State Farm Fire & Casualty Company v. Fischer et al
Filing
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MEMORANDUM OPINION AND ORDER by Judge David J. Hale. Fisher's motion to dismiss without prejudice (DN 8 ) is granted. Matter dismissed without prejudice and stricken from Court's active docket. cc: Counsel(JAC)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
STATE FARM FIRE & CASUALTY
COMPANY,
Plaintiff,
v.
Civil Action No. 3:16-cv-778-DJH
DANIEL FISCHER,
Defendant.
* * * * *
MEMORANDUM OPINION & ORDER
Anthony Watson sued Daniel Fischer in Jefferson County, Kentucky Circuit court for an
alleged assault that took place on a school bus. Fischer’s parents held a homeowners insurance
policy with State Farm at the time of the alleged assault. State Farm is currently defending
Fischer in the state-court case under a reservation of rights. State Farm filed suit in this Court,
seeking a declaration of rights regarding Fischer’s coverage under the policy. (Docket No. 1)
Fischer has moved to dismiss this action without prejudice, arguing that the Court should decline
to exercise discretionary jurisdiction. (D.N. 8) After careful consideration, the Court will grant
the motion to dismiss without prejudice.
I.
Background
In December 2010, students Daniel Fischer and Anthony Watson were involved in an
altercation on a Jefferson County school bus that left Watson seriously injured. (D.N. 1-2,
PageID # 8; D.N. 10-1, PageID # 95) In July 2016, Watson sued Fischer for assault and battery
in Jefferson Circuit Court. (D.N. 1-2, PageID # 11) At the time of the 2010 altercation, State
Farm insured Fischer’s parents under a homeowners insurance policy that provided liability
coverage to resident relatives, including their son Daniel. (D.N. 1, PageID # 2) According to the
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parties, State Farm is currently providing a legal defense to Fischer in the state-court action
under a reservation of rights. (D.N. 8-1, PageID # 72; D.N. 10, PageID # 82)
In December 2016, State Farm filed this declaratory judgment action, seeking a
declaration of rights regarding Fischer’s coverage under the policy for the alleged assault. (D.N.
1, PageID # 3) The policy contains an exclusion for bodily injury “which is either expected or
intended by the insured” or “which is the result of willful and malicious acts of the insured.”
(D.N. 1-3, PageID # 45) State Farm wants to know whether this exclusion applies to the alleged
assault in the state-court action. (D.N. 1, PageID # 2-3)
Fischer requests dismissal of this case without prejudice, arguing that the Court should
decline to exercise its discretionary jurisdiction because the factual issues related to the schoolbus altercation are pending before the Jefferson Circuit Court. (D.N. 8, PageID # 69) State
Farm argues that this Court should take up the coverage issue, because it is not before the state
court and because resolution of the coverage issue would involve legal and factual issues that are
distinct from those in the state-court action. (D.N. 10, PageID # 83)
II.
Standard
The Declaratory Judgment Act gives the Court discretion to “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). Thus, the Court has “discretion in determining whether
and when to entertain an action under the Declaratory Judgment Act, even when the suit
otherwise satisfies subject matter jurisdictional prerequisites.” Travelers Indem. Co. v. Bowling
Green Prof’l Assocs., PLC, 495 F.3d 266, 271 (6th Cir. 2007) (quoting Adrian Energy Assocs. v.
Mich. Pub. Serv. Comm’n, 481 F.3d 414, 421 (6th Cir. 2007)).
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In deciding whether to exercise jurisdiction under the Act, the Court must consider five
factors:
(1) whether the declaratory action would settle the controversy; (2) whether the
declaratory action would serve a useful purpose in clarifying the legal relations in
issue; (3) whether the declaratory remedy is being used merely for the purpose of
“procedural fencing” or “to provide an arena for res judicata[”][;] (4) whether the
use of a declaratory action would increase friction between our federal and state
courts and improperly encroach upon state jurisdiction; and (5) whether there is
an alternative remedy which is better or more effective.
Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 554 (6th Cir. 2008) (citing Grand Trunk W. R.R.
Co. v. Consol. Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984)).
III.
Discussion
Fischer argues that at least four of the factors weigh against the Court exercising
jurisdiction. (D.N. 8-1, PageID # 74-77) State Farm asserts that all of the factors weigh in favor
of the Court exercising jurisdiction. (D.N. 10, PageID # 83-92) The Court will consider each
factor in turn.
A.
Whether the Declaratory Action Would Settle the Controversy
Fischer posits that this action would settle only a portion of the controversy: the dispute
regarding applicability of insurance coverage. (D.N. 8-1, PageID # 74) In response, State Farm
argues that it would settle the controversy because (1) the legal and factual issues in this action
are distinct from those in the state-court action; and (2) this action would settle the controversy
between the parties as to coverage. (D.N. 10, PageID # 85, 88)
The parties’ dispute on this factor represents an apparent split in Sixth Circuit authority
that the court recognized in Flowers. “One set of cases has concluded that a declaratory relief
action can settle the insurance coverage controversy not being addressed in state court, even
though it will not help resolve the underlying state court action.” Scottsdale Insurance Co. v.
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Flowers, 513 F.3d 546, 555 (6th Cir. 2008). “A different group of cases, however, has found
that, while such declaratory actions might clarify the legal relationship between the insurer and
the insured, they do not settle the ultimate controversy between the parties which is ongoing in
state court.” Id. According to the Sixth Circuit, the difference between these lines of cases could
be attributed to “the competing policy considerations of consolidating litigation into one court
versus permitting a party to determine its legal obligations as quickly as possible.” Id. But the
court also noted that “the contrary results in these cases might also be explained by their different
factual scenarios.” Id. In the first line of cases, where courts retained jurisdiction, “the plaintiffs
in the federal declaratory actions were not [parties] in the state court cases, and the insurance
coverage issue was not before the state courts.” West Bend Mut. Ins. Co. v. Swain, No. 3:16-CV00532-CRS, 2017 WL 1439680, at *5 (W.D. Ky. Apr. 21, 2017) (citing Flowers, 513 F.3d at
556). In the second line of cases, where courts declined to exercise jurisdiction, “the insurance
coverage controversies rested on fact-based questions of state law, and there was a risk of
overlapping factual findings with state courts.” Swain, 2017 WL 1439680, at *5 (citing Flowers,
513 F.3d at 555-56).
Post-Flowers, this Court has decided that “where district courts, in
declaratory judgment actions, will only have to decide purely legal questions or engage in factfinding that does not affect the parties in the underlying action, the declaratory action need only
settle the controversy . . . between the insured and the insurer.” Auto Club Prop.-Cas. Ins. Co. v.
Denton, No. 4:15-CV-00035-JHM, 2015 WL 4484173, at *4 (W.D. Ky. July 22, 2015).
To decide coverage in this case, this Court will have to determine whether the bodily
injury at issue in the state-court proceeding was “either expected or intended by the insured” or
“the result of willful and malicious acts of the insured.” (D.N. 1-3, PageID # 45) Under
Kentucky law, whether an insured expected or intended damage resulting in an insurance claim
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is a question of fact for the jury. James Graham Brown Found., Inc. v. St. Paul Fire & Marine
Ins. Co., 814 S.W.2d 273, 276 (Ky. 1991). Therefore, State Farm’s declaratory judgment action
will require the Court to do more than decide “purely legal questions,” Denton, 2015 WL
4484173, at *4. Moreover, in the state-court proceeding, Watson is suing Fischer for assault and
battery. (D.N. 1-2, PageID # 11) Intent is an essential element of assault. Graves v. Dairyland
Ins. Grp., 538 S.W.2d 42, 45 (Ky. 1976). Therefore, this Court’s fact-finding on intent for
purposes of the insurance coverage dispute could affect the parties in the underlying state-court
action. See Denton, 2015 WL 4484173, at *4.
This Court’s decision in Denton is instructive. In that case, plaintiffs brought state-law
claims (including one for battery) against defendants after an altercation that ended in physical
injuries. Id. at *1. An insurance company provided the defense in the state-court action under a
reservation of rights. Id. The insurance company filed an action in this Court seeking a
declaration that it had no duty to defend based on a policy exclusion providing that “we do not
cover liability for . . . bodily injury . . . expected, or intended or which should have reasonably
been expected by the insured person.” Id. at *2. The plaintiffs moved to dismiss the federalcourt action, arguing that the Court should decline to exercise jurisdiction. Id.
The Court concluded that “[a]lthough [the insurance company] [was] not . . . a party to
the action pending in state court, resolution of [the insurance company’s] declaratory judgment
action would require this Court to engage in fact-finding that may affect the underlying action.”
Id. at *4.
For example, to determine whether the altercation fell under the “expected or
intended” exclusion, the Court “would be required to determine whether the bodily injury
suffered by the [plaintiffs] was ‘expected, or intended, or . . . should have reasonably been
expected’ by [the insured].” Id. “Resolving this issue would demand an inquiry as to [the
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insured’s] intent—a factual issue that seems to this Court likely to be a part of the resolution of
the civil action currently pending in state court.” Id. (citing Westfield Ins. Co. v. Siegel Founds.,
No. 3:10-CV-713-S, 2011 WL 3489353, at *4 (W.D. Ky. Aug. 9, 2011)). Concluding that it
could not “settle the question of coverage without engaging in fact-finding that may impact the
underlying action,” the Court found that the declaratory judgment action would not settle the
ultimate controversy. Id.
Similarly, in this case, the Court concludes that resolution of the coverage issue will not
only require fact-finding, but that fact-finding may affect the parties in the underlying state-court
action. To decide whether the exclusion at issue applies, the Court must determine whether
Fischer “expected or intended” Watson’s bodily injuries.
(D.N. 1-3, PageID # 45)
That
determination necessarily involves fact-finding. See James Graham Brown Found., Inc., 814
S.W.2d at 276. And the issue of intent is essential to Watson’s state-court assault claim against
Fischer. See Graves, 538 S.W.2d at 45. Thus, any factual findings this Court would necessarily
make regarding intent in the declaratory judgment action would likely affect the resolution of the
state-court action. See Denton, 2015 WL 4484173, at *4. The Court therefore concludes that the
declaratory action would not settle the controversy. See Liberty Mut. Fire Ins. Co. v. Bohms, 490
F. App’x 721, 725 (6th Cir. 2012) (finding no error in district court’s conclusion that declaratory
judgment would not settle controversy because “the controversy [was] larger than just the rights
and obligations under the policy”). Accordingly, the first factor weighs against exercising
jurisdiction.
B.
Whether the Declaratory Action Would Clarify Legal Relations
Fischer argues that the declaratory judgment action would not clarify the legal relations
between the parties because it would settle only a portion of the controversy. (D.N. 8-1, PageID
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# 74) State Farm argues that it would clarify the legal relations between the parties because it
would determine whether liability coverage exists for the claims at issue in the state-court action.
(D.N. 10, PageID # 88).
This factor “is closely related to the first factor and is often considered in connection with
it.” Flowers, 513 F.3d at 557. In Flowers, the Sixth Circuit also recognized a split in its
precedent “concerning whether the district court’s decision must only clarify the legal relations
presented in the declaratory judgment action or whether it must also clarify the legal relations in
the underlying state action.” Id. The court concluded, however, that the focus should be on
“whether a federal declaratory judgment will clarify the legal relationships presented to the
district court.” Id.
The declaratory judgment action would clarify the legal relations between Fischer and
State Farm because it would determine whether Fischer’s State Farm insurance policy covers
Watson’s claims against Fischer. (See D.N. 1) But this factor also calls upon the Court to
determine whether the declaratory judgment action would serve a useful purpose in clarifying the
legal relations. See Flowers, 513 F.3d at 554. This Court has noted that state courts can “clarify
these very same [insurance coverage] issues—perhaps better, with [their] state-law expertise and
familiarity with [the] case.” Westfield Ins. Co., 2011 WL 3489353, at *4 (citing Nautilus Ins.
Co. v. Grayco Rentals, Inc., No. 10-133-ART, 2011 WL 839549, at *4 (E.D. Ky. Mar. 7, 2011)).
Kentucky courts allow for declaratory relief. Ky. Rev. Stat. § 418.040. In light of that fact, it is
uncertain whether this action would serve a useful purpose. See Westfield Ins. Co., 2011 WL
3489353, at *4. Therefore, the Court finds that the declaratory judgment action would clarify the
legal relations between Fischer and State Farm but that the usefulness of such clarification is in
doubt. Accordingly, the second factor is neutral.
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C.
Whether the Declaratory Action Is Being Used for “Procedural Fencing”
Fischer argues that this declaratory judgment action could be considered procedural
fencing but that an analysis of this factor is “neutral.” (D.N. 8-1, PageID # 75) State Farm
argues that it filed this action after the underlying action was filed in state court and that there is
no evidence that it engaged in procedural fencing. (D.N. 10, PageID # 89)
This factor “is meant to preclude jurisdiction for ‘declaratory plaintiffs who file their
suits mere days or weeks before the coercive suits filed by a “natural plaintiff” and who seem to
have done so for the purpose of acquiring a favorable forum.’” Flowers, 513 F.3d at 558
(quoting AmSouth Bank v. Dale, 386 F.3d 763, 788 (6th Cir. 2004)). But courts should be
reluctant to impute an improper motive where there is no evidence of one. See id.
Here, there are no facts demonstrating that the filing of this action was an attempt at
procedural fencing. Therefore, the Court finds that this declaratory judgment action is not being
used for “procedural fencing.” Accordingly, the third factor is also neutral. See Travelers
Indem. Co., 495 F.3d at 272.
D.
Whether the Declaratory Action Would Increase Federal/State Friction
Fischer argues that (1) this Court would encroach on the state court’s jurisdiction if it
made a determination as to Fischer’s culpability; and (2) the state court is in a better position to
resolve the issues in the declaratory judgment action. (D.N. 8-1, PageID # 75) State Farm
claims that (1) the Court would not decide any issues pending before the state court in
determining coverage; and (2) the state court is not in a better position to resolve these issues
because there are no “novel” issues of state law to address. (D.N. 10, PageID # 90)
To determine whether the exercise of jurisdiction would increase friction between federal
and state courts, the Court considers three additional sub-factors:
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(1) whether the underlying factual issues are important to an informed resolution
of the case; (2) whether the state trial court is in a better position to evaluate those
factual issues than is the federal court; and (3) whether there is a close nexus
between underlying factual and legal issues and state law and/or public policy, or
whether federal common or statutory law dictates a resolution of the declaratory
judgment action.
Flowers, 513 F.3d at 560 (citing Bituminous Cas. Corp. v. J & L Lumber Co., 373 F.3d 807, 81415 (6th Cir. 2004)).
The first sub-factor “focuses on whether the state court’s resolution of the factual issues
in the case is necessary for the district court’s resolution of the declaratory judgment action.” Id.
While the scope of insurance coverage “can sometimes be resolved as a matter of law,” at other
times “resolution of the issue raised in federal court will require making factual findings that
might conflict with similar findings made by the state court.” Id. In this case, resolution of the
insurance coverage issue will require factual findings on intent, and those findings would be
likely to affect the state-court action. See supra Section III.A. Thus, the exercise of jurisdiction
would be inappropriate, Flowers, 513 F.3d at 560, and this sub-factor weighs against exercising
jurisdiction.
The second sub-factor “focuses on which court, federal or state, is in a better position to
resolve the issues in the declaratory action.” Id. State courts are typically in a better position to
decide “novel questions of state law.” Id. But “when an insurance company ‘[is] not a party to
the state court action, and neither the scope of insurance coverage nor the obligation to defend
[is] before the state court . . . a decision by the district court on these issues would not offend
principles of comity.’” Id. (quoting Northland Ins. Co. v. Stewart Title Guar. Co., 327 F.3d 448,
454 (6th Cir. 2003)). In this case, State Farm is not a party to the state-court action, and the
scope of insurance coverage is not currently before the state court. (See D.N. 1-2) Thus, this
sub-factor weighs in favor of exercising jurisdiction.
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The third sub-factor “focuses on whether the issue in the federal action implicates
important state policies and is, thus, more appropriately considered in state court.” Flowers, 513
F.3d at 561. “[I]ssues of ‘insurance contract interpretation are questions of state law with which
the Kentucky state courts are more familiar and, therefore, better able to resolve.’” Travelers
Indem. Co., 495 F.3d at 273 (quoting Bituminous Cas. Corp., 373 F.3d at 815). “[S]tates
regulate insurance companies for the protection of their residents, and state courts are best
situated to identify and enforce the public policies that form the foundation of such regulation.”
Bituminous Cas. Corp., 373 F.3d at 815 (quoting Allstate Ins. Co. v. Mercier, 913 F.2d 273, 279
(6th Cir. 1990)). Although this Court could resolve the state-law issue of insurance contract
interpretation presented here, the state court is in a better position to do so. See Flowers, 513
F.3d at 561. Thus, this sub-factor weighs against exercising jurisdiction.
In sum, the Court finds that two of three sub-factors weigh against exercising jurisdiction.
Accordingly, the fourth factor weighs against exercising jurisdiction.
E.
Whether There Is an Alternative Remedy
Fischer argues that (1) State Farm has an alternative remedy because it can refile its
declaratory judgment action in the state-court action; and (2) a state-court remedy is more
effective for reasons of efficiency and completeness. (D.N. 8-1, PageID # 76-77) State Farm
argues that (1) it is not clear whether state-court remedies are better or more effective than a
federal declaratory action; and (2) the federal court is not a clearly inferior forum because
Kentucky law provides clear guidance on the legal issue presented. (D.N. 10, PageID # 91-92)
The inquiry on this factor “must be fact specific, involving consideration of the whole
package of options available to the federal declaratory plaintiff.” Flowers, 513 F.3d at 562. In
this case, State Farm could have filed a declaratory action in state court. See Ky. Rev. Stat. §
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418.040; Flowers, 513 F.3d at 562. Alternatively, State Farm could have filed an indemnity
action at the conclusion of the state-court case. See Flowers, 513 F.3d at 562.
If State Farm filed a declaratory action in state court, that court could combine the
underlying proceeding and the declaratory action “so that all issues could be resolved by the
same judge,” id. However, this Court is not a “clearly inferior forum” because “Kentucky
precedent provides clear guidance as to the resolution of the legal issue presented,” id.,—namely,
the applicability of the “expected or intended” injury exclusion in State Farm’s policy. See
James Graham Brown Found., Inc., 814 S.W.2d at 278 (offering “majority rule” that the
“expected or intended” exception is “inapplicable unless the insured specifically and subjectively
intends the injury giving rise to the claim”). An indemnity action is not a better remedy,
however, because it would require State Farm to wait until the liability issue was resolved before
determining its coverage obligation to Fischer. See Flowers, 513 F.3d at 562. Therefore, the
Court finds that State Farm had two alternative remedies, only one of which might have been
more effective than a federal declaratory action. Accordingly, the fifth factor weighs slightly
against exercising jurisdiction. See id. at 562-63.
F.
Balancing the Factors
In this case, three of the five factors weigh against this Court’s exercise of jurisdiction.
The remaining two factors are neutral. Although it is a close call, the Court declines to exercise
jurisdiction over this matter.
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IV.
Conclusion
For the reasons set forth above, and the Court being otherwise sufficiently advised, it is
hereby ORDERED as follows:
(1) Fischer’s motion to dismiss without prejudice (D.N. 8) is GRANTED.
(2) This matter is DISMISSED without prejudice and STRICKEN from the Court’s
active docket.
September 25, 2017
David J. Hale, Judge
United States District Court
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