Principal Life Insurance Company v. Doctors Vision Center I, PLLC et al
MEMORANDUM OPINION AND ORDER denying 19 Motion to Dismiss. Signed by Chief Judge Joseph H. McKinley, Jr on 4/15/13. cc:counsel (JBM)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
CIVIL ACTION NO. 5:12-CV-00125-JHM-LLK
PRINCIPAL LIFE INSURANCE COMPANY
DOCTORS VISION CENTER I, PLLC
and KENNETH B. GROGAN
MEMORANDUM OPINION AND ORDER
This matter is before the Court on the Motion to Dismiss of Defendant Doctors Vision Center
I, PLLC [DN 19]. Fully briefed, this matter is ripe for decision. For the following reasons, the
motion is DENIED.
This case arises from the denial of Dr. Kenneth Grogan’s claim for disability insurance
benefits under a policy issued by Principal Life. On December 12, 2009, Dr. Grogan, an owner and
employee of Doctors Vision Center (“DVC”), submitted an application for the subject policy. The
policy was to be owned by DVC. Under the policy’s terms, Principal Life was to pay benefits to
DVC if Dr. Grogan became disabled. The policy was subject to various conditions, exclusions, and
On December 7, 2011, Dr. Grogan submitted a claim for disability benefits to Principal Life.
Principal Life denied this claim in a March 1, 2012 letter, stating in pertinent part that “Dr. Grogan
is not Disabled under the terms of the policy” since “he is claiming Disability for a medical
condition that is specifically excluded by the policy.” (Mar. 1, 2012 Letter [DN 19-5] 3.) In the
letter, Principal Life also stated that it had “yet to make a determination regarding the validity of the
policy” and that it was “reviewing Dr. Grogan’s claim to determine if there were misrepresentations
or omissions in the application” that might affect his eligibility for coverage. (Id. at 1.)
Thereafter, DVC sought an additional explanation for the denial of the claim. In an April 9,
2012 letter, Principal Life reiterated the basis for the denial. Additionally, Principal Life explained:
Dr. Grogan has additional coverage in force with Northwest Mutual. We were
informed, in writing, that Dr. Grogan had a prior claim . . . with them . . . which was
paid for the period of May 25, 2010 to January 25, 2011. Upon further inquiry we
were informed that the claim started February 24, 2010 and benefits began after the
completion of the 91 day Elimination Period. This shows that Dr. Grogan had an
active claim of disability with Northwest Mutual on March 25, 2010, which is the
date he signed Part D and the Amendment and Acceptance form of the policy.
(Apr. 9, 2012 Letter [DN 19-5] 9.) DVC then requested an appeal of the denial. Initially, Principal
Life promised a response within thirty days. It then asked for an extension through August 24, 2012.
After receiving the extension, Principal Life affirmed its denial on August 24, 2012, advising
DVC that it “would not have issued the policy on Grogan if it had known . . . that [he] was disabled
and not actively working when he and DVC signed and submitted the Disability Insurance
Application Part D . . . on or about March 25, 2010.” (Aug. 24, 2012 Letter [DN 19-5] 4.) Principal
Life also advised DVC of its decision to file a civil action for the rescission of the subject policy
and, alternatively, for a declination of Dr. Grogan’s claim for benefits. (Id. at 5.) Principal Life filed
a complaint in this Court that same day, on August 24, 2012, seeking rescission of the policy and/or
a judicial declaration that the policy is void ab initio.
More than three months later, on November 30, 2012, Dr. Grogan filed suit in the
McCracken Circuit Court against DVC and its two other members. This complaint asserts claims
relating to DVC’s internal affairs.1 In its counterclaims, DVC seeks, among other things, to hold Dr.
Specifically, Dr. Grogan asserts that DVC and its members: (1) failed to perform its obligations
and duties under an Operating Agreement and Buyout Agreement, resulting in a breach of contract;
(2) breached their fiduciary duties to Dr. Grogan; (3) converted Dr. Grogan’s interest in the
company; and (4) interfered with Dr. Grogan’s business relationships. (Compl. [DN 19-2] ¶¶ 34–56.)
Grogan liable to it “if it is proven . . . that Grogan made fraudulent or material misrepresentations
in connection with his application for the Key Person Replacement Insurance Coverage . . . .”
(Answer & Countercls. [DN 19-3] ¶ 21.) Later, on December 11, 2012, DVC filed an action in the
McCracken Circuit Court against its insurance agency and agent, which were affiliated with
Principal Life. In this complaint, DVC asserts claims related to their roles in procuring the Principal
Life policy. (Compl. [DN 19-4].) DVC then filed this motion to dismiss, asking the Court to decline
to exercise jurisdiction over this declaratory judgment action.
As an initial matter, the Court must determine the extent to which it has discretion whether
to exercise jurisdiction over the claims made in this case. DVC considers the claims here to be solely
for declaratory relief. The federal Declaratory Judgment Act provides in relevant part:
In a case of actual controversy within its jurisdiction, . . . 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 added). By its terms, then, the exercise of jurisdiction under the
Declaratory Judgment Act is not mandatory. Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373
F.3d 807, 812 (6th Cir. 2004) (citing Brillhart, 316 U.S. at 494); Travelers Indem. Co. v. Bowling
Green Prof’l Assocs., 495 F.3d 266, 271 (6th Cir. 2007). “In determining the propriety of entertaining
a declaratory judgment action, competing state and federal interests weigh in the balance, with
courts particularly reluctant to entertain federal declaratory judgment actions premised on diversity
jurisdiction in the face of a previously-filed state-court action.” Adrian Energy Assocs. v. Mich. Pub.
Serv. Comm’n, 481 F.3d 414, 422 (6th Cir. 2007). Abstention cases involving proceedings in state
court are often referred to as involving the Wilton/Brillhart doctrine, named after the two primary
Supreme Court cases on the subject. Wilton, 515 U.S. at 289–90 (holding that a court acted within
its bounds in staying a declaratory judgment action where parallel state proceedings were
underway); Brillhart, 316 U.S. at 494–95 (setting a standard for discretion when state proceedings
Principal Life, on the other hand, insists that the Court has no discretion under the Wilton/
Brillhart doctrine because the claims here are not solely for declaratory relief, but instead, include
a claim for rescission. If the Court is to consider abstention, Principal Life asks it to apply the more
stringent standard in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800
(1976). In Colorado River, the Supreme Court held that district courts have a “virtually unflagging
obligation . . . to exercise the jurisdiction given them” unless there is “parallel” litigation pending
in state court and the proposed litigation in federal court would be duplicative or unwise. 424 U.S.
at 817–18; see Bates v. Van Buren Tp., 122 Fed. App’x 803, 806 (6th Cir. 2004); Gottfried v. Med.
Planning Servs., Inc., 142 F.3d 326, 329 (6th Cir. 1998). The general rule is that “the pendency of an
action in the state court is no bar to proceedings concerning the same matter in the Federal Court
having jurisdiction . . . .” Colo. River, 424 U.S. at 817.
In Count I of its complaint, entitled “Rescission and/or Declaration of Rights,” Principal Life
asserts that it “is entitled to rescind the policy and/or to a judicial declaration and/or judgment that
the policy is void ab initio.” (Compl. [DN 1] ¶ 25.) DVC asserts that reported Kentucky decisions
treat rescission claims as declaratory judgment actions. See, e.g., Progressive N. Ins. Co. v. Corder,
15 S.W.3d 381, 382 (Ky. 2000) (noting that an insurance company “filed a declaratory judgment
action . . . seeking a declaration that [the insured’s] motorcycle insurance policy ‘is rescinded and
null and void ab initio’”); Nat’l Ins. Ass’n v. Peach, 926 S.W.2d 859, 860 (Ky. App. 1996) (noting
that an insurance company brought an “action for a declaration of rights,” contending “that the
policy was void from its inception”).
Principal Life, by contrast, argues that an action for rescission is not an action for declaratory
relief and should not be treated as one. See Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th
Cir. 1998) (“Indeed, when other claims are joined with an action for declaratory relief (e.g., bad
faith, breach of contract, breach of fiduciary duty, rescission, or claims for other monetary relief),
the district court should not, as a general rule, remand or decline to entertain the claim for
declaratory relief.”). According to Principal Life, because it seeks both a declaratory judgment and
rescission, the Court should proceed with a non-declaratory judgment abstention analysis. See
Harding v. Apartment Inv. & Mgmt. Co., 2011 WL 211528, at *3 (W.D. Ky. Jan. 20, 2011) (noting
that when the “declaratory relief is intertwined with at least some of [the plaintiff’s] other claims,”
district courts should apply the Colorado River factors for all of the plaintiff’s claims).
The Sixth Circuit has never spoken directly on the issue of which standard applies when a
plaintiff seeks both a rescission and declaratory relief. The Circuits take different approaches on this
issue. There are arguably three lines of precedent. One approach, taken by the Ninth Circuit, is to
apply the Colorado River standard when the coercive claims can exist independently of requests for
declaratory relief. See United Nat’l Ins. Co. v. R&D Latex Corp., 242 F.3d 1102, 1112 (9th Cir.
2001). A second approach, taken by the Fifth Circuit, is to find that the Wilton/Brillhart
discretionary standard is per se supplanted by Colorado River when an action includes both
declaratory and non-frivolous coercive claims. See Kelly Inv., Inc. v. Cont’l Common Corp., 315
F.3d 494, 497 n.4 (5th Cir. 2002). A third approach, taken by courts in the Third, Seventh, and
Eleventh Circuits “look to the ‘heart of the action’ to determine if the standard of Wilton or that
of Colorado River should apply.” See ITT Indus., Inc. v. Pac. Emp’rs Ins. Co., 427 F. Supp. 2d 552,
556 (E.D. Pa. 2006).
After studying these precedents, this Court finds that the “heart of the action” test is the most
appropriate and the most readily reconcilable with applicable legal principles. As Judge Steele noted
in Lexington Ins. Co. v. Rolison:
In Wilton, the unanimous Supreme Court explained that declaratory judgment
actions are fundamentally different than ordinary civil actions because of the
discretion imbued in district courts by Congress in deciding whether and when to
avail themselves of this “remedial arrow in the district court’s quiver.” Thus, “[i]n
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.” To eradicate that discretion simply because a coercive
claim has been tacked onto what is, at its core, a declaratory judgment action would
be to jettison those same considerations of practicality and wise judicial
administration, to exalt form over substance, to marginalize Wilton, and to
undermine the statutory scheme established by Congress.
434 F. Supp. 2d 1228, 1237 (S.D. Ala. 2006) (internal citations omitted). Indeed, in the Court’s
opinion, the “heart of the action” rule is preferable. The rule promotes flexibility, allowing district
courts to treat different cases differently based on their fundamental character.
In the present case, the Court concludes that the “heart of the action” is declaratory in nature.
Plaintiff’s rescission claim is closely intertwined with the declaratory judgment claim, with both
claims hinging on the proper interpretation of the subject insurance policy. Accordingly, the Court
concludes that the discretionary standard of Wilton and Brillhart applies.2
The Court recognizes that in Harding v. Apartment Inv. & Mgmt. Co., Judge Heyburn noted that
the Sixth Circuit has previously “turned to a non-declaratory judgment abstention analysis in a case
with declaratory and other claims when ‘[t]he claims . . . for which declaratory relief [was] requested
and those for which injunctive relief [was] requested are so closely intertwined that judicial
economy counsels against dismissing the claims for declaratory relief while adjudicating the claims
for injunctive relief.” 2011 WL 211528, at *3 (W.D. Ky. Jan. 20, 2011) (quoting Adrian Energy
Assocs., 481 F.3d at 422). However, the Court finds that in Adrian Energy Assocs., the Sixth Circuit
The Sixth Circuit has instructed district courts to examine five factors to determine whether
abstention is appropriate under Wilton and Brillhart. Bituminous, 373 F.3d at 813. These factors are:
(1) whether the judgment would settle the controversy;
(2) whether the declaratory judgment action would serve a useful purpose in
clarifying the legal relations at issue;
(3) whether the declaratory remedy is being used merely for the purpose of
“procedural fencing” or “to provide an arena for a race for res judicata”;
(4) whether the use of a declaratory action would increase the friction between our
federal and state courts and improperly encroach on state jurisdiction; and
(5) whether there is an alternative remedy that is better or more effective.
Id. (citing Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000) (citations omitted)).
Factors 1 and 2: Settlement of Controversy and Clarification of Legal Relations
In the context of lawsuits by insurance companies to determine policy coverage obligations,
most courts consider the first and the second factors together. See Scottsdale Ins. Co. v. Flowers,
513 F.3d 546, 557 (6th Cir. 2008) (noting that “it is almost always the case that if a declaratory
judgment will settle the controversy, then it will clarify the legal relations in issue”). However, as
the parties have discovered, there is a split within the Sixth Circuit regarding each factor. One line
of cases suggests that the declaratory judgment action must settle the entire controversy that is
ongoing in state court and clarify the legal relationship between all the parties. See Travelers Indem.
Co. v. Bowling Green Prof’l Assocs., 495 F.3d 266, 271 (6th Cir. 2007) (holding that the failure to
resolve the controversy or clarify the legal relationship between all the parties in the underlying state
case weighed against exercising jurisdiction). Another line of cases suggests that the declaratory
judgment need only settle the controversy and clarify the relations between those involved in the
declaratory judgment action. See Northland Ins. Co. v. Stewart Title Guar. Co., 327 F.3d 448, 454
did not directly address the issue presented in this case.
(6th Cir. 2003) (holding that the first factor weighed in favor of accepting jurisdiction because the
declaratory judgment would settle the insurance coverage issue between the parties).
The Sixth Circuit recognized this apparent conflict in Flowers, noting that “[t]he difference
between these lines of cases appears to rest on the competing policy considerations of consolidating
litigation into one court versus permitting a party to determine its legal obligations as quickly as
possible.” 513 F.3d at 555. The Court then went on to present an alternative explanation, stating that
“the contrary results in these cases might also be explained by their different factual scenarios.” Id.
Specifically, where the Sixth Circuit required the declaratory action to resolve the entire controversy
and clarify the legal relations between all parties, there were factual disputes regarding the insured
that would have to be resolved in the declaratory judgment action. See, e.g., Bituminous Cas. Corp.,
373 F.3d at 813 (recognizing a dispute as to whether the injured party was the insured’s employee).
In each of the cases where the Sixth Circuit reached the opposite conclusion, such factual disputes
did not exist. See, e.g., Northland Ins. Co., 327 F.3d at 454.
Some federal courts are not persuaded by these Flowers explanations, finding that the Sixth
Circuit has essentially adopted contrary, irreconcilable positions. See, e.g., Grange Mut. Cas. Co.
v. Safeco Ins. Co. of Am., 565 F. Supp. 2d 779, 787 (E.D. Ky. 2008). The Court shares many of
these courts’ concerns. However, there are factual distinctions between the lines of cases that postFlowers courts have found important. See, e.g., Auto Owners Ins. Co. v. Aldridge, 2009 WL
4782115 at *2–3 (E.D. Ky. Dec. 7, 2009). Therefore, this Court joins those cases in concluding that
where the district court in the declaratory judgment action will only have to decide purely legal
questions or engage in fact-finding that does not affect the parties in the underlying action, the
declaratory action need only settle the controversy and clarify the legal relations between the parties
in the district court.
Here, there are three actions at issue, each of which asserts distinct claims and seeks distinct
remedies. First, in the federal action, Principal Life seeks a rescission of the subject insurance policy
or, alternatively, a declaration that Dr. Grogan’s claim for benefits is not covered under that policy.
Second, in Dr. Grogan’s state action, the focus is on whether DVC breached its Operating or Buyout
Agreements, and whether DVC’s members breached their fiduciary duties to Dr. Grogan, converted
his interest in the company, or interfered with his business relationships. Third, DVC’s state action
centers on whether its insurance agency and agent were negligent or fraudulent in selling the subject
policy. A close analysis of DVC’s action reveals that it focuses on whether it can shift liability to
the insurance agency and agent should it be found liable to Principal Life. Notably, neither the
validity of the subject policy nor its application to Dr. Grogan is at issue in either state action.3
DVC argues that if it were to exercise jurisdiction in this case, the Court would be required
to engage in fact-finding that would affect the underlying actions. As an example, DVC argues that
the Court would have to engage in fact-finding to determine whether the insurance agency and agent
who sold the subject policy to DVC were negligent or fraudulent, which is at issue in DVC’s state
action. As another example, DVC argues that the Court might be required to engage in fact-finding
as to whether Dr. Grogan is “disabled” under the policy, which would impact the determination of
With respect to Dr. Grogan’s action, the Court notes that in its counterclaims, DVC seeks to hold
Dr. Grogan liable to it “if it is proven . . . that Grogan made fraudulent or material
misrepresentations in connection with his application for the Key Person Replacement Insurance
Coverage . . . .” (Answer & Countercls. [DN 19-3] ¶ 21.) However, this seems to suggest that the
validity and application of the insurance policy to Dr. Grogan will be decided in the federal action.
With respect to DVC’s action, DVC asserts that its damages include the policy’s rescission;
however, DVC does not seek any determination that the policy was actually rescinded. (Compl. [DN
19-4] ¶¶ 27, 30, 33.)
whether the Operating Agreement was breached in Dr. Grogan’s state action. In support of its
position, DVC relies on Motorists Mutual Insurance Co. v. Thacker Memorial, Inc., 679 F. Supp.
2d 802, 807 (E.D. Ky. 2010). In that case, the Court declined to exercise jurisdiction after observing:
MSM, the agency that sold the insurance policy at issue to the Thackers, is not a
party to this action, though it is an integral part of the conflict and its interests are
inextricably intertwined with the issues before the court. Resolving any portion of
this conflict without MSM as a party to the action would be unfair and inefficient,
cutting against the exercise of jurisdiction. . . . To decide the [insurance] issues this
Court must determine questions of fact about MSM’s representations . . . .
Id. However, as Principal Life correctly highlights, DVC’s reliance on this case is misplaced.
The Court finds that the different circumstances of the underlying lawsuits justify a different
conclusion here. As an initial matter, the Court recognizes that this case bears some similarity to
Motorists Mutual, as the agency that sold the subject policy is not a party to this action and is a party
to DVC’s state action. However, this case is different from Motorists Mutual on essential points.
First, Principal Life is not a party in the state action, and in Motorists Mutual, the state action named
both the selling agent and policy provider as defendants. Second, Principal Life’s federal complaint
asks for a declaration regarding liability. In Motorists Mutual, however, the Court relied on the fact
that the federal complaint did not seek declarations regarding liability. Third, Principal Life’s claim
was filed before the state actions, and in Motorists Mutual, the insurance company’s claim was filed
after the state actions. Id. at 807–08. The Court thus finds Motorists Mutual inapplicable to this case.
The main issue to be decided by this Court is whether the subject insurance policy is void
due to any material misrepresentations made by DVC and Dr. Grogan during the application
process.4 The Court finds that in deciding this issue, it likely will not disturb the resolution of the
The Court notes that it would only have to determine whether Dr. Grogan is “disabled” under the
subject policy if it first determines that the insurance policy is not void. It also notes that there is no
state-court issues. After analyzing the pleadings and briefing in this case, the Court finds that it will
not need to make any factual findings regarding the nature or scope of misrepresentations by the
insurance company and agent, as these misrepresentations are not material to the question of whether
the policy is void. Indeed, while evidence that comes to light in DVC’s state action might work to
shift liability for any misrepresentations DVC made in the application process, this liability-shifting
will not somehow make the underlying policy valid if the Court finds it to be void. Accordingly, the
Court finds that this declaratory action will settle the parties’ controversy and clarify their issues.
The first two factors weigh in favor of exercising jurisdiction.
Factor 3: Procedural Fencing and Res Judicata
“The third 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 (citing AmSouth
Bank v. Dale, 386 F.3d 763, 788 (6th Cir. 2004)). The Sixth Circuit has held that it is “reluctant to
impute an improper motive to a plaintiff where there is no evidence of such in the record.” Id. In this
case, as an initial matter, the Court notes that both state actions were filed more than three months
after this federal action was commenced. This is not an abstention case where the state actions were
previously filed, nor is it a case where the state actions were filed mere days or weeks after the
federal action. Thus, it initially seems that the third favor weighs against abstention and in favor of
exercising jurisdiction. See Barber-Greene Co. v. Blaw-Knox Co., 239 F.2d 774, 778 (6th Cir. 1957)
indication in the record that this determination would impact Dr. Grogan’s state action. In Dr.
Grogan’s complaint, he asserts that the Operating Agreement provides that DVC shall purchase a
member’s interest in the company in the event of that member’s death or disability. (Compl. [DN
19-2] ¶ 11.) However, there is no additional assertion indicating that this provision depends on the
insurance policy’s definitions and exclusions related to the term “disabled.”
(noting that cases which are filed first generally take priority over subsequently-filed suits).
The Court must address DVC’s argument that Principal Life engaged in procedural fencing.
“Procedural fencing exists when a party in filing a declaratory action accomplishes something that
the party could not do through removal.” Cas. Indem. Exch. v. High Croft Enters., Inc., 714 F. Supp.
1190, 1193 (S.D. Fla. 1989) (citing Firemen’s Ins. Co. v. Riley, 322 F. Supp. 349, 352 (W.D. Ky.
1971)). According to DVC, Principal Life has accomplished “backdoor removal” in this case since
it raced to file in federal court and made misrepresentations to do so. DVC highlights that when it
requested an appeal of Principal Life’s denial, Principal Life promised a response within thirty days.
Then, Principal Life asked for an extension until August 24, 2012. Thereafter, on August 24, 2012,
Principal Life both affirmed its denial and advised DVC of its decision to file a civil action. A
complaint was filed that same day. DVC contends that these facts show an improper motive and
favor abstention. See Zide Sport Shop of Ohio, Inc. v. Ed Tobergte Assocs., Inc., 2001 WL 897452,
at *4 (6th Cir. July 31, 2001) (finding bad faith when declaratory plaintiffs requested an extension
to respond to a settlement demand and filed suit one day before the extension’s expiration).
However, the Court finds that several other facts suggest that Principal Life did not engage
in procedural fencing. First, it is clear that Principal Life did not gain a tactical advantage by filing
this federal action, as the same law will be applied regardless of whether this action is litigated in
state or federal court. Second, there is no evidence that this federal court provides a geographically
more convenient place for Principal Life than state court. Cf. Ford Motor Co. v. U.S. Dep’t of
Homeland Sec., 2006 WL 2457521, at *8 (E.D. Mich. Aug. 23, 2006) (noting that the geographical
convenience of a certain forum may be relevant to a procedural fencing determination). Third, unlike
the plaintiffs in Zide Sport Shop, Principal Life did not suggest that settlement was possible or
represent that the parties might negotiate. Further, Principal Life did not file suit prior to the
extension’s expiration. The Court finds that these facts indicate that Principal Life did not have an
improper motive. Accordingly, the Court finds that if DVC’s procedural fencing argument causes
the third factor to weigh in favor of abstention at all, it does so only slightly.
Factor 4: Increase of Friction and Improper Encroachment
As to the fourth factor, the Sixth Circuit has held that courts must analyze three additional
sub-factors when determining whether an exercise of jurisdiction would increase friction between
the federal and state courts. These factors are:
(1) whether the underlying factual issues are important to an informed resolution of
(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 the 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.
Bituminous Cas. Corp., 373 F.3d at 814–15 (citing Scottsdale Ins. Co. v. Roumph, 211 F.3d 964,
968 (6th Cir. 2000)). The Court considers each sub-factor in turn.
Importance of Underlying Factual Issues to Resolution of Case. The Court finds that the first
sub-factor weighs in favor of exercising jurisdiction, as the coverage question is not dependent on
the outcome of a factual inquiry made in the underlying state actions. As discussed above, the issue
to be decided in this action is whether the subject insurance policy is void. In making a
determination on this issue, the Court finds will not need to make any factual findings regarding the
nature or scope of misrepresentations by the insurance company and agent. Any factual findings
made by this Court will not conflict with those made by the state courts because there are different
issues to be decided. The first sub-factor weighs against abstention and in favor of exercising
State Court’s Position to Evaluate Factual Issues. The Court also finds that the second subfactor weighs in favor of exercising jurisdiction. As to this factor, the question is whether the
Kentucky courts are in a better position to evaluate the factual issues than the federal court. They
are not. Again, there is little overlap, if any, between the factual issues presented in the Kentucky
actions and this declaratory judgment action, and the state courts are not in a better position to
address the issues presented. Importantly, the insurance company is not a party to the state court
action and neither the validity of the insurance policy nor the scope of insurance coverage is before
the state courts. See Scottsdale Ins. Co., 211 F.3d at 560 (noting that the second sub-factor “appears
to have less force when the state law is clear and when the state court is not considering the issues”
and further noting that “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”).
Close Nexus between Issues and State Law and Policy. With respect to the third sub-factor,
the Court finds that it does weigh against exercising jurisdiction. The interpretation of insurance
contracts is a “question of state law with which the Kentucky state courts are more familiar and,
therefore, better able to resolve.” Bituminous, 373 F.3d at 815. Thus, there is a close nexus between
the underlying legal issues and state policy and this sub-factor weighs against exercising jurisdiction.
Nevertheless, this does not mean that the Court must abstain from hearing the matter. After all, “not
all issues of insurance contract interpretation implicate such fundamental state policies that federal
courts are unfit to consider them.” Flowers, 513 F.3d at 561. The Court thus finds that while the
third sub-factor weighs against the exercise of jurisdiction, this does not mandate dismissal of the
case. The overall effect of the three sub-factors (and thus the overall effect of the fourth factor)
supports the Court’s exercise of jurisdiction.
Factor 5: Alternative Remedy
Finally, the Court must consider the fifth factor: whether there is an alternative remedy that
would be better or more effective. As is almost always the case, there are alternative remedies. For
example, Kentucky provides a declaration of rights procedure. See K.R.S. § 418.040. The Court
finds, however, that the facts do not suggest that a state forum would be better or more effective for
this declaratory judgment action. This case deals with the rescission of a contract for insurance or
a declaration that the contract is void, neither of which is a novel issue of Kentucky law. Because
Kentucky law “provides clear guidance as to the resolution of the legal issue presented, it cannot be
said that the district court [is] a clearly inferior forum to solve the issue.” Id. Further, because DVC
did not join Principal Life as a party to its state suit, Principal Life would be forced to either file a
new action in state court or move for leave to intervene in the existing state action if the Court would
dismiss this action. Accordingly, dismissal would not provide Principal Life with a superior remedy.
The fifth factor supports the Court’s exercise of jurisdiction.
Balance of Factors. In all, the Court finds that the balance of these factors weighs against
abstention. Accordingly, the Court DENIES DVC’s motion to dismiss.
For the reasons set forth above, IT IS HEREBY ORDERED that the Motion to Dismiss of
Defendant Doctors Vision Center I, PLLC [DN 19] is DENIED.
cc: counsel of record
April 15, 2013
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