KELLY et al v. MAXUM SPECIALTY INSURANCE GROUP et al
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE JOEL H. SLOMSKY ON 1/9/18. 1/9/18 ENTERED AND COPIES EMAILED TO COUNSEL.(jaa, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
RONALD KELLY, et al.,
MAXUM SPECIALTY INSURANCE
GROUP, et al.,
January 9, 2018
On December 1, 2014, Plaintiffs Ronald and Patrice Kelly filed a declaratory judgment
action against Defendants Sergius B. Carman, the Carman Corporation, the Carman Group, Inc.,
and the Carman Group, LLC (collectively, “Carman”) and Maxum Specialty Insurance Group
(“Maxum”)1 in the Court of Common Pleas of Philadelphia County. (Doc. No. 1-1 at 5-10.) In
this action, the Kellys sought a ruling that Maxum was required to defend and/or indemnify
Carman, under a policy of insurance issued by Maxum, in a state court tort action brought
against Carman by the Kellys.
On December 16, 2014, Defendant Maxum removed the
declaratory judgment action to this Court. (Doc. No. 1.) Subsequently, on December 24, 2014,
Plaintiffs filed a Motion to Remand (Doc. No. 9), which this Court granted on September 29,
2015. (Doc. No. 41.)
Defendant Maxum disputes whether it in fact issued Carman an insurance policy. Maxum
claims that the policy was issued by a different insurance company, Maxum Indemnity
Company. (Doc. No. 23 at 8.) For purposes of this Opinion, which insurance company
issued the policy of insurance is not material. If necessary, the Court will resolve at a later
time which insurance company issued the pertinent policy.
On October 28, 2015, Defendant Maxum timely appealed this Court’s Remand Order, in
which the Court declined to exercise jurisdiction over the declaratory judgment action, to the
United States Court of Appeals for the Third Circuit. (Doc. No. 43.) Maxum also requested that
the Court of Appeals address a pending Motion to Dismiss and an issue concerning realignment
of the parties in order to satisfy the prerequisite for diversity of citizenship jurisdiction in federal
court, both of which were not previously addressed by this Court because the case was remanded
to state court.2 (Id.) On August 21, 2017, the Court of Appeals ruled that this Court should not
have remanded the declaratory judgment action and sent it back to this Court for further
consideration. Kelly v. Maxum, 868 F.3d 274, 289 (3d Cir. 2017). It noted that “[b]efore the
case proceeds, however, the District Court must determine whether it possesses jurisdiction to
hear the case.” Id. (citing Steel Co. v. Citizens for Better Env’t, 523 U.S. 83, 93-102 (1998)
(holding that courts must first establish whether it has jurisdiction to hear a case before
addressing the merits).
For reasons that follow, the Court finds that realignment of the parties is warranted and
that Carman will be made a plaintiff in the declaratory judgment action against Defendant
Maxum. Based upon the realignment of the parties, diversity of citizenship jurisdiction between
the parties is achieved. The requisite amount in controversy is satisfied,3 and this Court now has
On January 26, 2015, Maxum filed a Motion to Dismiss the declaratory judgment action.
(Doc. No. 23.) Plaintiffs filed a Response in Opposition to the Motion on February 2, 2015
(Doc. No. 31), and on February 10, 2015, Maxum filed a Reply (Doc. No. 33). Carman did
not file a response to the Motion to Dismiss. The Court of Appeals did not address the
Motion to Dismiss or the issue of realigning the parties; it only ruled on whether remand was
proper. In remanding the case, it instructed this Court “to decide whether it has subject
matter jurisdiction over the action.” Kelly v. Maxum, 868 F.3d 274, 290 (3d Cir. 2017).
The requisite amount in controversy for diversity of citizenship jurisdiction is undisputed by
the parties. According to Defendant Maxum’s Notice of Removal, Carman is insured by
Maxum under a claims-made and reported Professional Liability Policy, with limits of
subject matter jurisdiction over this case.
In a lawsuit filed in state court stemming from a 2007 motor vehicle accident, Plaintiffs
Ronald and Patrice Kelly obtained a default judgment against BBK Tavern, Inc., d/b/a The
Princeton Tavern. The parties eventually settled for $5 million. Princeton Tavern then assigned
to Plaintiffs the right to sue its insurance broker: Sergius B. Carman, the Carman Corporation,
the Carman Group, Inc., and the Carman Group, LLC (collectively “Carman”). Plaintiffs sued
Carman because it had failed to timely notify Princeton Tavern’s insurer, State National
Insurance Company, of its obligations to defend and indemnify the insured in the state court tort
action under its dram shop liability policy.4 Because State National did not receive notice, it
refused to cover Princeton Tavern’s legal liability.
Upon receiving the assignment of rights, the Kelly Plaintiffs filed a lawsuit against
Carman in the Philadelphia Court of Common Pleas, which is currently pending. Docket Report,
Kelly, et al. v. the Carman Corp., et al., Case ID 130704825, Pa. Ct. Com. Pl. (Aug. 2, 2013)
(indicating that state case is scheduled for trial on February 12, 2018); (see also Doc. No. 1-1 at
11.) In that case, Plaintiffs allege negligence and breach of an oral agreement against Carman for
failing to promptly notify State National Insurance Company of Princeton Tavern’s request for
liability of $2 million per claim and $2 million in aggregate. (Doc. No. 1 at 2.) Moreover, in
the original state court action between Plaintiffs and BBK Tavern, Inc., d/b/a The Princeton
Tavern, discussed infra, Plaintiffs received a $5 million consent judgment.
“Dram shop liability” arises under the Pennsylvania Dram Shop Act, 47 Pa. Stat. and Cons.
Stat. Ann § 4-493 (2017), which imposes liability for negligent service of alcohol by liquor
licensees. In 2007, Plaintiff Ronald Kelly was injured in an automobile accident by an
intoxicated driver. (Doc. No. 1-1 at 14.) The driver had been served alcohol at the Princeton
Tavern while visibly intoxicated. (Id.) Prior to the accident, Princeton Tavern purchased a
dram shop liability policy from State National Insurance Company through its insurance
broker, Carman. (Id.)
indemnification and defense in the litigation. (Id.) On November 11, 2014, counsel for the
Kelly Plaintiffs sent Defendant Maxum Specialty Insurance Group, Carman’s professional
liability insurer, a copy of the amended complaint in the case.5 On December 1, 2014, Plaintiffs
filed a state court action against both Carman and Maxum. (Doc. No. 1-1 at 2, 7.) In that case,
pursuant to 42 Pa. Cons. Stat. § 7531 et seq., Plaintiffs sought a declaratory judgment as follows:
1. Defendant, Maxum Specialty Insurance Group, is obligated to defend its
insureds, the [Carman Defendants], in the underlying Ronald and Patrice
Kelly [sic], as assignees of BBK Tavern, Inc. v. The Carman Corporation, et
al. (Phila. CCP; July Term, 2013, No. 04825) litigation;
2. Defendant, Maxum Specialty Insurance Group, is obligated to indemnify its
insureds, the [Carman Defendants] in the underlying Ronald and Patrice Kelly
[sic], as assignees of BBK Tavern, Inc. v. The Carman Corporation, et al.
(Phila. CCP; July Term, 2013, No. 04825) litigation;
3. Defendant, Maxum Specialty Insurance Group, is obligated to reimburse
counsel for Plaintiffs, Ronald and Patrice Kelly, for all their attorney’s fees
and costs they have or will incur in the litigation of this coverage litigation;
4. Grant such other and further relief as may be proper.
(Doc. No. 1-1 at 9.)
On December 10, 2014, Defendant Maxum sent a representative of Carman a letter
denying defense and indemnification coverage in the state tort action filed by the Kellys. The
Carman was insured by Defendant Maxum for negligence. A portion of the Insuring
Agreement, which was referenced in a December 10, 2014 letter from Maxum to Carman
denying liability coverage, states:
We will pay those sums that an “insured” becomes legally obligated to pay as
“damages” because of a “wrongful act” in the rendering of or failure to render
“professional services” by any “insured” or by any person for whose
“wrongful acts” an “insured” is legally responsible for. We will have the right
and duty to defend any “insured” against any suit” seeking those “damages.”
However, we will have no duty to defend an “insured” against any “suit”
seeking “damages” for a “wrongful act” to which this insurance does not
(Doc. No. 14-1 at 3.)
letter informed Carman that its Professional Liability Policy was not triggered because Carman
had failed to immediately notify Maxum of any demands, notices, summonses or legal papers
during the applicable policy period of August 31, 2013 to August 31, 2014. A pertinent section
of the denial reads:
Here, Maxum received first notice of this claim on 11/11/2014 when we received
a copy of the Amended Complaint by fax from plaintiff’s counsel on 11/11/2014.
Therefore, because this claim was not both made and reported within the
applicable Policy Period of 8/31/2014 to 8/31/2015 the Policy does not provide
either defense or indemnity for this claim.
It should be noted that at the time that the claim was made against Carman in the
first week of 12/2013 Maxum was Carman’s errors and omissions carrier under a
claims made and reported policy, Policy No. PFP-6016792-03 with a Policy
Period of 8/31/2013 to 8/31/2014. Based on Carman’s first notice of this claim in
12/2013, notice should have been provided to Maxum during the 8/31/2013 to
8/31/2014 Policy Period. We have no indication that this matter was reported to
Maxum during the 8/31/2013 Policy Period and you have confirmed that it was
not in fact reported.
(Doc. No. 14-1 at 5.)
On December 16, 2014, Maxum timely removed only the state court declaratory
judgment action to this Court based on diversity of citizenship jurisdiction under 28 U.S.C. §
1441. The Kellys and Carman are both citizens of Pennsylvania, while Maxum is a citizen of
Georgia. Although the Kellys named both Carman and Maxum as defendants, Maxum argues
that the parties should be realigned because the Kellys and Carman possess the same interest in
the tort action pending in state court. (Doc. No. 1 at 4.) Specifically, both the Kellys and
Carman share an interest in having Maxum defend and/or indemnify Carman under the insurance
policy in the state action filed against Carman.
On December 24, 2014, the Kelly Plaintiffs filed a Motion to Remand the instant federal
case back to state court. (Doc. No. 9.) Maxum filed a Response in Opposition to Remand.
(Doc. No. 14.) Notably, Carman filed a Response in Support of the Motion to Remand. (Doc.
No. 22.) On September 29, 2015, this Court granted Plaintiffs’ Motion to Remand. (Doc. No.
41.) In granting the Motion, this Court declined to exercise jurisdiction under the Declaratory
Judgment Act based on its evaluation of eight factors established by the Third Circuit in Reifer v.
Westport Ins. Corp., 751 F.3d 129 (3d Cir. 2014).
A significant, but not dispositive, factor to consider in whether to exercise jurisdiction
over a declaratory judgment action is whether a parallel state court proceeding exists. Reifer,
751 F.3d at 144-45. After a court determines whether such a proceeding exists, it will then
weigh this finding against the eight other Reifer considerations.6 This Court ultimately found
that a parallel proceeding existed in state court, creating a presumption that the Court should
decline to exercise jurisdiction. It also concluded that the other factors did not outweigh the
presumption. Therefore, it declined to exercise jurisdiction and remanded the case to state court.
The Court did not decide the issue of realignment.
On August 21, 2017, the Court of Appeals reversed this Court’s decision to remand the
case to state court. It held that the state court proceeding between Plaintiffs and Defendant
Carman was not parallel to the declaratory judgment action between Plaintiffs and Defendants
Carman and Maxum that had been removed to this Court. It also found that the lack of pending
parallel state proceedings was not outweighed by the remaining eight Reifer factors. Therefore,
on remand, the Court of Appeals instructed this Court to determine whether it has subject matter
jurisdiction to hear this declaratory judgment action based on diversity of citizenship jurisdiction
if realignment of the parties is warranted.
For reasons that follow, based on the primary interest of the Kellys and Carman in having
Maxum defend and indemnify Carman in the state court proceeding in which Plaintiffs are suing
The Reifer factors were discussed extensively in this Court’s previous opinion and in the
Third Circuit’s opinion. As such, the Court need not repeat them here.
Carman, realignment of the parties in the declaratory judgment action is appropriate. Carman
will be realigned as a plaintiff in this case and will no longer be a defendant with Maxum. Thus,
this Court retains subject matter jurisdiction over the declaratory judgment action because both
Plaintiffs are now Pennsylvania citizens and Defendant Maxum is a Georgia citizen.
Realignment of Parties
Maxum urges this Court to exercise its authority to realign the parties for the purpose of
establishing diversity of citizenship jurisdiction, pursuant to Employers Insurance of Wausau v.
Crown Cork & Seal Co., 942 F.2d 862, 864 (3d Cir. 1991). It asserts that “Kelly sued Maxum to
try to establish coverage for Carman” and that “the interests of Kelly and Carman are aligned
because both seek a determination that Maxum is obligated to defend and indemnify Carman in
Kelly’s negligence and breach of duties [state] lawsuit. Clearly, the interests of Kelly and
Carman are more than aligned; indeed, they are nearly identical.” (Doc. No. 1.)
Federal courts have an obligation to “look beyond the pleadings and arrange the parties
according to their sides in the dispute,” rather than to merely rely on “the parties’ own
determination of who are plaintiffs and who defendants.” Emp’rs Ins. of Wausau v. Crown Cork
& Seal Co., Inc., 942 F.2d 862, 864 (3d Cir. 1991) (citing City of Indianapolis v. Chase Nat’l
Bank, 314 U.S. 63 (1941)). Courts must align parties based upon their genuine interest to
illuminate any actual collision of interests. City of Indianapolis, 314 U.S. at 69. In determining
whether realignment of parties is appropriate, the Third Circuit employs the “primary purpose”
or “primary issue” test. Emp’rs v. Ins. of Wausau, at 942 F.2d at 864. Under this test, the Court
looks to the “primary and controlling matter in dispute” and “plaintiff’s principal purpose for
filing its suit.” Id. (citing Zurn Indus., Inc. v. Acton Constr. Co., 847 F.2d 234, 237 (5th Cir.
1988). After identifying the primary issue in controversy in the action, the court must then
evaluate whether there is a genuine conflict between the parties regarding that issue. Chancellor
Props. v. Houston Cas. Co., No. 09-4514, 2009 U.S. Dist. LEXIS 105725, at *5 (E.D. Pa. Nov.
12, 2009) (citing Emp’rs, 942 F.2d at 864).
The primary purpose of the declaratory judgment action here is to determine whether
Maxum has an obligation to defend and indemnify Carman in the state tort action. Both the state
case and this declaratory judgment action originate from Plaintiffs Ronald and Patrice Kelly’s
damages incurred from the 2007 motor vehicle accident. They were assigned the right to sue
Carman by Princeton Tavern. Carman was their insurance broker and, as alleged by Princeton
Tavern, Carman did not notify their insurance company, State National Insurance Company, of
Plaintiffs’ suit and recovery against Princeton Tavern. Had the insurance company been notified,
it could have defended Princeton Tavern.
Plaintiffs sued Carman for negligence and breach of contract, and learned that Maxum
was Carman’s professional liability insurer. Plaintiffs then filed this declaratory judgment action
to determine Maxum’s responsibility for defending and indemnifying Carman in the underlying
tort action. The Complaint in the declaratory judgment action states as follows:
Plaintiffs, Ronald and Patrice Kelly, hereby bring this action seeking declaratory
judgment to obtain an adjudication that Defendant, Maxum Speciality Insurance
Group, is obligated to provide a defense and indemnification to its insureds, the
Carman Corporation, the Carman Group, Inc., Sergius B. Carman and the Carman
Group, LLC., under and pursuant to the coverages of policy in full force and
effect at all times material hereto in the Ronald and Patrice Kelly, as assignees of
BBK Tavern, Inc. v. The Carman Corporation, et. al. (Phila. CCP; July Term,
2013, No. 04825) litigation.
(Doc. 1-1 at 8.) Simply put, the objective of the Kelly Plaintiffs is to be made whole from the
accident which took place over a decade ago. By requesting the Court to define Maxum’s role in
this dispute, Plaintiffs seek assurance that they will be able to collect recovery for the damages
they incurred as a result of Carman failing to notify Princeton Tavern’s insurer about the suit
Plaintiffs filed against Princeton Tavern.
If Maxum is obligated to defend and indemnify
Carman for negligence, Plaintiffs may have a source of recovery.
Carman’s stance in the declaratory judgment action is the same. During a February 11,
2015 hearing on the Motion to Remand, the Court inquired as to Carman’s position on realigning
the parties in the declaratory judgment action:
But aren’t you standing in effect in the same shoes
at this point as the Kellys?
[Counsel for Carman]:
For this case?
Well in the - - in this case, yes.
[Counsel for Carman]:
In this case. In this case we seek the same thing.
You do seek the same thing.
[Counsel for Carman]:
All right. I mean are you a legitimate defendant or
should you be on the plaintiff side? That’s what it
comes down to.
[Counsel for Carman]:
That’s a good question, Your Honor, and it’s one that I
haven’t really thought about ‘till you just asked it. I - Your Honor, based on the way the caption is read and based
on the fact that the plaintiffs are seeking coverage I think
I’m on the defendant side, although by [sic] interests are
lined with the Kellys, if that makes sense.
All right. And tell me why you should be on the
[Counsel for Carman]:
I think I’m on the defendants’ side because the Kellys are
seeking insurance - - they get insurance coverage in this
case and they have to get it from - - they have standing to
sue the Carman defendants, and the Carman defendants
would - - and would then make available to them, should,
any insurance that would cover them for this loss. So I
don’t think that the Kellys in order to bring Carman in the
case can somehow file some sort of procedural motion to
make - - bring us in as a plaintiff.
(Doc. No. 38-5 at 16-17.)
Despite these ambiguous statements made to the Court by counsel for Carman and the
fact that Carman has not filed anything of record to establish definitively its position in the
declaratory judgment action, Carman repeatedly demanded that Maxum defend and indemnify
Carman in the underlying state tort action.7 It seems reasonable that Carman, the insured party,
would want defense and indemnification coverage by its professional liability insurer in the
Kelly Plaintiffs’ case against them.
Plaintiffs contend, however, that they did not have a shared interest with Carman because
Carman did not timely seek indemnity and defense from Maxum. (Doc. No. 39 at 8.) Maxum’s
December 10, 2014 letter denying defense and indemnity coverage acknowledges the fact that
Carman failed to report or otherwise contact its insurer when it received notice of the tort action.
The Court has not been provided any explanation why Carman did not timely seek coverage in
the underlying action. At the February 11, 2015 hearing, the Court asked counsel for Carman
why they failed to notify Maxum8:
Carman’s counsel at the time made demands for, or otherwise requested Maxum’s position
on, defense and indemnification in the state tort action on the following dates: August 15,
2015; July 27, 2016; July 31, 2016; August 2, 2016; August 31, 2016; and September 28,
2016. (Doc. Nos. 567-2; 56-3; 56-4; 56-5; 56-6; and 56-7.)
On October 4, 2017, then-counsel for Carman, John Evans, Esquire, filed a Motion to
Withdraw as Attorney. (Doc. No. 57.) On October 13, 2017, the Court held a hearing on the
Motion. (Doc. No. 58.) On October 24, 2017, Brian Richard Elias, Esquire filed a Notice of
Appearance on behalf of Defendants Sergius B. Carman, the Carman Corporation, the
Carman Group, Inc., and the Carman Group, LLC. (Doc. No. 72.) On October 25, 2017, the
Court granted John Evans, Esquire’s Motion to Withdraw, relieving him of representing the
Carman defendants. (Doc. No. 25.)
Well before I hear from Ms. Vargas let me speak to
[counsel for Carman] a second, because [counsel
for Carman] what’s a little puzzling here in
reviewing all this, at least on the surface without
additional evidence, is that Carman has been sued.
[Counsel for Carman]:
Correct, your honor.
And you would think that they would want their
insurance company, Maxum, to cover them in the
[Counsel for Carman]:
One would think.
[Counsel for Carman]:
One would think, Your Honor. I agree.
But based upon what [counsel for Plaintiffs] is
saying they didn’t seek that coverage.
[Counsel for Carman]:
[Counsel for Plaintiffs]’s statement as to the facts as
far as I am considered [sic] is correct, and I was
brought into this case and this case alone after this
was all done, and I don’t really - - you know, I don’t
really know an explanation as to why they did not.
(Doc. No. 38-5 at 14-15.)
Upon consideration of all statements by Carman’s counsel at the hearing and its lack of
any briefing on the realignment issue and the other facts as set forth above, the Court is not
persuaded that Carman should remain as a defendant in the declaratory judgment action. It is
obvious that the interest of the Kelly Plaintiffs and Carman are the same because both seek to
have Maxum defend and/or indemnify Carman in the state tort action. In this regard, Carman’s
counsel conceded that Carman “seek[s] the same thing” and that its “interests are lined with the
Kellys.” (Doc 38-5 at 16-17.) Moreover, the argument by the Kellys’ counsel that the interests
are not the same because Carman delayed in notifying Maxum that it was sued by the Kellys is
unconvincing. Even Carman’s lawyer could not advance a strategic reason for the delay in
notifying Maxum that would support the argument of Kellys’ counsel. Accordingly, the Kelly
Plaintiffs and Carman have a joint interest in having Maxum defend and indemnify Carman.
As an insured of Maxum, Carman would expect defense and indemnification from its
insurer. Otherwise, Carman would not only have to defend itself in the state tort action, but it
would also be required to pay all related costs, including Plaintiffs’ recovery and attorney’s fees
if they prevailed, out of its own pocket. Maxum, on the other hand, has an adverse interest to
both the Kelly Plaintiffs and Carman; they deny responsibility for defending and indemnifying
Carman in the underlying case. Therefore, there is an actual “collision of interests” between
Plaintiffs Kelly and Carman, who are aligned on one side, against Defendant Maxum, which is
on the other side.
For the foregoing reasons, this Court will realign the parties, naming Sergius B. Carman,
the Carman Corporation, the Carman Group, Inc., and the Carman Group, LLC as Plaintiffs. An
appropriate Order follows.9
Pending in this case is a Motion to Dismiss, filed by Defendant Maxum. (Doc. No. 23.) The
parties will be afforded until January 26, 2018 to file any supplemental briefing on the
Motion to Dismiss. The Court thereafter will render a decision on the Motion.
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