State Auto Property and Casualty Insurance Company v. Ellis, et al
Filing
26
MEMORANDUM OPINION AND ORDER: for the reasons set forth herein, the motions are granted in part and denied in part; the court DENIES defendants' 7 and 10 MOTIONS to Dismiss and/or Stay inasmuch as they request dismissal and GRANTS the moti ons to the extent they request a stay. This action is STAYED pending disposition of the related suit currently pending in the Circuit Court of Mercer County, West Virginia and the Clerk is directed to remove the case from the court's active docket. The parties are DIRECTED to inform the court promptly in writing of the state court disposition. Signed by Judge David A. Faber on 2/11/2014. (cc: counsel of record) (mjp)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
AT BLUEFIELD
STATE AUTO PROPERTY AND CASUALTY
INSURANCE COMPANY,
Plaintiff,
v.
CIVIL ACTION NO. 1:13-03878
MARANDA JEAN ELLIS, EXECUTRIX
OF THE ESTATE OF CHANCE THOMPSON, et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
Pending before the court are the defendants’ motions to
either dismiss this action or, in the alternative, stay this case
until resolution of the underlying state court action.
No. 7 and 10).
(Docs.
For the reasons set forth below, the motions are
granted in part and denied in part.
I.
Factual and Procedural Background
On or about September 24, 2012, Maranda Jean Ellis filed a
wrongful death action against her brother, Wesley Kurt Milam,
Jr., in the Circuit Court of Mercer County.
In her state-court
complaint, Ellis alleges that, on or about July 9, 2011,
defendant Milam was “backing out of the driveway when he
negligently, carelessly and recklessly backed over Chance
Thompson, resulting in the death of Chance Thompson.”
Ellis was
Chance Thompson’s mother and brought the wrongful death action as
the executrix of Chance Thompson’s estate.
At the time of the accident, Milam was driving a vehicle
owned by Chad Thompson, the father of Chance Thompson.
The
vehicle was insured through a policy issued by State Auto
Property and Casualty Insurance Company (“State Auto”) to Karen
Thompson, Chad Thompson’s mother.
Prior to the filing of the
wrongful death lawsuit, the Estate of Chance Thompson made a
demand to State Auto for the policy limits of Karen Thompson’s
policy.
See Exhibit 3 to Complaint for Declaratory Judgment.
Approximately five months after the wrongful death lawsuit
was filed, on February 28, 2013, State Auto filed the instant
declaratory judgment action on the basis of diversity
jurisdiction pursuant to 28 U.S.C. § 1332.
State Auto asks this
court to determine that no coverage exists for Milam under the
State Auto policy because, according to State Auto, although Chad
Thompson gave permission to Brandi Belcher to drive his vehicle
on the date of the accident, he did not give permission to Milam
because Milam did not have a driver’s license.
Declaratory Relief at p. 4.
Complaint for
The Complaint further alleges that
Milam “was operating the vehicle without the knowledge or
permission of Chad Thompson and was operating the vehicle against
the express directives of Chad Thompson, who had only given
permission to Brandi Belcher to drive the vehicle.”
Id.
Because
the State Auto policy excludes coverage for any “insured . . .
[u]sing a vehicle without reasonable belief that `insured’ is
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entitled to do so[,]” State Auto contends that no coverage exists
for Milam as he did not have Chad Thompson’s permission to drive
the vehicle.
Id. at pp. 5-6.
In their Complaint for Declaratory Relief, State Auto asks
this court to determine:
1.
That the language of the State Auto Insurance
policy is clear and unambiguous;
2.
That, pursuant to the clear and unambiguous
language of the subject policy, the policy does
not provide coverage for Wesley Kurt Milam, Jr.
and his actions on or about July 9, 2011, as he
did not have permission to operate the vehicle
owned by Chad Thompson;
3.
That, pursuant to the clear and unambiguous
language of the subject policy, the policy does
not provide coverage for the bodily injury,
property damage, or any other claim for damages
alleged by Maranda Jean Ellis or any allegations
raised in the Complaint of Maranda Jean Ellis;
4.
That State Auto be awarded the costs of its
prosecution of this declaratory judgment action to
include attorney fees, if such is supported by
law; and,
5.
That State Auto be granted such other and further
relief as may be determined just and proper.
Complaint for Declaratory Relief at p. 8.
After this declaratory judgment action was filed, on April
9, 2013, Ellis filed a motion for leave to amend her complaint in
the state court action in which she sought to add State Auto as a
defendant and add a claim seeking a declaratory judgment as to
the coverage issue.
By Order entered October 3, 2013, the
Circuit Court of Mercer County granted Ellis’ motion to amend.
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The state court, however, bifurcated the coverage issue from the
underlying tort claim.
Defendants’ motions to dismiss and/or stay urge the court to
decline to exercise its authority under the Declaratory Judgment
Act in favor of allowing the issue of coverage to be resolved by
the pending state action.
II.
Analysis
The Federal Declaratory Judgment Act (“the Act”) provides in
pertinent part that, “[i]n 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.
This Act, which is permissive on its
face, is understood to bestow upon federal courts “unique and
substantial discretion in deciding whether to declare the rights
of litigants.”
Wilton v. Seven Falls Co., 515 U.S. 277, 286
(1995)(noting language of statute that a court “may” declare the
rights and legal relations of interested parties).
In exercising its discretion, a court is to consider (1)
whether the judgment would “serve a useful purpose in clarifying
and settling the legal relations in issue,” and (2) whether the
judgment would “terminate and afford relief from the uncertainty,
insecurity, and controversy giving rise to the proceeding.”
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Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir.
1937).
Courts are cautioned against issuing declaratory
judgments where the result would be “to try a controversy by
piecemeal, or to try particular issues without settling the
entire controversy, or to interfere with an action which has
already been instituted.”
Id.
The Fourth Circuit Court of Appeals has enunciated four
specific factors by which the court’s analysis is to be guided:
(i) the strength of the state’s interest in having the
issues raised in the federal declaratory action decided
in the state courts; (ii) whether the issues raised in
the federal action can more efficiently be resolved in
the court in which the state action is pending; . . .
(iii) whether permitting the federal action to go forward
would result in unnecessary “entanglement” between the
federal and state court systems, because of the presence
of “overlapping issues of fact or law” [; and (iv)]
whether the declaratory judgment action is being used
merely as a device for “procedural fencing” – that is,
“to provide another forum in a race for res judicata” or
“to achieve a federal hearing in a case otherwise not
removable.”
Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 257 (4th Cir.
1996)(quoting Nautilus Ins. Co. v. Winchester Homes, Inc., 15
F.3d 371, 376 (4th Cir. 1994)).
Although State Auto contends that these factors weigh
against dismissal and/or stay of this declaratory judgment
action,1 the court disagrees.
Applying the four Nautilus factors
1
Indeed, State Auto seems to argue that this court need not
even consider the Nautilus factors in deciding whether to
exercise jurisdiction in this case. See Doc. No. 11 at p. 7,
“State Auto’s Response to Defendant, Maranda Jean Ellis’, Motion
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to the instant case, the court is persuaded that the parties’
dispute ought to be resolved through the pending state action.
With respect to the first Nautilus factor, the court finds that
it weighs heavily in favor of dismissal.
Notwithstanding State
Auto’s assertions to the contrary, the court finds that
resolution of the coverage issue will involve “difficult,
complex, or unsettled” questions of state law.
Nautilus, 15 F.3d
at 378.
The policy at issue excludes coverage for any insured
“[u]sing a vehicle without reasonable belief that `insured’ is
entitled to do so.”
Complaint ¶ 18 (quoting policy).
Such a
provision is commonly referred to as an “entitlement exclusion.”
See, e.g., Newell v. Nationwide Mut. Ins. Co., 432 S.E. 2d 284,
285 (N.C. 1993); see also State Farm Mut. Auto. Ins. Co. v.
Wilson, No. 01-5470, 54 Fed. App’x 607, 609 (6th Cir. 2002)
(referring to language in insurance policy excluding coverage for
any person “[u]sing a vehicle without a reasonable belief that
to Dismiss or Stay” (“Notwithstanding the Quarles analysis, which
State Auto contends should negate any further discussion of the
propriety of this Court’s exercise of jurisdiction in this
matter, State Auto would also aver than under the four-part test
in Nautilus, that it can still establish that such jurisdiction
is proper.”). However, the United States Court of Appeals for
the Fourth Circuit has made clear that the Nautilus factors
should continue to guide a court’s discretion in this regard.
See Minnesota Lawyers Mut. Ins. Co. v. Antonelli, Terry, Stout &
Kraus, LLP, 355 Fed. App’x 698, 699 n. 1, 2009 WL 4506462 (4th
Cir. Dec. 4, 2009) (“[T]he factors articulated [in Nautilus]
which guide the district court’s exercise of discretion in a
declaratory judgment action remain applicable.”).
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that person is entitled to do so” as an “entitlement exclusion”).
The court has not located, nor has State Auto cited, any West
Virginia case that has interpreted an entitlement exclusion.
This is particularly significant given that “there has been a
great deal of confusion regarding [the] interpretation” of such a
provision.
Darla L. Keen, Note, The Entitlement Exclusion in the
Personal Auto Policy: The Road to Reducing Litigation in
Permissive Use Cases Or a Dead End?, 84 Ky. L. J. 349-50 (1995).2
For example, there is a split of authority “among the
jurisdictions concerning whether entitlement exclusions are
ambiguous,3 or otherwise operate to bar coverage, when the driver
lacks a valid driver’s license.”
Progressive Northern Ins. Co.
v. Concord General Mut. Ins. Co., 864 A.2d 368, 373 (N.H. 2005)
(and authorities cited therein).
2
Noting that while such policies are often referred to as
“plain language” policies, they are “more difficult to understand
than the policies written before some insurance carriers decided
to make them easier to read.” Allstate Ins. Co. v. United States
Fid. and Guar. Co., 663 F. Supp. 548, 552 (W.D. Ark. 1987).
3
Several courts have found entitlement exclusions to be
ambiguous. See, e.g., Mikelson v. United Services Auto Assoc.,
111 P.3d 601, 619 (Haw. 2005) (affirming lower court’s holding
that entitlement exclusion was capable of at least three
interpretations and, therefore, ambiguous); Hurst v. Grange Mut.
Cas. Co., 470 S.E. 2d 659, 663 (Ga. 1996) (same). Other courts
have determined that such language is not ambiguous. See, e.g.,
York v. Kentucky Farm Bureau Mut. Ins. Co., 156 S.W. 3d 291, 293
(Ky. 2005).
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Furthermore, State Farm seems to suggest that the alleged
lack of permission and/or a driver’s license should end the
inquiry.
However, this is not necessarily true.
[T]he fact that [driver] knew that he had no legal
right to drive, is distinguishable from the dispositive
question under the policy exclusion of [driver]’s
reasonable belief of being “entitled” to drive the
vehicle based upon the permission of the person in
possession of the vehicle. The question under the
policy is not one of legality - whether the operator
had legal permission of the owner, or legal permission
from the state in the form of a valid driver’s license;
rather it is a question of fact - did the operator have
a reasonable belief that, at the time of the accident,
he was entitled to drive the vehicle? In such cases,
the ultimate question is one of the state of mind of
the operator, a factual question for the jury.
Aetna Cas. & Sur. Co. v. Nationwide Mut. Ins. Co., 392 S.E. 2d
377, 379 (N.C. 1990); see also Cooper v. State Farm Mut. Auto.
Ins. Co., 849 F.2d 496, 499 (11th Cir. 1988) (holding “that under
North Carolina law one need not necessarily show that he had a
legal right to drive to establish a reasonable belief of
entitlement under” entitlement exclusion).
“The term `reasonable belief’ requires both that the driver
have a subjective belief that he is `entitled’ to use the car and
that such belief is objectively sound.”
Progressive Northern
Ins. Co. v. Concord General Mut. Ins. Co., 864 A.2d 368, 372
(N.H. 2005).
Because of this, some courts contend that the issue
may be decided as a matter of law while others argue that it is a
question of fact.
See Haulers Ins. Co., Inc. v. Pounds, 272 S.W.
3d 902, 906 n.2 (Mo. Ct. App. 2008) (and cases cited therein).
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West Virginia has yet to speak on the issue.
In the Amended
Complaint filed in the state court action, Ellis alleges that
Wesley Milam “reasonably believed that he was permitted to drive
the vehicle on July 9, 2011.”
Doc. No. 10, Exhibit 1 at p. 3,
Amended Complaint in Civil Action No. 12-C-522.
Resolution of
this question will necessarily depend on the facts of the case
and their likely intersection with various aspects of West
Virginia insurance law in this area.
In addition, both Ellis and Milam contend that, in resolving
the coverage issue, a court will have to consider West Virginia’s
mandatory omnibus coverage.
That section found at West Virginia
Code § 33-6-31(a) provides in pertinent part:
No policy or contract of bodily injury liability
insurance, or of property damage liability insurance,
covering liability arising from the ownership,
maintenance or use of any motor vehicle, shall be
issued or delivered in this State to the owner of such
vehicle, or shall be issued or delivered by any insurer
licensed in this State upon any motor vehicle for which
a certificate of title has been issued by the
department of motor vehicles of this State, unless it
shall contain a provision insuring the named insured
and any other person, . . . responsible for the use of
or using the motor vehicle with the consent, expressed
or implied, of the named insured or his spouse against
liability for death or bodily injury sustained or loss
or damage occasioned within the coverage of the policy
or contract as a result of negligence in the operation
or use of such vehicle by the named insured or by such
person. . . Provided, That in any such automobile
liability insurance policy or contract, or endorsement
thereto, if coverage resulting from the use of a nonowned automobile is conditioned upon the consent of the
owner of such motor vehicle, the word “owner” shall be
construed to include the custodian of such non-owned
motor vehicles.
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West Virginia’s highest court has been clear “that the primary
purpose of the omnibus clause in a policy is to maximize the
availability of insurance proceeds; that the principal
beneficiary of the clause is the general public; and that the
clause is remedial in nature and must be construed liberally so
as to provide insurance coverage where possible.”
Burr v.
Nationwide Mut. Ins. Co., 359 S.E.2d 626, 632 (W. Va. 1987).
State Auto does not address the possible impact of omnibus
coverage on the coverage issue in this case.
For example, State
Auto insists that Chad Thompson did not give permission to Milam
to drive the car.
It does admit, however, that permission was
given to Brandi Belcher to drive the vehicle at issue.
Given
this, was Brandi Belcher a “custodian” within the meaning of W.
Va. Code § § 33-6-31(a)?
See Metropolitan Prop. and Liab. Ins.
Co. v. Acord, 465 S.E. 2d 901, 908 (W. Va. 1995) (holding that
for person to be “custodian” of nonowned motor vehicle as
contemplated by § 33-6-31(a) and thus to be empowered to grant
permission to another to drive the vehicle so that such driver
can invoke automobile liability coverage, person must be
entrusted, either expressly or impliedly with the possession of
the automobile by the named insured or spouse).
Likewise, a
related question that might arise herein is the scope of West
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Virginia’s “initial permission” rule.4
These questions appear
somewhat unsettled under West Virginia law and these issues are
more appropriately decided by a state court.
Accordingly, the court finds that the State of West Virginia
has a compelling interest in having its own courts decide this
dispute, see Glenmont Hill Associates v. Montgomery County, 291
F. Supp. 2d 394 (D. Md. 2003) (explaining that when state law
controls resolution of declaratory judgment action, there exists
an interest in having the most authoritative voice speak on the
meaning of applicable law, and that voice belongs to the state
courts); SEC v. Nat’l Sec., Inc., 393 U.S. 453, 459 (1969)
(“[T]he state’s interest is stronger in questions of insurance
law.”), and therefore that the “state interest” factor
weighs in
favor of declining jurisdiction.
Insofar as a decision in this matter is likely to break new
ground, the state’s interest in this case is significant and,
therefore, the first Nautilus factor weighs in favor of this
court’s refusal to exercise jurisdiction.
4
In Bennett v. State Farm Mut. Auto. Ins. Co., the United
States Court of Appeals for the Fourth Circuit held that, under
West Virginia’s omnibus statute, where parents loaned car to son
who in turn loaned car to a friend, the parents’ consent passed
to the friend. 887 F.2d 1078, 1989 WL 117846, *2 (4th Cir. 1989)
(unpublished). Likewise, other jurisdictions hold that when an
insured loans a car to a permittee with no restrictions, a subpermittee operates the car with the policyholder’s implied
permission. See, e.g., Allstate Ins. Co. v. American States Ins.
Co., 816 P.2d 709, 711 (Or. App. 1991).
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B.
Efficiency
When addressing the efficiency factor, the Fourth Circuit
has urged district courts to conduct a “careful inquiry into ‘the
scope of the pending state court proceeding,’ including such
matters as ‘whether the claims of all parties in interest [to the
federal proceeding] can satisfactorily be adjudicated in [the
state proceeding].”
Nautilus, 15 F.3d at 378-379 (quoting
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942)).
While the state court proceeding encompasses all the issues
presented by State Auto in this case, however, the inverse is not
true because the underlying negligence count is not before this
court.
Accordingly, this federal action would not settle the
entire controversy because the liability issues would still need
to be settled by the state court.
pending in the
On the other hand, the case
Circuit Court of Mercer County could resolve all
the issues between all the parties.
Thus, it is more efficient
for a single court to decide both the coverage and liability
issues rather than to have this court determine whether coverage
exists while a state court will still be necessary to reach the
issue of liability.
See Centennial Life Ins. Co. v. Poston, 88
F.3d 255, 258 (4th Cir. 1996) (“Thus, although issuance of a
declaratory judgment would settle part of the controversy . . .
it certainly would not settle the entire matter.
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The state
litigation, on the other hand, could resolve all issues, and we
note that significant discovery has already been undertaken in
that action.
Concern for efficiency and judicial economy clearly
support the district court’s decision [to dismiss the declaratory
judgment action].”).
Moreover, a federal declaration that State Auto has no duty
to indemnify could be rendered totally unnecessary by a
subsequent state verdict for Milam in the underlying state
action.
See Indemnity Ins. Co. v. Schriefer, 142 F.2d 851, 853
(4th Cir. 1944) (“There could be no possible justification for
dragging into the federal court the litigation of the issues
pending in the state court, for the sake of obtaining a
declaratory judgment as to a matter which will have no practical
significance if the defendants prevail in the state court, and
which the company can litigate as well after the termination of
the state court litigation as now, if the defendants do not
prevail.”); see also Mitcheson v. Harris, 955 F.2d 235, (4th Cir.
1992) (“[A] federal declaration that an insurer had no duty to
indemnify could be rendered totally unnecessary by a subsequent
state verdict for the insured in the underlying state action.”).
Accordingly, the court finds that the “efficiency” factor
weighs in favor of this court declining jurisdiction.
C.
Entanglement
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The Fourth Circuit has held that all issues of a case should
be resolved in a single court system.
239.
See Mitcheson, 955 F.2d at
Exercising jurisdiction over the federal declaratory
judgment action here could result in unnecessary entanglement
between the state and federal courts.
The same legal and factual
issues are now being litigated in a pending state action between
the same parties.
As State Auto’s complaint herein makes clear,
resolution of the coverage issue will necessarily be dependent on
the facts of the case as they are borne out and it is clear that
there are overlapping factual issues between the two actions.
For example, the issue of whether Milam did in fact have a valid
driver’s license, as alleged as critical in this proceeding, will
likely be relevant on the question of negligence in the state
court action.
Accordingly, the court finds that the “entanglement” factor
weighs in favor of declining jurisdiction.
D.
Procedural Fencing
As to the fourth Nautilus factor, although State Auto filed
this action months after the state court action was filed, the
court is unpersuaded that the filing of this lawsuit was done
merely as a device for procedural fencing.
As originally filed,
the state court action did not include a count for declaratory
relief regarding the coverage issue.
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For this reason, the court
finds the fourth Nautilus factor weighs neither for or against
dismissal of this action.
E.
Stay
Applying the four Nautilus factors to the instant case, the
court is persuaded that the parties’ dispute ought to be resolved
through the pending state action.
Thus, the court declines to
assert jurisdiction at this time, specifically finding that the
“state interest” factor carries the most weight.
Pennsylvania
Nat. Mut. Ins. Co. v. Ely Wall & Ceilings, Inc., No. 4:04-1576,
2006 WL 569589 *1, 3 (D.S.C. Mar. 6, 2006) (“In the opinion of
this court, [the state interest factor] is perhaps the most
important consideration.”).
Dismissal, however is not the appropriate remedy here.
The
Supreme Court in Wilton noted that,
where the basis for declining to proceed is the pendency
of a state proceeding, a stay will often be the
preferable course, because it assures that the federal
action can proceed without risk of a time bar if the
state case, for any reason, fails to resolve the matter
in controversy.
Wilton, 515 U.S. at 288 n.2.
As such, the court stays this
action pending resolution of the litigation filed in the Circuit
Court of Mercer County, West Virginia.
III.
Conclusion
Based on the foregoing, the court hereby DENIES defendants’
Motions to Dismiss and/or Stay, inasmuch as they request
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dismissal and GRANTS the motions to the extent they request a
stay.
This action is therefore STAYED pending disposition of the
related suit currently pending in the Circuit Court of Mercer
County, West Virginia and the Clerk is directed to remove the
case from the court’s active docket.
The parties are DIRECTED to
inform the court promptly in writing of the state court
disposition.
The Clerk is directed to send copies of this Memorandum
Opinion and Order to counsel of record.
It is SO ORDERED this 11th day of February, 2014.
ENTER:
David A. Faber
Senior United States District Judge
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