Medical Protective Company v. Kelley et al
MEMORANDUM OPINION AND ORDER signed by Judge Rebecca Grady Jennings on 7/15/2021. The Court finds that the exercise of its jurisdiction over this declaratory judgment action under 28 U.S.C § 2201 is proper. cc: Counsel (SMJ)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
MEDICAL PROTECTIVE COMPANY
Civil Action No. 3:20-CV-763-RGJ
COREY A. KELLEY &
TERRA M. WILSON
* * * * *
MEMORANDUM OPINION AND ORDER
The Court issued a sua sponte order requesting briefing on the exercise of discretionary
jurisdiction under the Declaratory Judgment Act. [DE 8]. The parties filed the requested briefs
and responses. [DE 9; DE 11; DE 12; DE 13]. The matter is ripe. For the reasons below, the
Court will exercise its discretionary jurisdiction to entertain this declaratory judgment.
The Cleanse Clinic (“Clinic”) is a drug-treatment center in Louisville, KY. [DE 9-1 at
128]. Corey Kelley (“Kelley”) worked at the Clinic as a drug counselor. Id. at 127. In 2018,
Kelley began treating Terra Wilson (“Wilson”). During the time he was her counselor, Kelley
“engaged in sexual interaction, sexually harassed, sexual assaulted, battered and induced sexual
acts” against Wilson. Id. at 129. Wilson sued in Jefferson Circuit Court (“Kentucky suit”) against
the Clinic, the Clinic’s owner, Dr. Asad Ismail, Kelley, “Nicole,” and unknown employees. Id. at
126-27. Wilson asserts that Kelley “engaged in intentional misconduct – namely sexual abuse,
emotional abuse, exploitation, sexual assault and battery, sexual harassment, false imprisonment,
invasion of privacy, intentional infliction of emotional distress, wanton and reckless conduct, lack
of consent, and fraud.” Id. at 111.
The Clinic held a professional negligence policy (“Policy”) from the Medical Protective
Company (“MedPro”) for the period at issue. Id. at 110-12. MedPro undertook the Clinic’s and
Kelley’s defense under a reservation of rights. Id. at 112. MedPro then brought this action, seeking
a declaratory judgment that the Kentucky suit cannot support liability for MedPro under the Policy.
[DE 1]. MedPro asserts that “there is no coverage for Kelley’s alleged misconduct as it does not
constitute ‘professional services’” under the Policy “and /or that coverage is excluded because it
constitutes a ‘criminal act, willful tort or sexual act.’” [DE 9-1 at 112].
Under the Declaratory Judgment Act, a federal court “may declare the rights and other
legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a).1 While the
Act authorizes district courts to exercise jurisdiction, it does not mandate or impose a duty to do
so. Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373 F.3d 807, 812 (6th Cir. 2004). The Act
grants the “federal courts unique and substantial discretion in deciding whether to declare the rights
of litigants.” Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995).
This court considers five
factors (“Grand Trunk factors”) to determine whether the exercise of Declaratory Judgment Act
jurisdiction is appropriate. Grand Trunk W.R.R. Co. v. Consol. Rail Co., 746 F.2d 323, 326 (6th
Cir. 1984) (internal quotation marks omitted). Although the Court must balance the five factors,
the Sixth Circuit has never clarified the relative weights of the factors. Id. at 326.
The Act does not provide an independent basis for subject matter jurisdiction. Wilton v. Seven Falls Co.,
515 U.S. 277, 286-87 (1995); Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950). Thus, an
action brought under the Declaratory Judgment Act must invoke an independent basis for federal
jurisdiction. Here, the independent basis for subject matter jurisdiction is diversity.
Whether the declaratory action would settle the controversy and clarify the legal
The first two Grand Trunk factors assess “(1) whether the declaratory action would settle
the controversy” and “(2) whether the declaratory action would serve a useful purpose in clarifying
the legal relations in issue.” Grand Trunk, 746 F.2d at 326. Because “it is almost always the case
that if a declaratory judgment will settle the controversy, . . . it will clarify the legal relations in
issue,” the inquiries required by these two factors often overlap substantially. United Specialty
Ins. Co. v. Cole’s Place, Inc., 936 F.3d 386, 397 (6th Cir. 2019) (citing Scottsdale Ins. Co. v.
Flowers, 513 F.3d 546, 557 (6th Cir. 2008); Bituminous, 373 F.3d at 814; and Northland Ins. Co.
v. Stewart Title Guar. Co., 327 F.3d 448, 454 (6th Cir. 2003)).
There are two lines of cases in the Sixth Circuit. United Specialty Ins. Co. v. Cole’s Place,
Inc., No. 3:17-CV-00326-TBR, 2018 WL 1914731, at *4 (W.D. Ky. Apr. 23, 2018), aff’d, 936
F.3d 386 (6th Cir. 2019) (citing Flowers, 513 F.3d at 555). “One line of cases approved of
declaratory actions because they can ‘settle the insurance coverage controversy,’ while a second
line of cases disapproved of declaratory actions because while they ‘might clarify the legal
relationship between the insurer and the insured, they do not settle the ultimate controversy.’” Id.
(quoting Flowers, 513 F.3d at 555).
MedPro argues that “[t]he coverage issues raised herein are the purely legal issues of
whether MedPro has a duty to defend and/or indemnify Kelley and/or pay Wilson for her claims
against Kelley in” the Kentucky action. [DE 9 at 115]. Citing no legal authority, Kelley counters:
In pertinent part, Terra Wilson has brought negligence and vicarious liability claims
summarily based in the theories of negligent hiring, training, supervision, and
retention of Kelley. Because of the nature of Terra Wilson’s First Amended
Complaint, this Court will be asked to make declarations of Policy terms that would
likely affect the course of litigation of the State Court Action – e.g. whether Kelley
acted “negligently”, “within the scope of his duties”, or whether Kelley provided
“professional services”. These substantive definitions, and their application, are
currently being explored through discovery and any Policy declaration will
unavoidably have ramifications for all parties of the State Court Action. So while a
declaration would certainly be able to clarify the legal relations between MedPro
and Kelley, it could not do so without also reverberating through the factual issues
of the State Court Action, thereby reaching beyond a simple policy interpretation
and ultimately affecting the merits and outcomes of the State Court Action.
[DE 11 at 156].
In a one-page response, Wilson asserts:
It seems that MedPro’s argument filed in both their initial brief in response to
court’s January 8, 2021 Sua Sponte Order [Document 9] and MedPro’s argument
filed in their Omnibus Response to defendants’ briefs on the exercise of jurisdiction
[Document 12] fails to address the First Amended Complaint filed by Terra Wilson
on or about December 10, 2020 in Jefferson Circuit Court, Division Five (See
attached - First Amended Complaint) which clarifies her claims and adds a new
Defendant Nicole Dozsa. Of further procedural note, should this Court retain
jurisdiction of this matter, this pleading is not yet before this Court and would
presumably require MedPro to file a Second Amended Complaint in the
Declaratory Judgment Action.
In duty-to-defend cases, “a court should determine at the outset of litigation whether an
insurance company has a duty to defend its insured by comparing the allegations in the underlying
complaint with the terms of the insurance policy.” Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d
503, 507 (6th Cir. 2003) (applying Kentucky law) (emphasis added). “The interpretation of an
insurance contract is a matter of law.” Id. (citing Stone v. Ky. Farm Bureau Mut. Ins. Co., 34
S.W.3d 809, 810 (Ky. App. 2000)). “The duty to indemnify is narrower than the duty to defend
because it only arises when there is an actual basis for the insured’s liability to a third party.”
Travelers Prop. Cas. Co. of Am. v. Hillerich & Bradsby Co., 598 F.3d 257, 269 (6th Cir. 2010).
“If there is no duty to defend, then there is no duty to indemnify because the duty to defend is
broader.” Nautilus Ins. Co. v. Structure Builders & Riggers Mach. Moving Div., LLC, 784 F. Supp.
2d 767, 771 (E.D. Ky. 2011).
The Court agrees with MedPro. Determining whether MedPro has a duty to defend or
indemnify is a purely legal question. See Westfield Ins. Co. v. B.H. Green & Son, Inc., No. 5:11CV-10, 2011 WL 13210095, at *2 (W.D. Ky. Oct. 17, 2011) (“This declaratory judgment action
seeks a determination of whether Westfield has a duty to defend B.H Green and whether the
insurance policies at issue provide coverage or benefits to B.H. Green. This is a purely legal
question that will be resolved by examining the Lyon Circuit Court complaint and the insurance
contracts”). In addition, this declaratory judgment action will “settle the controversy,” as it
resolves the dispute between the insurer and insured over who will pay for the state-court litigation.
See, e.g., W. World Ins. Co. v. Hoey, 773 F.3d 755, 760–61 (6th Cir. 2014). The first two factors
therefore support jurisdiction.
Whether the declaratory remedy is used merely for the purpose of procedural
fencing or to provide an arena for a race for res judicata
The third factor considers “whether the use of the declaratory judgment action is motivated
by ‘procedural fencing’ or [is] likely to create a race for res judicata.” Flowers, 513 F.3d at 558.
The Sixth Circuit seldom finds procedural fencing if the declaratory-plaintiff filed after the start
of litigation in state court. Cole’s Place, 936 F.3d at 399. The Kentucky suit was filed in
September 2020. [DE 9-1]. This action was filed two months later. [DE 1]. Both parties agree,
as does the Court, that this factor supports jurisdiction. [DE 9 at 118; DE 11 at 157].
Whether the use of a declaratory action would increase friction between federal
and state courts and improperly encroach upon state jurisdiction
The fourth Grand Trunk factor addresses “whether accepting jurisdiction would increase
friction between federal and state courts” and is broken into three sub-parts. Flowers, 513 F.3d at
559. The first sub-part “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.” Flowers,
513 F.3d at 560. Kelley asserts that “a declaratory judgment on MedPro’s duties pursuant to the
Policy would likely have substantive repercussions in the State Court Action.” [DE 11 at 158].
But, as discussed above, determining whether MedPro has a duty to defend and indemnify is a
purely legal one based on the allegations in the complaint in the Kentucky action. As a result, the
Court’s ruling on the limited issue of coverage will not have “substantive repercussions” in the
Kentucky action. See Pennsylvania Nat. Mut. Cas. Ins. Co. v. HVAC, Inc., 679 F. Supp. 2d 863,
870 (E.D. Tenn. 2009) (“None of the factual issues necessary to resolve the state court action will
be important or necessary to the Court in determining the coverage issue; accordingly, resolution
of the declaratory judgment action does not depend on any factual issue in the underlying case,
and this sub-factor weighs in favor of exercising jurisdiction”). The first sub-factor therefore
a. Whether the State Trial Court is in a Better Position to Evaluate Those Factual Issues
than is the Federal Court.
The second sub-part examines “which court, federal or state, is in a better position to
resolve the issues in the declaratory action.” Flowers, 513 F.3d at 560. The Sixth Circuit has
“found that ‘issues of insurance contract interpretation are questions of state law with which the
Kentucky state courts are more familiar and, therefore, better able to resolve.’” Id. at 561 (quoting
Travelers Indem. Co. v Bowling Green Prof. Assoc., 495 F.3d 266, 273 (6th Cir. 2007)). The
questions that arise here do not, however, involve novel issues of Kentucky law. See Cole’s Place,
2018 WL 1914731 at *8. Moreover, neither the obligation to defend nor the scope of the Policy
is before the state court. See Flowers, 513 F.3d at 561 (“[W]hen 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”). The second sub-factor therefore is neutral and does not weigh heavily in
b. 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.
The third sub-part “focuses on whether the issue in this federal action implicates important
state policies and is, thus, more appropriately considered in state court.” Flowers, 513 F.3d at 561.
Kentucky state courts are “more familiar and, therefore, better able to resolve” interpretation of
insurance contracts. Id. Even when the state law is not difficult to apply, the Sixth Circuit has
usually found “that the interpretation of insurance contracts is closely entwined with state public
policy.” Cole’s Place, Inc., 936 F.3d at 401, citing e.g., Flowers, 513 F.3d at 561 and Travelers,
495 F.3d at 273. Because this action involves an interpretation of a Kentucky insurance contract,
the third sub-part counsels against jurisdiction.
Whether there is an alternative remedy which is better or more effective
The fifth and final factor asks “whether there is an alternative remedy which is better or
more effective” than federal declaratory relief. Grand Trunk, 746 F.2d at 326. Kentucky law
provides a declaration of rights procedure, under KRS § 418.040. Mass. Bay Ins. Co. v. Christian
Funeral Dirs., Inc., No. 18-5267, 2018 WL 6787945, at *8 (6th Cir. Dec. 26, 2018). The Sixth
Circuit has held that, “[i]n many ways, this alternative would have been better.” Flowers, 513
F.3d at 562. Specifically,“[t]he Kentucky courts are in a superior position to resolve undecided
questions of state law,” and “Kentucky courts might also have been able to combine the two actions
so that all issues could be resolved by the same judge.” Id. For these reasons, overall, the fifth
Grand Trunk factor weighs against exercising jurisdiction.
Balancing the Grand Trunk factors
As noted above, the Sixth Circuit has never suggested the relative weight of the factors;
instead, “[t]he relative weight of the underlying considerations of efficiency, fairness, and
federalism will depend on facts of the case.” Cole’s Place, 936 F.3d at 396 (citing Hoey, 773 F.3d
at 759). Further,“[t]he essential question is always whether [the court] has taken a good look at
the issue and engaged in a reasoned analysis of whether issuing a declaration would be useful and
fair.” Id. (citing Hoey, 773 F.3d at 759) (citation omitted). Having evaluated the factors, the first
three factors support exercising jurisdiction, as does one of the sub-parts of the fourth factor.
Because of the importance of these factors and the well-established law on these legal issues, the
exercise of the Court’s discretionary jurisdiction is appropriate.
Having thus considered the parties’ filings and the applicable law, and being otherwise
sufficiently advised, the Court HEREBY ORDERS AS FOLLOWS:
(1) The Court finds that the exercise of its jurisdiction over this declaratory judgment
action under 28 U.S.C § 2201 is proper.
July 15, 2021
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?