GEICO Casualty Company v. Hollandsworth et al

Filing 76

Order of Dismissal. The Court abstains from exercising jurisdiction over this case and dismisses it without prejudice. Signed on March 28, 2019, by District Judge Greg Kays. (Law Clerk)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
GEICO CASUALTY COMPANY,
Plaintiff,
v.
PATRICIA HOLLANDSWORTH and
RICHARD AGUILAR,
Defendants.

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No. 4:18-cv-00197-DGK

ORDER ABSTAINING AND DISMISSING CASE WITHOUT PREJUDICE
This declaratory judgment action concerns insurance coverage for an automobile collision.
Plaintiff GEICO Casualty Company (“GEICO”) seeks a declaration that the policy it issued to
Daniel and Deborah Clymens does not cover an accident involving a moving truck driven by
Patricia Hollandsworth.

Daniel Clymens helped Hollandsworth rent the truck, and while

intoxicated she crashed it into a motorcycle ridden by Richard Aguilar. The Court now, on its own
motion, exercises its discretion to abstain from hearing the suit and DISMISSES it in favor of a
pending and parallel state proceeding.
Background
A GEICO automobile policy insures Daniel and Deborah Clymens. The only vehicle listed
on the policy is a 2005 Toyota Sienna XLE. The policy has an “each person” bodily injury liability
limit of $25,000 and an “each occurrence” bodily injury liability limit of $50,000. The policy
extends coverage to relatives of the named insureds who reside in the insureds’ household and,
under certain circumstances, to insureds operating non-owned autos. It also obligates GEICO to
defend the insured in any suit for damages payable under the policy.

On July 13, 2013, Clymens and Hollandsworth rented a Ford E450 U-Haul truck so that
Hollandsworth could move from the Clymens’s to a new residence. The owner of the U-Haul
refused to rent to Hollandsworth because she lacked a valid driver’s license and was visibly
intoxicated. Thus, Clymens alone signed the rental agreement. Hollandsworth, however, paid for
the rental with her debit card. The next day, Hollandsworth drove the U-Haul truck while still
intoxicated and hit Aguilar as he was riding his motorcycle, severely injuring him.
Aguilar sued Hollandsworth in state court in August 2017.

Hollandsworth sought

indemnification from GEICO under the Clymens’s policy. GEICO denied coverage and offered
to defend her subject to a reservation of rights. Hollandsworth rejected GEICO’s defense and,
unbeknownst to GEICO, entered into an agreement with Aguilar under Mo. Rev. Stat. § 537.065
(the “537 Agreement”) (Doc. 31-1), whereby she assigned to Aguilar her rights under the GEICO
policy and her claims against GEICO.
In the 537 Agreement, Hollandsworth acknowledged fault for causing the accident, agreed
not to dispute liability, and agreed to submit the issue of damages “to a judge.” She also agreed
to pursue all claims against GEICO
for extra-contractual damages or bad faith and/or for [GEICO’s] failure to settle
and/or for negligence or breach of fiduciary duty (or however the claim may be
denominated) arising out of [GEICO’s] failure to earlier settle the claim brought
against her.
Hollandsworth further stated that she would “fully cooperate in any claim or cause of action”
against GEICO, including being named as a party plaintiff. She assigned to Aguilar “all interests,
causes of action, and rights of action” against GEICO. In exchange, Aguilar agreed to recover
only from GEICO rather than from Hollandsworth’s personal assets.
On February 22, Hollandsworth informed GEICO that she was rejecting its defense under
a reservation of rights. She also requested that counsel retained by GEICO withdraw from her
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case. The next day, GEICO replied that it was considering whether to withdraw its reservation of
rights and defend her. On February 28, Hollandsworth notified GEICO that she had not been
advised of GEICO’s position. She gave GEICO until 5:00 p.m. that evening to withdraw its
reservation and defend her unconditionally. GEICO chose not to do so.
Hollandsworth informed GEICO of the 537 Agreement on March 3. Shortly thereafter, on
March 7, GEICO moved to intervene as a matter of right in the state court lawsuit. On March 15,
Aguilar dismissed without prejudice his state court action against Hollandsworth. About one hour
later, GEICO filed this federal action seeking a declaratory judgment that it owed no duty to defend
or indemnify Hollandsworth with respect to the 2013 collision. Aguilar and Hollandsworth filed
separate motions to dismiss this case, arguing that Aguilar’s dismissal of the state court action
rendered the declaratory action moot. The Court denied these motions (Doc. 14).
Defendants entered into an agreement (Doc. 21-3) on May 4 to submit their underlying
dispute to binding arbitration. As part of the agreement, Hollandsworth agreed not to accept
representation at the arbitration from any attorney or firm selected by GEICO, or to “file any postarbitration motions challenging the award, any post-trial motions after the court enters judgment,
or any notice of appeal.” The agreement reiterated that Aguilar would seek to recover only from
the GEICO policy proceeds and any potential claim against GEICO.
The arbitrator heard evidence on June 4, and, on July 16, issued his decision awarding
Aguilar approximately $8 million in economic damages, $20 million in non-economic damages,
and $7 million in punitive damages against Hollandsworth.1 On August 8, Aguilar filed an

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The arbitration does not appear to have been particularly adversarial. For example, the arbitrator observed that
Aguilar’s life-care costs and future medical expenses did not reflect lesser amounts which Medicare, Medicaid, or a
private insurance carrier would negotiate. “However, no evidence was presented to prove lesser amounts. Thus, the
life care plan which was introduced at the hearing is the only evidence pertaining to the costs and expenses of his
future needs and medical care.” Arbitration Award at 11 (Doc. 21-1).

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application in state court to confirm the $35 million award. GEICO moved unsuccessfully to
intervene in this proceeding, and, on October 24, the state court entered the award. GEICO
appealed this decision, while Aguilar filed a separate state garnishment action against the insurance
company, alleging that GEICO acted in bad faith and breached its duty to defend. In that suit
Aguilar seeks garnishment of the policy proceeds, as well as compensatory and punitive damages.
He argues that GEICO’s actions render it liable for the entire underlying judgment.
Defendants moved jointly to dismiss (Doc. 46) or stay (Doc. 64) this action. They
requested that the Court abstain from hearing the case due to the pending state garnishment
proceeding. The Court denied the motions (Doc. 74) because the parties had already conferred
under Rule 16, taken several depositions, and fully briefed opposing motions for summary
judgment. The Court now revisits its decision concerning abstention.
Standard
Federal courts ordinarily have a “virtually unflagging obligation” to exercise their
jurisdiction. Colo. River Water Cons. Dist. v. United States, 424 U.S. 800, 817 (1976). But the
Declaratory Judgment Act, 28 U.S.C. § 2201, grants district courts “unique and substantial
discretion in deciding whether to declare the rights of litigants” or to abstain in deference to a
parallel state suit. Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). This decision is guided
by “considerations of judicial economy, considerations of practicality and wise judicial
administration, and with attention to avoiding gratuitous interference with state proceedings.”
Lexington Ins. Co. v. Integrity Land Title Co., 721 F.3d 958, 967 (8th Cir. 2013) (internal
quotations and citations omitted).
“The key consideration . . . is ‘to ascertain whether the issues in controversy between the
parties to the federal action . . . can be better settled by the state court’ in light of the ‘scope and

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nature of the pending state court proceeding.’” Evanston Ins. Co. v. Jones, 530 F.3d 710, 713 (8th
Cir. 2008) (quoting Capitol Indem. Corp. v. Haverfield, 218 F.3d 872, 874 (8th Cir. 2000)).
District courts must dismiss declaratory actions that a state court can better resolve, because “it
would be uneconomical as well as vexatious” to proceed under such circumstances. Haverfield,
218 F.3d at 874-75 (quoting Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942)).
Discussion
The Court previously determined that this case and the state garnishment proceeding are
parallel.2 The Court now reevaluates whether the state is better positioned to settle the issues.
Cincinnati Indem. Co. v. A & K Const. Co., 542 F.3d 623, 625 (8th Cir. 2008) (“This court may
raise the issue of the appropriateness of abstention sua sponte.”). Upon further review of Missouri
case law, the Court concludes that the state tribunal should resolve the matter. It reaches this result
partly because of questions concerning how the Missouri Supreme Court would address the policy,
HOK Sport, Inc. v. FC Des Moines, L.C., 495 F.3d 927, 935 (8th Cir. 2007) (requiring federal
courts in diversity cases to follow the state’s highest court or, if that court has not decided an issue,
to predict how it would rule), and partly because other factors further favor abstention.
With respect to non-owned autos such as the U-Haul,3 the GEICO policy provides coverage
for “[a] person or organization not owning or hiring the auto, regarding his or its liability because
of acts or omissions of an insured,” provided, however, that the insured was using the auto with
the permission of its owner and within the scope of that permission. GEICO argues that this

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The suits are parallel because both involve the same three parties—GEICO, Hollandsworth, and Aguilar—and
substantially the same issues. See Scottsdale Ins. Co. v. Detco Indus., Inc., 426 F.3d 994, 997 (8th Cir. 2005). GEICO
and Aguilar each seek a judicial determination of whether the GEICO policy covers Hollandsworth with respect to
the 2013 collision.
The GEICO policy defines a “non-owned auto” as “an automobile or trailer not owned by or furnished for the regular
use of either [the Clymens] or a relative, other than a temporary substitute auto.” The parties stipulate that the U-Haul
satisfies this definition.
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language covers only those held vicariously liable for the acts of an insured. GEICO emphasizes
that Hollandsworth is liable not because Clymens rented the U-Haul, but because she drove it
while intoxicated and collided with Aguilar. Defendants meanwhile urge the Court to adopt a
more expansive reading of the policy. They claim Hollandsworth would not be liable had Daniel
Clymens not rented the U-Haul and permitted her to drive it. Hence, Defendants in effect ask the
Court to apply a “but for” analysis to find coverage.
The Missouri Supreme Court has not addressed this or any similar provision. The Missouri
Court of Appeals has done so only twice, in cases that are not factually analogous. In Noll v.
Shelter Ins. Cos., the Court of Appeals held that nearly identical language covered the
policyholder’s son when he crashed a car lent to the policyholder by a friend.4 731 S.W.2d 393,
395 (Mo. Ct. App. 1987). And in Weinberg v. Safeco Ins. Co. of Ill., the court determined that an
effectively identical provision covered a student who crashed a van rented by the policyholder.
913 S.W.2d 59, 62 (Mo. Ct. App. 1995). Relying on Noll, the Weinberg court found the disputed
provision “enigmatic” and reasoned that if the insurer had intended to “engraft[] the concept of
actual negligence by a named insured,” it should have done so explicitly. Id. and n.1.
It is unclear whether Weinberg and Noll are determinative. See Minn. Supply Co. v.
Raymond Corp., 472 F.3d 524, 534 (8th Cir. 2006) (“Decisions of intermediate state appellate
courts are persuasive authority that we follow when they are the best evidence of what state law
is.”). For one, neither case provided much analysis of the policy language at issue. And in both
the owner of the auto had consented to it being driven by the potential insured. Noll, 731 S.W.2d
at 395; Weinberg, 913 S.W.2d at 60.

Here, by contrast, the owner expressly prohibited

Unlike the GEICO policy, the policy in Noll did not the insured’s relatives with respect to non-owned autos. Noll,
731 S.W.3d at 395.
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Hollandsworth from driving the U-Haul.5 This fact seemingly bears on whether Clymens, in
turning the U-Haul over to her, was “using” it within the scope of its owner’s permission.
To be sure, the Missouri Supreme Court has interpreted “use” broadly. See, e.g., Royal
Indem. Co. v. Shull, 665 S.W.2d 345, 347 (Mo. 1984); Griffits v. Old Rep. Ins. Co., 550 S.W.3d
474, 479 (Mo. 2018). But it has done so almost exclusively in the context of omnibus clauses. Id.
(“[I]n the context of an omnibus insurance clause, the term ‘use’ is much broader in scope and
application than the term ‘operate.’” (emphasis added)); see also Farm Bureau Mut. Ins. Co. v.
Broadie, 558 S.W.2d 751, 754 (Mo. Ct. App. 2001) (“[A]s employed in an omnibus clause ‘use’
is a term of much broader scope and application than ‘operate’ or ‘drive’ . . . .” (emphasis added)).
The Missouri Supreme Court has additionally suggested that restrictions on a rented vehicle’s
operation may bar coverage when made clear to the renter. Shull, 665 S.W.2 at 348.
Moreover, the Court observes that myriad federal and state decisions bolster GEICO’s
position. For example, in Koch Asphalt Co. v. Farmers Ins. Co., a company partly responsible for
a loading accident argued that it qualified as an insured under the same provision at issue here,
since the accident would not have occurred but for the policyholder’s negligence. 867 F.2d 1164,
1166 (8th Cir. 1989) (applying Minnesota law). The Eighth Circuit disagreed, holding that the
company had been sued for its own negligence, not that of the policyholder. Id.; see also, e.g.,
Vulcan Mats. Co. v. Cas. Ins. Co., 723 F. Supp. 1263, 1265 (N.D. Ill. 1989) (“[The provision] is
plainly a vicarious liability provision and nothing more.”); Canal Ins. Co. v. Earnshaw, 629 F.
Supp. 114, 120 (D. Kan. 1985) (holding that the provision did not provide coverage where the

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Hollandsworth states that the owner confirmed that she would not be driving the U-Haul because she was visibly
intoxicated and lacked a valid driver’s license. The rental agreement also bars unlicensed divers from operating the
vehicle, and U-Haul prepared an affidavit (Doc 45-8) stating that “Mr. Clymens was not authorized to give Ms.
Hollandsworth permission to drive the Subject Vehicle and would have breached the Rental Agreement if he granted
permission to Ms. Hollandsworth to drive [it].”

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“defendant [is] sued for his own negligent acts and no claims of liability are based on the
relationship between [the defendant and the policyholder]”); Garcia v. Fed. Ins. Co., 969 So.2d
288, 292-93 (Fla. 2007) (“We hold that the phrase . . . covers only an additional insured’s vicarious
liability . . . .”).
Courts reaching this conclusion have explained that a contrary interpretation could lead to
unexpected results. That is, if a policy obligates an insurer to defend and indemnify anyone facing
liability for acts enabled at least in part by some act or omission of the policyholder, then the
insurer could have to defend and indemnify a wide array of individuals. See Huber Eng’d Woods,
LLC v. Canal Ins. Co., 700 S.E.2d 220, 221 (N.C. 2010); Long Island Lighting Co. v. Hartford
Acc. & Indem. Co., 350 N.Y.S.2d 967, 971-72 (N.Y. Sup. Ct. 1973); see also Am. Hardware Mut.
Ins. Co. v. Dairyland Ins. Co., 304 N.W.2d 687, 689-90 (N.D. 1981).
Under Defendants’ reading of the policy, had Hollandsworth collided with the Clymens,
GEICO would seemingly have had to indemnify and defend her against the policyholder. And
had Hollandsworth been injured and asserted a claim against Aguilar, it appears possible that he
too would have been covered. This strikes the Court as odd and unintended. See J.E. Hathman,
Inc. v. Sigma Alpha Epsilon Club, 491 S.W.2d 261, 264 (Mo. 1973) (“The cardinal rule in the
interpretation of a contract is to ascertain the intention of the parties and to give effect to that
intention.”); Beister v. John Hancock Mut. Life Ins. Co., 356 F.2d 634, 640 (8th Cir. 1966) (noting
that courts should construe insurance contracts so as to avoid unreasonable and absurd results).
In light of these issues, the Court concludes that the state tribunal should resolve the case,
especially since other factors favor abstention as well. As previously noted, Missouri insurance
law governs this case, and there are no federal claims or defenses. There also exists a slight risk
of inconsistent judgments. In addition, the state garnishment action is broader in scope, given the

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bad faith claims not present here. See Seneca Spec. Ins. Co. v. Garcia Empire, LLC, No. 2:17-cv04119-NKL, 2018 WL 1005406, at *3 (W.D. Mo. Feb. 21, 2018) (observing that the federal
declaratory action would fully resolve the matter only if the insurer prevails). And although the
parties have completed substantial briefing in this suit, they can use their work in the state
proceeding. See Great Am. All. Ins. Co. v. Stutes, No. 2:17-cv-04035-NKL, 2018 WL 1787307,
at *3 (W.D. Mo. Apr. 13, 2018).
Conclusion
The state court is better positioned to settle the issues and, accordingly, this Court declines
to exercise its jurisdiction. A stay rather than dismissal is typically the preferred mode of
abstention. Seneca, 2018 WL 1005406, at *3 (citation omitted). But dismissal is appropriate
where there is “‘no reason for the case to return to federal court.’” Id. (quoting Haverfield, 218
F.3d at 875 n.2). The Court does not anticipate this case returning. It is therefore DISMISSED
WITHOUT PREJUDICE.
IT IS SO ORDERED.
Date: March 28, 2019

/s/ Greg Kays
GREG KAYS, JUDGE
UNITED STATES DISTRICT COURT

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