) (alteration supplied).
16

As a result, “the mere pendency of another suit is not enough in itself to refuse
a declaration.” Sears, Roebuck & Co. v. Zurich Ins. Co., 422 F.2d 587, 590 (7th Cir.
1970) (citing Sears, Roebuck & Co. v. American Mut. Liability Ins. Co., 372 F.2d 435
(7th Cir. 1967); Chicago Metallic Mfg. Co. v. Edward Katzinger Co., 123 F.2d 518
(7th Cir. 1941); Aetna Casualty & Surety Co. v. Hatridge, 282 F. Supp. 604 (W.D.
Ark. 1968); National Union Fire Ins. Co. v. Lippert Bros., Inc., 233 F. Supp. 650 (D.
Neb. 1964); Kephart v. Wilson, 219 F. Supp. 801 (W.D. Texas 1963); Allstate Ins. Co.
v. Dillard, 190 F. Supp. 111 (E.D. Pa. 1960); General Accident Fire & Life Assur.
Corp. v. Morgan, 33 F. Supp. 190 (W.D.N.Y. 1940)). Instead, the district court
should consider, among other matters,
whether the declaratory suit presents a question distinct from the issues
raised in the state court proceeding, whether the parties to the two
actions are identical, whether going forward with the declaratory action
will serve a useful purpose in clarifying the legal obligations and
relationships among the parties or will merely amount to duplicative and
piecemeal litigation, and whether comparable relief is available to the
plaintiff seeking a declaratory judgment in another forum or at another
time.
Zavalis, 52 F.3d at 692 (citing State Farm Fire & Casualty Co. v. Mhoon, 31 F.3d
979, 983 (10th Cir. 1994) (White, Associate Justice (Ret.), sitting by designation);
NUCOR Corp. v. Aceros y Maquilas de Occidente, S.A. de C.V., 28 F.3d 572, 577-78
(7th Cir. 1994); American States Ins. Co. v. Kearns, 15 F.3d 142, 145 (9th Cir. 1994)

17

(Garth, J., concurring); American Casualty Co. of Reading, Pa. v. Continisio, 819 F.
Supp. 385, 393 (D. N.J. 1993), aff’d, 17 F.3d 62 (3d Cir. 1994); Sears, 422 F.2d at
590; Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102,
126-28(1968); Brillhart, 316 U.S. at 495).
Under the Brillhard/Zavalis standard, this court will decline to abstain from
adjudicating St. Paul’s duty to defend the Town. There are three reasons for that
conclusion. First, the appeal before the Alabama Supreme Court and the motion for
a declaratory judgment before this court do not involve identical issues, because the
Alabama Supreme Court must decide the Town’s liability on M&N’s claims, while
this court must determine St. Paul’s duty to defend those claims. Further, the appeal
before the Alabama Supreme Court and the motion for a declaratory judgment before
this court do not involve identical parties, because St. Paul is not a plaintiff in the
pending state proceeding. Finally, deciding the declaratory action will serve the
useful purpose of clarifying whether St. Paul has a continuing legal obligation to
defend the Town under the terms of its policies. If St. Paul seeks relief after the
appeal, plaintiff will not be able to obtain comparable relief from its duty to defend
the Town throughout the appeal. In the words of the Seventh Circuit:
An insured and his insurer have a mutual interest in speedy
resolution of the insurer’s duty to supply him a defense against a tort
claim that may fall outside the coverage of the insurance policy. See
18

Mhoon, 31 F.3d at 984; Stidham [v. Millvale Sportsmen’s Club], 618
A.2d [945,] 954 [(Pa. Super. Ct. 1992)]. When, as here, that duty can be
ascertained without the need to resolve facts that are at issue in the
underlying tort suit, it is appropriate and desirable for a district court that
otherwise has jurisdiction to exercise its authority under the Declaratory
Judgment Act and decide the question.
Zavalis, 52 F.3d at 697 (alterations supplied).
By contrast, the Brillhard/Zavalis standard does counsel this court to abstain
from adjudicating St. Paul’s duty to indemnify the Town. Although the appeal before
the Alabama Supreme Court and the motion for a declaratory judgment before this
court do not involve identical parties, because St. Paul is not a plaintiff in the pending
state proceeding, that fact alone is not dispositive. First, the issues in the appeal
before the Alabama Supreme Court and the issues in the motion for a declaratory
judgment before this court are not distinct, because the Town’s liability on M&N’s
claims will determine St. Paul’s duty to indemnify those claims. Further, adjudicating
the declaratory action will produce duplicative and piecemeal litigation, because both
courts will have to assess the issue of liability, which raises the risk of unfairness to
the parties and inconsistency in the judgments. If St. Paul seeks relief after the appeal,
plaintiff will still be able to obtain a decision completely defining its duty to
indemnify. As a result, it would not be appropriate or desirable for this court to rule
on that question.

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2.

Abstention under the Colorado River Rule

A party that seeks to dismiss a motion for declaratory judgment on abstention
grounds must overcome a higher hurdle under the Colorado River rule than under the
Declaratory Judgment Act. Coregis Ins. Co. v. McCollum, 955 F. Supp. 120, 123
(M.D. Fla. 1997) (citing General Star Indemnity Co. v. Puckit, 818 F. Supp. 1526,
1529 (M.D. Fla. 1993)). Given a federal court’s duty to adjudicate controversies
properly before it, “abstention from the exercise of federal jurisdiction is the
exception, not the rule.” Colorado River Water Conservation Dist. v. United States,
424 U.S. 800, 813 (1976).
Thus, the Colorado River rule only grants a federal court latitude to surrender
its jurisdiction over a declaratory judgment in three “ exceptional circumstances where
the order to the parties to repair to the state court would clearly serve an important
countervailing interest.” Id. (citing County of Allegheny v. Frank Mashuda Co., 360
U.S. 185, 188-89 (1959)). These “exceptional circumstances” arise:
(1) “[I]n cases presenting a federal constitutional issue which might be
mooted or presented in a different posture by a state court determination
of pertinent state law”; (2) in cases “where there have been presented
difficult questions of state law bearing on policy problems of substantial
public import whose importance transcends the result in the case then at
bar”; and (3) in cases “where absent bad faith, harassment, or a patently
invalid state statute, federal jurisdiction has been invoked for the
purpose of restraining state criminal proceedings, state nuisance
proceedings antecedent to a criminal prosecution, or collection of state
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taxes.”
McCollum, 955 F. Supp. at 123(citing Colorado River, 424 U.S. at 814-16) (alteration
supplied).
None of the “exceptional circumstances” recognized under the Colorado River
rule are present in this case. There is no evidence that this case concerns the federal
constitution or state criminal proceedings, nuisance proceedings, or tax collection.
Further, the parties have failed to identify any novel or unsettled issues of state law
that should appropriately be resolved by the Alabama Supreme Court. Upon finding
an absence of “exceptional circumstances” under Colorado River, the McCollum court
declined to dismiss an insurer’s motion for declaratory judgment to define its duty to
defend. See McCollum, 955 F. Supp. at 123. This court will follow the logic in
McCollum and decline to abstain from exercising its jurisdiction over St. Paul’s
motion. To quote the holding in McCollum:
If this Court denied Plaintiff a declaration of its rights and obligations
under its policy with Defendants . . . , it would be exposing the Plaintiff
to a ‘very substantial and perhaps a binding obligation for providing a
defense’ to those Defendants without Plaintiff’s knowing whether it owes
such an obligation. [Cincinnati Ins. Co. v.] Holbrook, 867 F.2d [1330,]
1333 [(11th Cir. 1989)]. The underlying state court action will not fully
resolve this controversy. Before Plaintiff incurs large expense in
defending the state action, or before it admits liability under the policy,
Plaintiff has a right to know whether it is bound under its contract to
defend its insured and whether or not it would be liable under the
coverage of its policy in the event the state court renders a judgment
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against it. [Hardware Mutual Casualty Co. v.] Schantz, 178 F.2d [779,]
780 [(5th Cir. 1949)].
McCollum, 955 F. Supp. at 123-24 (alterations supplied).
III. CONCLUSION
For the reasons discussed above, this court holds that the issue of whether St.
Paul has a duty to defend the Town is ripe for adjudication, while the issue of whether
St. Paul has a duty to indemnify the Town is not. Thus, as to the duty to defend, this
court will: (1) deny the motion by M&N to dismiss the case; (2) deny the alternative
motion by M&N to stay the case; and (3) deny the joint motion of the Town and
Simpson to stay the case. As to the duty to indemnify, this court will: (1) grant
M&N’s motion to stay the resolution of that question; (2) deny as moot the alternative
motion by M&N to dismiss the case; and (3) grant the joint motion of the Town and
Simpson to stay.
DONE this 22nd day of August, 2012.

_________________________
United States District Judge

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