National Fire Insurance Company of Hartford et al v. City of Willoughby, Ohio
Filing
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Order denying Defendant's Motion to dismiss (Related Doc # 36 ). Judge Christopher A. Boyko on 3/1/2019.(S,SR)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
NATIONAL FIRE INSURANCE
COMPANY, ET AL.,
Plaintiff,
Vs.
CITY OF WILLOUGHBY, OHIO
Defendant.
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CASE NO.1:17CV1392
JUDGE CHRISTOPHER A. BOYKO
OPINION AND ORDER
CHRISTOPHER A. BOYKO, J:
This matter is before the Court on Defendant City of Willoughby, Ohio’s Motion to
Dismiss Selective Insurance Company of the Southeast’s Intervenor’s Complaint Pursuant to
Fed. R. Civ. P. 12(b)(7), or, Alternatively, to Decline Jurisdiction over this Action. (ECF #
36). For the following reasons, the Court denies the City’s Motion.
On June 30, 2017, Plaintiffs National Fire Insurance Company of Hartford, National
Fire Insurance Company of Hartford, Successor by Merger to Transcontinental Insurance
Company and Valley Forge Insurance Company filed their Complaint in this Court seeking a
declaratory judgment that Plaintiffs owed Defendant City of Willoughby (“City”) no
obligation to defend or indemnify the City in the underlying action of United States of
America, et al. v. Richard M. Osborne Sr. et al., Case No. 1:11CV1029. On August 29, 2017,
the City filed its Motion to Dismiss, arguing that the Complaint must be dismissed because
certain umbrella insurers, who were necessary and indispensable parties to the action, were
not named in the declaratory judgment action. The Court denied the Motion, finding that
umbrella insurers were not necessary and/or indispensable parties to a dispute between an
insurer and its insured and because the City failed to comply with the requirements of Fed. R.
Civ. P. 12(b)(7). Thereafter, the Court permitted Selective Insurance Company, an umbrella
insurer of the City, to intervene in the case. It is the Intervenor’s Complaint which the City
now seeks to dismiss.
City’s Motion
According to the City, its reasons for seeking dismissal or, in the alternative, to have
the Court decline jurisdiction, are the same reasons it sought to dismiss National Fire’s
Complaint. Namely, that National Fire failed to name as parties the numerous umbrella
insurers of the City. According to the City, these insurers are necessary and/or indispensable
parties but joinder would defeat diversity jurisdiction. Furthermore, the City argues that the
claims presented favor declining jurisdiction because issues of state law predominate.
Standard of Review
According to the City, Selective Insurance Company’s Intervenor’s Complaint must
be dismissed under Fed. R. Civ. P. 12(b)(7) because the Rule requires dismissal “for failure to
join a party under Rule 19.” Rule 19 reads in pertinent part:
(a) Persons Required to Be Joined if Feasible.
(1) Required Party. A person who is subject to service of process and whose joinder
will not deprive the court of subject-matter jurisdiction must be joined as a party if:
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(A) in that person's absence, the court cannot accord complete relief among
existing parties; or
(B) that person claims an interest relating to the subject of the action and is so
situated that disposing of the action in the person's absence may:
(i) as a practical matter impair or impede the person's ability to protect
the interest; or
(ii) leave an existing party subject to a substantial risk of incurring
double, multiple, or otherwise inconsistent obligations because of the
interest.
(2) Joinder by Court Order. If a person has not been joined as required, the court must
order that the person be made a party. A person who refuses to join as a plaintiff may
be made either a defendant or, in a proper case, an involuntary plaintiff.
(3) Venue. If a joined party objects to venue and the joinder would make venue
improper, the court must dismiss that party.
(b) When Joinder Is Not Feasible. If a person who is required to be joined if feasible cannot
be joined, the court must determine whether, in equity and good conscience, the action should
proceed among the existing parties or should be dismissed. The factors for the court to
consider include:
(1) the extent to which a judgment rendered in the person's absence might prejudice
that person or the existing parties;
(2) the extent to which any prejudice could be lessened or avoided by:
(A) protective provisions in the judgment;
(B) shaping the relief; or
(C) other measures;
(3) whether a judgment rendered in the person's absence would be adequate; and
(4) whether the plaintiff would have an adequate remedy if the action were dismissed
for nonjoinder.
To determine whether joinder is required the Sixth Circuit has established a three step
analysis. Glancy v. Taubman Centers, Inc., 373 F.3d 656, 666 (6th Cir. 2004). The Court
must determine first whether the absent party’s presence is necessary under Rule 19a. If the
Court determines they are a necessary party the Court must then determine whether joinder of
the absent party is feasible meaning, will joinder defeat the Court’s subject matter
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jurisdiction. If joinder is not feasible the Court must determine whether the absent party is
indispensable under Rule 19(b). Id.
In the underlying suit presently pending before the Court, the United States of
America and the State of Ohio brought suit against the City and a number of other defendants
for violation of the Clean Water Act due to defendants’ discharge of pollutants into the waters
of the United States without authorization. This suit was brought by the City’s primary
insurers seeking a declaratory judgment on a single issue. That issue is whether Plaintiffs are
obligated to defend and indemnify the City in the underlying action in light of the pollution
exclusion in their policies with the City. It does not seek a judgment on the issues of primary
vs. secondary coverage, does not implicate unique issues of state law and does not ask the
Court to determine drop-down coverage issues amongst the various insurers of the City. It
presents a straight forward contract interpretation of a policy exclusion clause in Plaintiffs’
insurance policies with the City.
The Court allowed Selective Service to permissively intervene because its policy with
the City purportedly includes a nearly identical pollution exclusion to that of Plaintiffs and its
Intervenor’s Complaint contains a single claim for declaratory judgment on its duty to defend
or indemnify based on the pollution exclusion in its policy with the City.
The City argues its additional umbrella insurers are necessary parties because each of
the umbrella insurers’ policies must pay when coverage of the primary policy is exhausted or
otherwise unavailable. The City cites the Court to three cases it contends supports the City’s
position that the umbrella insurers are necessary parties. These cases are Continental Cas.
Co.
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v. Taco Bell Corp., 127 F. Supp. 2d 864 (W.D. Mich. 2001), Schlumberger Indus., Inc. v.
Nat’l Sur. Corp., 36 F.3d 1274 (4th Cir. 1994), and Employers Ins. Of Wausau v. Jostens,
Inc., 181 F.R.D. 623 (D. Minn. 1998).
According to the City, proceeding without the additional umbrella insurers creates the
risk that these insurers will be bound by the Court’s judgment without having an opportunity
to defend their interests. Furthermore, the City faces a risk of inconsistent adjudications on
coverage because separate courts could make contrary factual findings or render different
judgments.
In opposing the City’s Motion, Selective argues that the City’s other umbrella insurers
are not necessary parties because coverage under each insurer’s policy is dependent solely
upon the language contained therein. Although Selective’s policy contains the pollution
exclusion, at least one non-party umbrella insurers’ pollution exclusion does not contain the
same language. Furthermore, its unclear whether the City’s other non-party umbrella
insurer’s policy even contains a pollution exclusion. Should Selective and National Fire
prevail in their declaratory judgment action and the Court declare their pollution exclusions
preclude coverage, the effect is simply that the other umbrella insurers’ coverage will drop
down. At that point, these non-party insurers may contest coverage or not. Simply put,
Selective contends whether the non-party umbrella insurers owe coverage to the City is
dependent wholly upon the language in their own respective policies and not whether
Selective owes coverage. Because complete relief can be afforded the parties, the non-party
umbrella insurers are not necessary parties.
In light of the Court’s prior rulings and for the reasons set forth herein, the Court
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denies the City’s Motion. To determine whether a party is “necessary” the Court first
examines whether complete relief may be accorded the parties in the absence of the non-party
insurers. “In deciding this factor, courts should focus ‘on relief between the parties and not
on the speculative possibility of further litigation between a party and an absent person.’ ”
Iron Workers Local Union No. 17 Insurance Fund and its Trustees v. Philip Morris, Inc., 182
F.R.D. 512, 518 (N.D. Ohio 1998) quoting Sales v Marshall, 873 F.2d 115, 121 (6th
Cir.1989).
“The requirement under Rule 19(a)(1) that complete relief be available does not
mean that ‘every type of relief sought must be available, only that meaningful relief be
available.’” Iron Workers, at 518 quoting Henne v. Wright, 904 F.2d 1208, 1212 (8th Cir.
1990).
The Court holds the non-party umbrella insurers are not necessary parties to the suit.
The claims before the Court simply ask the Court to determine, based on specific exclusions
in the Plaintiffs’ and Intervenor’s insurance policies with the City, whether the insurers have a
duty to defend or indemnify the City. The non-party umbrella insurers’ absence does not
affect whether complete relief may be afforded in this action; that relief being a determination
of the duty to defend and indemnify under the terms of each insurers’ policy. Because
complete relief may be obtained amongst the parties without the presence of the absent
umbrella insurers, the Court holds they are not necessary parties to the action. This is
supported by the Court’s original and reconsideration opinions in this action, holding that
umbrella insurers are not necessary or indispensable parties to a dispute between a primary
insurer and its insured.
This is particularly so in this action, where the declaratory relief requested requires the
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Court to only consider and interpret the pollution exclusion clauses in each insurer’s policy
with the City.
Umbrella insurers are not third party beneficiaries to these policies thus,
complete relief may be afforded the parties regardless of the presence of the umbrella
insurers. Because the relief sought is unique to each insurer and insured -ie.- declare the
rights and obligations of each in the respective insurance policies, complete relief is available
to the parties.
The Court also holds that non-party umbrella insurers cannot claim an interest in
either National Fire’s nor Selective’s insurance with the City. The claims before the Court
do not concern overlapping coverage issues, subrogation rights or any of the various claims
that may implicate multiple insurance policies and pit one insurer against another. Instead,
this is a straightforward declaratory action to determine the duties of the insurer under the
terms of each insurers’ policies in light of a pollution exclusion. It cannot be disputed that
umbrella insurers do not have an interest in the City’s policies with other insurers with respect
to whether a pollution exclusion applies or not, particularly when the City has not produced
evidence demonstrating that the non-party insurers’ policies contain the identical or nearly
identical exclusion.
There is little risk of double, multiple or inconsistent obligations here particularly
because this Court also presides over the underlying action and has already determined
coverage issues for another of the underlying action defendants on the same poluution
exclusion. The Court is unaware that any other insurer of a defendant in the underlying action
has sought relief in another court.
In addition, the Court would not entertain an argument by an umbrella insurer for or
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against the interpretation of a policy exclusion to an insurance policy to which it was not a
signatory and where its own policy lacks the same exclusion. In short, the Court finds the
non-party umbrella insurers are not necessary parties.
Finally, the Court finds that the authority cited by the City is distinguishable.
In
Taco Bell, the Court found a successor primary insurer to be a necessary party because the
triggering period for coverage spanned consecutive policy periods of the party insurer and
non-party insurer and a factual determination had to be made as to when the triggering event
occurred. Thus, both insurers had an interest in the determination of when the triggering
event occurred as coverage on both policies was affected by the court’s factual determination.
That is not the case before the Court where a purely legal determination is required to
determine the duty to defend and indemnify under the policy.
In Schlumberger, the Court found multiple insurers indispensable, recognizing that
courts throughout the country differ on whether multiple insurers covering the same liability
are necessary parties. Holding that different courts handling different aspects of the case
could result in differing factual determinations resulting in inconsistent obligations, the court
found all plaintiffs’ insurers were required to be joined. That concern is not present in the
posture of this case where this Court presides over both the underlying action and, insofar as
is known, all the actions between the City and its insurers. Nor does any party contend that
the issues presented in the National Fire and Selective Complaints concern factual findings
that may bind non-party insurers. Furthermore, in Schlumberger, there was a factual issue as
to when the contamination occurred such that the determination would affect what policies
were implicated. Here, there does not appear to be an issue of when the alleged
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contamination occurred and the City has described no specific factual dispute that would
potentially be binding upon the non-party umbrella insurers.
In Jostens, the court determined that consecutive insurers were necessary parties
because issues of continuous contamination potentially affected insurance policies over
different time periods and also raised concerns over how to apportion damages amongst the
consecutive insurers. That is not the case here.
Therefore, the Court holds that non-party umbrella insurers are not necessary parties
to the declaratory actions before the Court and the City’s Motion to Dismiss is denied.
In the alternative, the City asks the Court to decline to exercise its discretion to hear
the declaratory judgment action. Federal courts have “unique and substantial discretion in
deciding whether to declare the rights of the litigants.” Wilton v. Seven Falls Co., 515 U.S.
277, 286, 115 S. Ct. 2137, 2142, 132 L. Ed. 2d 214 (1995). The Sixth Circuit traditionally
focuses on the five factors in determining whether a District Court properly exercised its
discretion: 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.
Doe v. Univ. of the S., 687 F. Supp. 2d at 759-60, citing Grand Trunk W. R.R. Co. v. Consol.
Rail Co., 746 F.2d 323, 326 (6th Cir.1984).
The Court finds the Grand Trunk factors favor exercising jurisdiction over the dispute.
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The action will resolve the dispute between the City, its primary insurers and an umbrella
insurer and will determine their respective rights under the applicable insurance policies.
Thus, the first two Grand Trunk factors favor exercising the Court’s jurisdiction over the suit.
Factors three and four favor the Court exercising its jurisdiction over the suit because
the underlying action is also before the Court thus, there is little concern over state/federal
friction or procedural fencing. Lastly, the Court finds there is no more effective or alternative
remedy.
Therefore, for the foregoing reasons, the Court denies the City’s Motion.
IT IS SO ORDERED.
/s/Christopher A. Boyko
CHRISTOPHER A. BOYKO
United States District Judge
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