Axis Surplus Insurance Company et al v. McCarthy/Kiewit et al

Filing 83

ORDER GRANTING DEFENDANTS' 68 MOTION TO STAY OR DISMISS ACTION: "..This action is HEREBY STAYED pending determination of these issues in the Missouri Action. Any party that believes it is appropriate to lift the stay based upon changed circumstances may file an appropriate motion with the Court. IT IS SO ORDERED...." Signed by District JUDGE LESLIE E. KOBAYASHI on January 12, 2012. related: 73 Motion for Joinder. (bbb, ) CERTIFICATE OF SERVICE< /center>Participants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
AXIS SURPLUS INSURANCE
COMPANY, a Georgia
corporation; and RSUI
INDEMNITY COMPANY, a New
Hampshire corporation,

)
)
)
)
)
)
)
Plaintiffs,
)
)
vs.
)
)
MCCARTHY/KIEWIT, a joint
)
venture; MCCARTHY BUILDING
)
COMPANIES, INC., a Missouri
)
corporation; KIEWIT PACIFIC
CO., a Delaware corporation; )
and ARCH INSURANCE COMPANY, a )
)
Missouri corporation,
)
)
Defendants.
_____________________________ )

CIVIL NO. 10-00595 LEK-BMK

ORDER GRANTING DEFENDANTS’
MOTION TO STAY OR DISMISS ACTION
Before the Court are Defendants McCarthy/Kiewit Joint
Venture (“MKJV”), McCarthy Building Companies, Inc. (“McCarthy”),
and Kiewit Infrastructure West Co.’s (“Kiewit,” all three
collectively “Defendants”) Motion to Stay or Dismiss Action
(“Motion”), filed September 30, 2011, and Defendant Arch
Insurance Company’s (“Arch”) Joinder in the Motion (“Joinder”),
filed October 3, 2011.

Plaintiffs RSUI Indemnity Company

(“RSUI”) and Axis Surplus Insurance Company (“Axis,” collectively
“Plaintiffs”) filed their memorandum in opposition on
December 13, 2011.

Defendants filed their reply on December 20,

2011.

This matter came on for hearing on January 3, 2012.

Appearing on behalf of Defendants were Alan Van Etten, Esq., and
Edward Weiman, Esq., appearing telephonically on behalf of Arch
was Lee Howard Graham, Esq., appearing on behalf of Plaintiffs
was Keith Hiraoka, Esq., appearing telephonically on behalf of
Axis was Joyce Wang, Esq., and appearing telephonically on behalf
of RSUI was Denis Shanagher, Esq.

After careful consideration of

the Motion, supporting and opposing memoranda, and the arguments
of counsel, Defendants’ Motion and Arch’s Joinder are GRANTED for
the reasons set forth below, and the instant action is HEREBY
STAYED.
BACKGROUND
Defendants ask the Court to stay or dismiss this
federal action in favor of a parallel action currently pending in
Missouri state court.

According to Defendants, on May 2, 2005,

Kaiser Foundation Health Plan, Inc. (“Kaiser”) hired MKJV to act
as the general contractor for the construction of an addition to,
and renovation of, Kaiser’s Moanalua Medical Center (the
“Project”).

[Mem. in Supp. of Motion at 3, Declaration of Edward

Weiman (“Weiman Decl.”), Exh. A (“Missouri Complaint”) at ¶¶ 2,
14).]

In connection with its work on the Project, MKJV

purchased primary and excess liability insurance from Arch, RSUI,
and Axis (collectively, the “MKJV Policies”).
Missouri Complaint at ¶ 18).]

[Id. (citing

MKJV purchased its primary

2

insurance from Arch, which issued a commercial general liability
(“CGL”) policy with MKJV as the named insured to provide
insurance coverage for liability arising out of the construction
and maintenance work on the Project (the “Arch Policy”).

The

Arch Policy was effective from June 6, 2005, through October 15,
2010, and contains limits of liability of one million dollars per
occurrence.

[Id. at 4 (citing Missouri Complaint at ¶¶ 18-19).]

MKJV purchased its first and second layers of excess insurance
from RSUI (the “RSUI Policy”) and Axis (the “Axis Policy”).

The

RSUI Policy was effective from June 6, 2005, through October 15,
2010.

The Axis Policy was effective from June 6, 2005, through

October 15, 2010, and contains a Missouri-specific endorsement
which expressly states that the Axis Policy was “procured and
developed under the Missouri Surplus Lines Laws.”

[Id. (citing

Missouri Complaint, Exh. C (Axis Policy Endorsement H)).]
In the underlying Missouri case, Kaiser has asserted a
claim against MKJV for damages resulting from allegedly deficient
construction work on the Project.

Kaiser alleges that faulty

work on the part of MKJV and/or its subcontractors
caused certain flooring surfaces throughout the Project to
delaminate or bubble up from the concrete substrate below.
Kaiser has further alleged that the certain portions of the
floors at the Project are not level.

[Id. at 5.]

MKJV tendered

the claim to Arch, RSUI and Axis pursuant to the MKJV

3

Policies.

Arch accepted MKJV’s tender and agreed to defend MKJV

under a reservation of rights.1
Complaint at ¶¶ 18-19).]

[Id. at 6 (citing Missouri

According to Defendants, RSUI and Axis

have refused to participate meaningfully in settlement
discussions, investigate the underlying claim, or confirm or deny
coverage under their respective policies.

[Id.]

On August 19, 2010, Axis and RSUI filed a complaint for
declaratory relief against Defendants and Arch in Hawai‘i state
court, which was not served on Defendants until September 22,
2010, and which Defendants later removed to this Court.
Decl. at ¶ 10.]

[Weiman

On September 17, 2010, Defendants filed a

complaint against Arch, Axis, and RSUI in the Circuit Court for
the County of St. Louis, State of Missouri, for breach of
contract, anticipatory breach of contract, breach of the implied
covenant of good faith and fair dealing, insurance bad faith, and
declaratory judgment (“Missouri Action”).
Motion at 8-9.]

[Mem. in Supp. of

On October 26, 2010, Plaintiffs filed a First

Amended Complaint in this Court, naming the exact same parties as
the Missouri Action.

1

On October 12, 2010, Defendants entered into a partial
settlement agreement with Kaiser, resolving a portion of the
claim for a payment of one million dollars. Arch has approved
the settlement and agreed to fund the one million dollar payment,
thereby exhausting the applicable limits of insurance under the
Arch Policy. In light of the exhaustion of the applicable
limits, Defendants assert that Arch no longer has a duty to
defend MKJV against Kaiser’s claims. [Mem. in Supp. of Motion at
6 (citing Weiman Decl., Exh. C (Notice of Removal) at ¶ 5).]
4

I.

Motion
Defendants argue that a stay or dismissal of this

declaratory action is warranted under Brillhart v. Excess
Insurance Co. of America, 316 U.S. 491 (1942), and other relevant
authority, on the following grounds:
(1) a stay or dismissal of this action is
necessary to prevent the needless determination of
state law issues by this Court;
(2) a stay or dismissal of this action is proper
to discourage improper forum shopping by RSUI and
AXIS; and,
(3) the simultaneous litigation of identical
claims and defenses in two different forums raises
the potential for inconsistent and irreconcilable
outcomes in this action and the Missouri action.
[Motion at 2.]
Defendants maintain that “when a state court action is
pending presenting the same issue of state law as is presented in
the federal declaratory suit, ‘there exists a presumption that
the entire suit should be heard in state court.’”

[Mem. in Supp.

of Motion at 12 (quoting Cont. Cas. Co. v. Robsac Indus., 947
F.2d 1367, 1370-71 (9th Cir. 1991) (emphasis Defendants’)).]
A.

Issues Arising Under State Law
Defendants first argue that the regulation of insurance

is an area of state law which Congress expressly left to the
states, and that the instant action requires the needless
determination of issues that arise solely under state law.
Defendants state that the scope of the Missouri Action is broader
than the instant action, however, the relief sought in the
5

Missouri Action is identical to the relief sought here;
specifically, an adjudication of the parties’ respective rights
and obligations under the MKJV Policies.

Both actions require an

adjudication of issues which, Defendants argue, are matters of
state law.

[Id. at 13-14.]
The additional claims alleged in the Missouri Action

are contractual counts and a cause of action for bad faith
refusal to settle the claim, a separate tort under Missouri law.
In the event that RSUI is found to have wrongly denied its duty
to defend MKJV after its obligation to do so was triggered, it
will also be subject to liability under Missouri statutory
authority which prohibits insurers from denying their coverage
obligations “without reasonable cause or excuse.”
(quoting Mo. Rev. Stat. § 375.296).]

[Id. at 14

Further, while the action

before this Court seeks only equitable relief, Defendants note
that the Missouri Action seeks monetary relief that is
unavailable here, including statutory damages against RSUI and
Axis pursuant to section 375.420 of the Revised Statutes of
Missouri with regard to their bad faith refusal to settle within
the MKJV Policy limits.

Defendants argue that the state law

issues here are integral to the much broader Missouri Action,
which implicates additional state common law and statutory
claims.

[Id.]

6

B.

Forum Shopping
Next, Defendants argue that the instant case

constitutes “reactive litigation,” which the Ninth Circuit has
included within the notion of forum shopping.

The term is

generally applied to situations where an insurer files a federal
declaratory judgment action after its insured files a
non-removable state court action.
947 F.2d at 1372).]

[Id. at 15 (citing Robsac,

According to Defendants, the Ninth Circuit

in Robsac was addressing reactive litigation filed in federal
court with an intent to avoid being named in a non-removable
state court proceeding, and that the reasoning in Robsac applies
with equal force here, because RSUI and Axis filed a Hawai‘i
state court complaint in response to MKJV’s claim for coverage,
even though MKJV had not yet filed a Missouri state court action.
They state that RSUI and Axis did so without waiting for the
results of their investigation into the claims, and prior to a
long-scheduled mediation of the underlying claim and any
attendant insurance disputes.

[Id. at 16.]

Defendants argue that forum shopping is an issue here
because both actions concern a contractual dispute between six
parties who are not Hawai‘i residents, although two reside in
Missouri (McCarthy and Arch).

They argue that both actions

concern insurance policies that were contracted for, negotiated,
and delivered in Missouri, and, while the underlying claim itself

7

arises out of construction work done at a Hawai‘i hospital, that
dispute is not before the Court.

Instead, the only issues before

the Court are the contractual rights and obligations of parties
to Missouri insurance contracts.

According to Defendants,

permitting this action to go forward “when there is a pending
state court case presenting the identical issue would encourage
forum shopping in violation of the second Brillhart principle.”
[Id. at 17 (quoting Robsac, 947 F.2d at 1372-73).]
C.

Duplicative Litigation
Finally, Defendants argue that permitting this action

to proceed will result in duplicative litigation, thereby raising
comity concerns because of the potential for inconsistent results
involving state law issues.

According to Defendants, permitting

the instant federal action to go forward is a waste of judicial
resources.

They argue that here, the two actions are mirror

images of each other, with the sole exception of the additional
state law claims alleged in the Missouri Action.

They assert

that there is the potential for two conflicting declarations of
the parties’ respective rights and obligations under the MKJV
Policies.

[Id.]
Further, they argue that the instant action would not

entirely resolve all of the disputes between the parties,
creating an additional danger that these disputes will have to be
litigated piecemeal in two different courts, perhaps applying two

8

different bodies of insurance law.

The Missouri state court

can resolve all of the issues raised in the instant action, but
this Court is not presented with the additional claims alleged in
the Missouri Action.

Defendants argue that, if they were to

prevail in this action, they would still have to pursue the
remainder of their contractual, non-contractual, and statutory
claims in the Missouri Action.
II.

[Id. at 18.]

Plaintiffs’ Memorandum in Opposition
Plaintiffs argue in their opposition that, because this

first-filed coverage dispute involves a Hawai‘i project, and
involves the nature of the alleged defects in the Project,
Hawai‘i is the obvious and only forum for this case.

They urge

the Court to retain jurisdiction over this case and resolve the
parties’ disputes.

Plaintiffs argue that Defendants’ claims

filed in the Missouri Action are compulsory counter-claims to the
instant declaratory relief action and should have been filed as
such either in the Hawai‘i Circuit Court or promptly upon removal
to this Court.

They assert that they originally filed for

declaratory relief in the Hawai‘i Circuit Court because Hawai‘i
law applies to the parties’ obligations under the policies.
“MKJV chose to file a separate action in Missouri and then remove
RSUI’s and AXIS’s lawsuit to this Court to manufacture the
appearance of a pending state action to justify its motion to
stay or dismiss here.”

[Mem. in Opp. to Motion at 10-11.]

9

A.

Hawai‘i Law Applies to the Coverage Issues
According to Plaintiffs, the Court will not have to

address issues of Missouri law because Hawai‘i law applies to the
coverage issues raised by Kaiser’s claims against MKJV.

They

argue that, under Hawai‘i choice of law rules, set forth in Del
Monte Fresh Produce (Hawaii), Inc. v. Fireman’s Fund Insurance
Co., 117 Hawai‘i 357, 364, 183 P.3d 734, 741 (2007), courts apply
the law of “the state with the most significant relationship to
the parties and subject matter.”

Plaintiffs maintain that, in

Del Monte, the Hawai‘i Supreme Court concluded that Hawai‘i, not
California, law applied to a coverage dispute where, as here,
Hawai‘i was the principal location of the risk, and rejected the
argument that California law applied because the parties to the
insurance contract were located in California, the policies were
negotiated there, payment would be made there, and the claims
were tendered there.

[Mem. in Opp. to Motion at 12.]

Here, Plaintiffs assert that MKJV makes the same
arguments the Del Monte court rejected, i.e., Arch and McCarthy
reside in Missouri, the policies were negotiated there, and
the loss occurred there.

Moreover, the MKJV Policies only insure

liability arising out of a single location – the Moanalua Medical
Center Ancillary Addition in Honolulu, Hawai‘i – such that the
application of Hawai‘i law was within the reasonable expectations
of the parties.

Plaintiffs also argue that the events giving

10

rise to the claim all occurred in Hawai‘i, and the State has a
strong interest in insurance coverage issues involving its
hospitals, where most of the patients, employees, nurses and
physicians are Hawai‘i residents.

[Id. at 13 (citing Abramson v.

Aetna Cas. & Sur. Co., 76 F. 3d 304 (9th Cir. 1996)).]
Plaintiffs contend that it would be most appropriate for this
Court in Hawai‘i, not one in Missouri, to apply the law of
Hawai‘i.
B.

First-Filed Action Has Priority
Next, Plaintiffs argue that under the “first-filed

rule,” the Court should not dismiss or stay the instant federal
action.

They assert that the action filed by MKJV in Missouri

deals with the same factual and legal issues set forth in this
action.

“To conserve judicial resources and avoid conflicting

rulings, the first-filed rule gives priority, for the purpose of
choosing among possible venues when parallel litigation has been
instituted in separate courts, to the party who first establishes
jurisdiction.”

[Id. (quoting Northwest Airlines, Inc. v.

American Airlines, Inc., 989 F.2d 1002, 1006 (8th Cir. 1993)).]
To apply the first-filed rule “[t]he two cases do not have to be
identical but must have issues that substantially overlap.”

[Id.

at 14 (quoting Monsanto Technology LLC v. Syngenta Crop
Protection, Inc., 212 F. Supp. 2d 1101, 1103 (E.D. Mo. 2002)).]
According to Plaintiffs, because of the substantial judicial

11

economy and equitable factors that support the first-filed rule,
courts have even applied it when, as here, the two similar
actions were filed in state court and then removed.
They argue that Axis and RSUI filed first in Hawai‘i,
and that MKJV itself first elected to sue its subcontractors in
Hawai‘i, before attempting to have the insurance coverage dispute
adjudicated in Missouri.

Of the three related actions, the first

filed was the Subcontractor Action, which MKJV filed in Hawai‘i
on August 2, 2010.

The second action, the instant federal

action, was also filed in Hawai‘i, less than three weeks later,
on August 19, 2010.

Plaintiffs note that, it was only after both

of these actions were on file in Hawai‘i that on September
17, 2010, MKJV filed the Missouri Action to seek adjudication of
the same issues presented in this action filed in Hawai‘i.

They

argue that, by filing in both Missouri and Hawai‘i, MKJV is
attempting to have a Hawai‘i court determine whether a
subcontractor was at fault; while at the same time have a
Missouri court determine whether those actions are covered by the
excess policies which apply only to work performed in Hawai‘i.
According to Plaintiffs, if this matter is dismissed and MKJV
proceeds in Missouri, there is a significant risk of rulings
different from and contrary to the findings of this Court.

Even

if the resolution is the same, it will be “inefficient and
cumbersome to burden the court with coordinating substantively

12

similar actions in Hawai‘i and Missouri.”

[Id. at 15.]

Further, Plaintiffs assert that Defendants’ reliance on
Continental Casualty Co. v. Robsac Industries, 947 F.2d 1367 (9th
Cir. 1991), is misplaced because, although the Ninth Circuit held
that an insurer’s declaratory relief action is per se “reactive,”
the court later refined its holding.

They argue that, in

Government Employees Insurance Co. v. Dizol, 133 F.3d 1220, 1225
(9th Cir. 1998), the appellate court backed away from Robsac’s
position and instead, underscored that a federal declaratory
relief action is “reactive” only when that action is filed after
a state court suit raising the same issues has been filed.

[Id.

at 15-16.]
C.

Compulsory Counterclaims
Finally, Plaintiffs argue that Defendants’ additional

claims filed in the Missouri Action should have been filed as
compulsory counterclaims in the instant federal action under Fed.
R. Civ. P. 13, which provides that a party must assert:
As a counterclaim any claim that—at the time of
its service—the pleader has against an opposing
party if the claim:
(A) arises out of the transaction or occurrence
that is the subject matter of the opposing party’s
claim; and
(b) does not require adding another party over
whom the court cannot acquire jurisdiction.
[Id. at 16 (quoting Fed. R. Civ. P. 13(a)).]
Plaintiffs contend that the claims in the Missouri
13

Action arise from the same transactions and occurrences that are
the subject of this lawsuit.

Specifically, both lawsuits arise

from Kaiser’s claims concerning the same construction project and
concern a dispute about whether there is coverage for the Kaiser
claim under the excess policies issued by RSUI and Axis.
Plaintiffs filed this lawsuit and alleged that they are not
obligated to indemnify MKJV for the amounts MKJV becomes liable
to pay Kaiser relating to the Project.

They argue that the

second-filed Missouri Action is nothing more than a parallel
lawsuit, the claims arise from the same transaction or
occurrence, and that there is a logical relationship between the
claims in both cases.

[Id. at 17-19.]

They argue that the effect of filing a separate lawsuit
in lieu of asserting a compulsory counterclaim is contrary to the
purpose of Rule 13(a) because it creates multiple lawsuits,
wastes judicial resources, and unduly burdens the litigation
process.

Plaintiffs urge the Court to find that fairness

dictates that Defendants bring all their claims in this action.
When there is a coverage dispute between an insurance company and
its insured, Plaintiffs argue that it is a common and expected
practice for the insurance company to file a declaratory judgment
action to have the parties’ rights and liabilities determined by
a court of competent jurisdiction, and the District of Hawai‘i
has jurisdiction to decide this dispute.

14

Defendants removed the

case to this Court and no parties have objected to jurisdiction
here.

According to Plaintiffs, there is no reason that

Defendants’ rights cannot be fully and fairly adjudicated by
filing a compulsory counterclaim here.

[Id. at 19-21.]

Plaintiffs contend that this Court should decide the
claims Defendants assert under Missouri law.

Plaintiffs argue

that, to the extent MKJV suggests it is without a remedy in
Hawai‘i, or that Missouri law somehow applies to the parties’
disputes, MKJV is wrong.

They argue that Hawai‘i recognizes

contractual claims for breach of an insurance policy and a
tort claim for bad faith breach (under Best Place, Inc. v. Penn
Am. Ins. Co., 920 P.2d 334, 341, 346 (Haw. 1996)), and that the
tort claim includes recovery where an insurer acts unreasonably
in the handling of its insured’s claim.

As for the asserted

statutory penalty, Plaintiffs maintain that this Court is as
well-qualified as the Missouri court to make the simple
arithmetical calculation if Missouri law is found to apply here.
[Id. at 21-22.]
III. Reply
In their reply, Defendants argue that Plaintiffs’
opposition ignores the three Brillhart factors, and effectively
concedes that a stay or dismissal is necessary: (1) to prevent
the needless determination of state law issues by this Court; (2)
to discourage improper forum shopping by Plaintiffs, who filed

15

this litigation in response to MKJV’s assertion of a valid claim
under Missouri-issued insurance polices; and (3) because the
simultaneous litigation of these actions raises the potential for
inconsistent and irreconcilable results, and wastes judicial
resources, regardless of the outcome of the instant federal
action.
A.

[Reply at 1-2.]
Needless Determination of State Law Issues
Defendants insist that permitting this action to go

forward will require the needless determination of state law
issues because the two actions are parallel and seek
determination of the same insurance obligations, which is an area
of law left to the states.

To the extent Plaintiffs argue that

federal courts routinely hear insurance matters, Defendants note
that the fact that federal courts adjudicate declaratory relief
actions is not relevant under Brillhart and Dizol.

Further, to

the extent Plaintiffs claim that Hawai‘i law applies to the
dispute, Defendants state that the Ninth Circuit presumes that a
federal declaratory relief suit should be stayed or dismissed in
favor of a parallel state court action regardless of which
state’s law applies to the dispute.
947 F.2d at 1370-71).]

[Id. at 6 (citing Robsac,

They also argue that, at this stage of

the proceedings, Missouri law will govern, because Missouri has
the most significant relationship, and none of the operative
events giving rise to the instant dispute (i.e., breach of

16

contract and mishandling of insurance claim) took place in
Hawai‘i.

Defendants assert that the underlying construction

claim is tangential to the outcome of the coverage dispute, and
has already been resolved such that no Hawai‘i citizen or entity
has any interest in the outcome of the insurance coverage
dispute.
B.

[Id. at 7-8.]
Forum Shopping
Defendants repeat that the instant federal action is

“reactive” and was filed in an attempt to preempt an insureds
filing of a state court action for coverage.

They claim that

Plaintiffs do not dispute that they filed this action to preempt
MKJV’s inevitable filing of the Missouri Action, including that
(1) Plaintiffs rushed to file this action in response to MKJV’s
claim for coverage; and (2) Plaintiffs secretly filed this action
before the complete investigation of the claim, and a month prior
to a long-planned mediation of the insurance dispute.

[Id. at 8-

9.]
According to Defendants, the first-to-file rule does
not apply here, because reactive litigation can occur in response
to a claim an insurance carrier believes to be not subject to
coverage even though the claimant has not yet filed a state court
action.

[Id. at 10 (citing Robsac, 947 F.2d at 1372).]

They

state that Plaintiffs have cited no authority holding that the
first-to-file rule trumps, or relates to, the application of the

17

Brillhart factors.

[Id.]

Defendants maintain that none of the witnesses and
documents relevant to the dispute are located in Hawai‘i, rather,
they are in Missouri.

They argue that Hawai‘i is not the proper

forum for this dispute, and that permitting this action to go
forward would encourage “reactive” litigation, contrary to the
second Brillhart factor.
C.

[Id. at 13-14.]

Duplicative Litigation
Permitting this action to go forward, where there is a

nearly identical action in Missouri, is a waste of judicial
resources, according to Defendants.

The broader Missouri Action

would resolve the entire dispute; regardless of the outcome here,
the Missouri Action must go forward because several of the claims
do not depend on a declaration regarding coverage under the MKJV
Policies.

Defendants argue that the additional claims in the

Missouri Action are not compulsory counterclaims under Rule 13(a)
because the rule does not apply here.

Under Rule 7, a motion is

not a “pleading,” and federal courts recognize that the
counterclaim requirement in Rule 13(a) is inapplicable where,
because of a pending motion, a responsive pleading is not
required.

[Id. at 17 (citing United States v. Snider, 779 F.2d

1151, 1157 (6th Cir. 1985)).]

Defendants filed the instant

Motion in lieu of a responsive pleading, and they argue that Rule
13(a) has not been triggered, and their claims are properly

18

before the Missouri state court.

[Id.]

Defendants argue that, because the Missouri Action can
fully resolve the parties’ dispute in one action, while this
Court cannot, the third Brillhart principle of judicial economy
weighs in favor of the stay or dismissal of this action.

[Id. at

18.]
DISCUSSION
Under the Declaratory Judgment Act, a
district court has the “unique and substantial
discretion” to decide whether to issue a
declaratory judgment. Wilton v. Seven Falls Co.,
515 U.S. 277, 286, 115 S. Ct. 2137, 132 L. Ed. 2d
214 (1995). The Declaratory Judgment Act states
that “courts may declare the rights and other
legal relations of any interested party seeking
such declaration.” 28 U.S.C. § 2201(a) (emphasis
added). Therefore, a district court is under no
compulsion to exercise its jurisdiction.
Brillhart v. Excess Ins. Co. of America, 316 U.S.
491, 494, 62 S. Ct. 1173, 86 L. Ed. 1620 (1942).
In cases where parallel state proceedings
exist, “there is a presumption that the entire
suit should be heard in state court.” Gov’t
Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225
(9th Cir. 1998) (en banc) (citing Chamberlain v.
Allstate Ins. Co., 931 F.2d 1361, 1366–67 (9th
Cir. 1991)). Courts should avoid gratuitous
interference as it would be uneconomical and
vexatious for a federal court to proceed with a
declaratory judgment action in these situations.
Wilton, 515 U.S. at 282–83, 115 S. Ct. 2137
(citing Brillhart, 316 U.S. at 495, 62 S. Ct.
1173). However, the existence of a pendent state
action does not automatically bar a request for
federal declaratory relief. Chamberlain, 931 F.2d
at 1367. Courts consider several relevant factors
in determining whether to exercise jurisdiction or
to dismiss or stay the declaratory judgment
proceeding.

19

In this analysis a court must proceed
cautiously, balancing concerns of judicial
administration, comity, and fairness to the
litigants. Chamberlain, 931 F.2d at 1367. The
Supreme Court cautioned district courts to (1)
avoid needless determination of state law issues;
(2) discourage litigants from filing declaratory
actions in an attempt to forum shop; and (3) avoid
duplicative litigation. Dizol, 133 F.3d at 1225
(citing Brillhart, 316 U.S. at 494, 62 S. Ct.
1173); Chamberlain, 931 F.2d at 1367. In addition
to the Brillhart factors, the Ninth Circuit has
suggested that district courts should consider the
following additional factors:
“[W]hether the declaratory action will settle
all aspects of the controversy; whether the
declaratory action will serve a useful
purpose in clarifying the legal relations at
issue; whether the declaratory action is
being sought merely for the purposes of
procedural fencing or to obtain a ‘res
judicata’ advantage; or whether the use of a
declaratory action will result in
entanglement between the federal and state
court systems. In addition, the district
court might also consider the convenience of
the parties, and the availability and
relative convenience of other remedies.”
Dizol, 133 F.3d at 1225 n.5 (citation omitted).
Finally, where a district court declines to
exercise jurisdiction over a declaratory judgment
action, it “is authorized, in the sound exercise
of its discretion, to stay or to dismiss” the
action. Wilton, 515 U.S. at 288, 115 S. Ct. 2137
(emphasis added). That said, “a stay will often
be the preferable course, because it assures that
the federal action can proceed without risk of a
time bar if the state case, for any reason, fails
to resolve the matter in controversy.” Id. at 288
n.2, 115 S. Ct. 2137.
Burlington Ins. Co. v. Panacorp, Inc., 758 F. Supp. 2d 1121,
1139-40 (D. Hawai‘i 2010).

20

I.

Avoiding Needless Determinations of State Law
“A ‘needless determination of state law’ may involve an

ongoing parallel state proceeding regarding the ‘precise state
law issue,’ an area of law Congress expressly reserved to the
states, or a lawsuit with no compelling federal interest (e.g., a
diversity action).”

Keown v. Tudor Ins. Co., 621 F. Supp. 2d

1025, 1031 (D. Hawai‘i 2008) (quoting Robsac, 947 F.2d at
1371–72).

“The concern in this factor is with unsettled issues

of state law, not fact-finding in the specific case.”

Nat’l

Chiropractic Mut. Ins. Co. v. Doe, 23 F. Supp. 2d 1109, 1118 (D.
Alaska 1998) (citing Robsac, 947 F.2d at 1371).

“When state law

is unclear, ‘[a]bsent a strong countervailing federal interest,
the federal court should not elbow its way . . . to render what
may be an uncertain and ephemeral interpretation of state law.’”
Allstate Ins. Co. v. Davis, 430 F. Supp. 2d 1112, 1120 (D.
Hawai‘i 2006) (quoting Mitcheson v. Harris, 955 F.2d 235, 238
(4th Cir. 1992)).
First, the instant federal action and the Missouri
Action are parallel proceedings with respect to the request for
declaratory judgment regarding coverage under the MKJV Policies.
“[A] state proceeding [is] parallel to a federal declaratory
judgment action when: (1) the actions arise from the same factual
circumstances; (2) there are overlapping factual questions in the
actions; or (3) the same issues are addressed by both actions.”

21

Gemini Ins. Co. v. Clever Constr., Inc., Civ. No. 09–00290
DAE–BMK, 2009 WL 3378593, at *7 (D. Hawai‘i Oct. 21, 2009).
Second, the instant action “involves insurance law, an
area that Congress has expressly left to the states through the
McCarran–Ferguson Act.”
U.S.C. §§ 1011–12).

Robsac, 947 F.2d at 1371 (citing 15

Third, there is no apparent compelling

federal interest here.

See id. (“Where . . . the sole basis of

jurisdiction is diversity of citizenship, the federal interest is
at its nadir.”).

On the other hand, this Court has, on numerous

occasions, interpreted insurance policies pursuant to state law
to determine the scope of an insurer’s duties to an insured.

On

balance, this Court agrees with the decisions from this district
holding that there is no compelling federal interest in
adjudicating insurance disputes based on diversity jurisdiction.
See, e.g., Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. Simpson
Mfg. Co., --- F. Supp. 2d ----, 2011 WL 5374355, at *1 (D.
Hawai‘i Nov. 7, 2011) (“Insurance law is an area of law that
Congress has expressly left to the states.

See 15 U.S.C. §§

1011– 12.

And this is a diversity case with no federal question

presented.

There therefore ‘is no compelling federal interest

here.’” (quoting TIG Ins. Co. v. Haseko Homes, Inc., Civ. Nos.
10–00107 DAE–KSC, 10–00146 DAE–KSC, and 10–00575 DAE–KSC, 2011 WL
264315, at *14 (D. Haw. Jan. 26, 2011))).
Finally, Defendants assert that the Court may be

22

confronted with unsettled issues of Hawai‘i state insurance law
identified in this district court’s recent decision in National
Union, 2011 WL 5374355, at *1, which, in turn, discussed Group
Builders, Inc. v. Admiral Insurance Co., 123 Hawai‘i 142, 148,
231 P.3d 67, 73 (Haw. Ct. App. 2010), which held that “under
Hawai‘i law, construction defect claims do not constitute an
‘occurrence’ under a [commercial general liability] policy.”
Defendants further argue that the Court could be required to
address the continued viability of Group Builders in light of the
Hawai‘i State Legislature’s “recent excoriation of the Group
Builders decision in H.B. 924 § 1 (‘[T]he Group Builders decision
creates a public policy crisis that only the State is in a
position to remedy.’).”
(footnoted omitted).

Nat’l Union, 2011 WL 5374355, at *1

In National Union, Senior United States

District Judge Alan C. Kay ruled that the implications of H.B.
924 were “unsettled at this point”, and that staying the federal
case was preferable to retaining the case and certifying the
question to the state appellate courts.

Id. at *6.

This Court

agrees with that analysis, to the extent it is applicable under
the circumstances of the instant Motion.
In sum, the Court FINDS that the first Brillhart factor
weighs in favor of dismissing or staying the instant federal
action.

23

II.

Discouraging Forum Shopping
The Court next turns to the second factor addressing

declaratory actions as a means of forum shopping.

“This factor

usually is understood to favor discouraging an insurer from forum
shopping, i.e., filing a federal court declaratory action to see
if it might fare better in federal court at the same time the
insurer is engaged in a state court action.”
Krieger, 181 F.3d 1113, 1119 (9th Cir. 1999).

Am. Cas. Co. v.
Where a

“declaratory judgment suit is defensive or reactive, that would
justify a court’s decision not to exercise jurisdiction.”
Robsac, 947 F.2d at 1371.

“Typically, ‘reactive declaratory

judgment actions’ occur when a party sues in federal court to
determine their liability after the commencement of a state court
action.”
at 1225).

Gemini, 2009 WL 3378593, at *8 (citing Dizol, 133 F.3d
This Brillhart factor also weighs in favor of

declining jurisdiction where “a federal plaintiff seeks
declaratory relief in anticipation that a related state court
proceeding may be filed.”

Budget Rent–A–Car v. Crawford, 108

F.3d 1075, 1081 (9th Cir. 1997), overruled in part on other
grounds by Dizol, 133 F.3d at 1227.

“A suit is anticipatory when

the plaintiff filed upon receipt of specific, concrete
indications that a suit by defendant was imminent.”

Z–Line

Designs, Inc. v. Bello Int’l LLC, 218 F.R.D. 663, 665 (N.D. Cal.
2003).

24

Here, the parties point to one another as the forum
shopper, either by filing a reactive case in state court or
thereafter removing it to this district court.

As was the case

in National Union, the Court FINDS this factor neutral in
determining whether to exercise its discretionary jurisdiction
over this case.

“It does not appear that any party is any worse

an offender than any other party in terms of filing declaratory
actions as a means of forum shopping.”

National Union, 2011 WL

5374355, at *7.
III. Avoiding Duplicative Litigation
Under the third factor, there is a presumption to
decline jurisdiction “[i]f there are parallel state proceedings
involving the same issues and parties pending at the time the
federal declaratory action is filed.”

Dizol, 133 F.3d at 1225.

Here, the Missouri Action was not yet pending when the Hawai‘i
state court action was filed, but was pending when Defendants
removed the action to this Court, and when Plaintiffs
subsequently filed a First Amended Complaint in this Court.
“When ‘another suit involving the same parties and presenting
opportunity for ventilation of the same state law issues is
pending in state court, a district court might be indulging in
gratuitous interference if it permitted the federal declaratory
action to proceed.’”

Stewart Title Co. v. Investors Funding

Corp., Civ. No. 09–00455 SOM/KSC, 2010 WL 1904981, at *6 (D.

25

Hawai‘i May 11, 2010) (quoting Wilton, 515 U.S. at 283).

That

said, “[t]he pendency of a state court action does not, of
itself, require a district court to refuse federal declaratory
relief.”

Dizol, 133 F.3d at 1225.

Further, “there is no

presumption in favor of abstention in declaratory actions
generally, nor in insurance coverage cases specifically.”

Id.

The Court concludes that the policy of avoidance of
duplicative litigation tips slightly in favor of staying or
dismissing the instant case pending the resolution of the broader
Missouri Action.

Both actions involve identical parties, and

there are factual and legal determinations to be made in the
Missouri Action that will be common to both cases.

According to

Dizol’s explanation of the Brillhart factors, “[i]f there are
parallel state proceedings involving the same issues and parties
pending at the time the federal declaratory action is filed,
there is a presumption that the entire suit should be heard in
state court.”

Dizol, 133 F.3d at 1225.

Accordingly, the Court

FINDS that avoidance of duplicative and piecemeal litigation
favors declining jurisdiction in this action.
IV.

Other Factors
The Court also FINDS that the other factors outlined by

the Ninth Circuit in Dizol weigh in favor of staying or
dismissing the instant federal action.
1225 n.5.

See Dizol, 133 F.3d at

According to Dizol, in addition to the Brillhart

26

factors discussed above, the Court may also weigh “other
considerations,” such as: whether the declaratory action will
settle all aspects of the controversy; whether the declaratory
action will serve a useful purpose in clarifying the legal
relations at issue; whether the declaratory action is being
sought merely for the purposes of procedural fencing or to obtain
a “res judicata” advantage; or whether the use of a declaratory
action will result in entanglement between the federal and state
court systems.

In addition, the district court may also consider

the convenience of the parties, and the availability and relative
convenience of other remedies.

Id.

The Court finds it compelling that the instant federal
action would not settle all aspects of the controversy.

Even if

this Court were to resolve Plaintiffs’ claims, a number of
related issues would remain in the Missouri Action.

While this

action would clarify the legal relationships between the parties
with respect to the MKJV Policies, the Court is mindful of “the
price of that clarification, which is calculated in terms of
‘judicial administration, comity, and fairness to the
litigants.’”

Bituminous Cas. Corp. v. Kerr Contractors, Inc., CV

10–78–MO, 2010 WL 2572772, at *6 (D. Or. June 22, 2010) (quoting
Chamberlain, 931 F.2d at 1367).
Moreover, if both this Court and the Missouri state
court were to reach the merits of the insurance coverage issues,

27

there would be a genuine risk of inconsistent judgments,
piecemeal litigation, and ultimately entanglement between the
federal and state court systems.

Finally, the Court finds that

the remaining Dizol factors are neutral, and, to the extent
Plaintiffs argue that the Motion should be denied because of
choice of law issues, Rule 13(a) compulsory counterclaims, or
because the first-filed action has priority, the Court rejects
those arguments.
The combination of the Brillhart and Dizol factors
discussed above cumulatively weigh against this Court’s exercise
of jurisdiction.

It therefore appears most appropriate for this

Court to decline to exercise its jurisdiction over this
declaratory judgment action.
V.

Dismissal or Stay of Declaratory Action
“The use of stays instead of dismissal has been

approved by courts in this circuit upon finding the Dizol factors
warrant declining jurisdiction.”

Phoenix Assurance PLC v.

Marimed Foundation for Island Health Care Training, 125 F. Supp.
2d 1214, 1223 (D. Hawai‘i 2000).

Because the parallel state

proceeding provides the strongest basis for abstention, the
instant action will not be dismissed but instead will be stayed
pending resolution of the state court litigation.

See Wilton v.

Seven Falls Co., 515 U.S. 277, 288 n.2 (1995) (“We note that
where the basis for declining to proceed is the pendency of a

28

state proceeding, a stay will often be the preferable course,
because it assures that the federal action can proceed without
risk of a time bar if the state case, for any reason, fails to
resolve the matter in controversy.”).
CONCLUSION
On the basis of the foregoing, Defendants
McCarthy/Kiewit Joint Venture, McCarthy Building Companies, Inc.,
and Kiewit Infrastructure West Co.’s Motion to Stay or Dismiss
Action, filed September 30, 2011, and Defendant Arch Insurance
Company’s Joinder in the Motion, filed October 3, 2011, are
HEREBY GRANTED.
This action is HEREBY STAYED pending determination of
these issues in the Missouri Action.

Any party that believes it

is appropriate to lift the stay based upon changed circumstances
may file an appropriate motion with the Court.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, January 12, 2012.

/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge

AXIS SURPLUS INS. CO., ET AL. V. MCCARTHY/KIEWIT, ET AL; CIVIL
NO. 10-00595 LEK-BMK; ORDER GRANTING DEFENDANTS’ MOTION TO SAY OR
DISMISS ACTION

29