Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

FEDERAL INSURANCE COMPANY v. SKYY SPIRITS

April 11, 2005.

FEDERAL INSURANCE COMPANY, Plaintiff,
v.
SKYY SPIRITS, LLC, Defendant.



The opinion of the court was delivered by: MARILYN PATEL, Chief Judge, District

MEMORANDUM AND ORDER Re: Defendant's Motion to Stay

Plaintiff Federal Insurance Company filed this action seeking declaratory judgment that it has no duty to defend or indemnify defendant Sky Spirits, LLC against claims arising from defendant's alleged participation in a scheme to market and distribute alcoholic beverages to underage consumers in the state of Ohio. Defendant now moves to stay this action pending the outcome of the litigation of the underlying claims against it in the United States District Court for the Northern District of Ohio. In the alternative, defendant seeks dismissal of this action in its entirety. Having considered the parties' arguments and for the reasons stated below, the court enters the following memorandum and order.

BACKGROUND

  Defendant Skyy, LLC is a subsidiary of the Campari Group that engages in the sale and marketing of alcoholic beverages. Plaintiff Federal Insurance Company provided defendant with commercial general liability, liquor liability, and excess umbrella liability insurance policies during the period from July 5, 2000 to February 1, 2004.*fn1 Subject to a number of limitations and exclusions, these policies collectively obligate plaintiff to defend and indemnify defendant against claims for bodily injury and property damage that arose during the policy period. See Pl.'s Compl., Exh. C, General Liability Policy at 6; Pl.'s Compl., Exh. C, Liquor Liability Policy at 4; Pl.'s Compl., Exh. E, Excess Umbrella Policy at 1-2.*fn2

  Of particular relevance here are the provisions of these policies that define the scope of coverage for liabilities arising out of the sale, distribution, or manufacture of alcoholic beverages. The general liability policy (and thus by implication the "excess" provisions of the excess umbrella policy)*fn3 excludes from coverage, inter alia, any "bodily injury or property damage for which any insured may be held liable by reason of . . . causing or contributing to the intoxication of any person [or] the furnishing of alcoholic beverages to a person under the legal drinking age." Pl.'s Compl., General Liability Policy, Exh. C at 11. A substantially identical exclusion is recited in an endorsement modifying the "umbrella" portion (Part B) of the excess umbrella policy. Pl.'s Compl., Exh. E, Liquor Liability Exclusion at 1.

  While these exclusions foreclose claims against the general liability and excess umbrella policies for liability related to the furnishing of alcoholic beverages, the liquor liability policy does, as its name implies, provide coverage for liabilities arising from the sale of alcohol. Specifically, the policy states:
Subject to the applicable Limits Of Insurance, [plaintiff] will pay damages the insured becomes legally obligated to pay by reason of liability imposed by law for bodily injury or property damage to which this insurance applies. Liability for such bodily injury or property damage must be imposed on the insured by reason of the selling, serving, or furnishing of any alcoholic beverage.
Pl.'s Compl., Exh. C, Liquor Liability Policy at 4. Once again, however, coverage under the liquor liability policy is subject to a number of limitations and exclusions. Among the exclusions is the "expected or intended injury" provision, which excludes from coverage any "bodily injury or property damage which results from an act that . . . is intended by the insured? or . . . can be expected from the standpoint of a reasonable person to cause bodily injury or property damage." Id. at 6.

  The instant action for declaratory judgment arises from a dispute regarding plaintiff's obligation under the aforementioned policies to defend and indemnify defendant against claims asserted in two class action lawsuits that were originally filed in the Court of Common Pleas of Cuyahoga County, Ohio: Eisenberg et al. v. Anheuser-Busch, Inc. et al., No. CV 04 529102, and Tully et al. v. Anheuser-Busch, Inc. et al., No. CV 04 532269. The substantially identical complaints in the two actions allege that defendant, along with other manufacturers and distributors of alcoholic beverages, engaged in a "long-running, sophisticated, and deceptive scheme . . . to market alcoholic beverages to children and other underage consumers." Pl.'s Compl., Exh. A (hereinafter "Eisenberg Compl.") ¶ 1; Pl.'s Compl., Exh. B (hereinafter "Tully Compl.") ¶ 1. Based on these allegations, the complaints assert a number of claims for relief under Ohio law, including causes of action for telecommunications fraud, unjust enrichment, negligence, civil conspiracy, and unfair and deceptive practices under the Ohio Consumer Sales Practices Act. The state court actions were subsequently removed to the United States District Court for the Northern District of Ohio, where they are now pending in the action designated as Eisenberg et al. v. Anheuser-Busch, Inc. et al., No. CV 04-1081 (hereinafter "the Ohio action"). Plaintiff has provided for the defense against these claims under a reservation of its rights under the liquor liability policy.

  On September 14, 2004, plaintiff filed the instant action seeking declaratory judgment that it has no duty to defend or indemnify defendant against any claims or liability arising from the Ohio action. In seeking such a declaration, plaintiff first contends that defendant's allegedly deliberate or reckless marketing of liquor to underage consumers is excluded from coverage under the policy. Alternatively, plaintiff asserts that the damages sought in the Ohio action are not "bodily injury" or "property damage" of the kind that falls within the scope of the policy's coverage.

  On February 7, 2005, defendant moved to stay proceedings in this court pending resolution of the underlying Ohio action. In the alternative, defendant urges the court to exercise its discretion to decline jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201, and dismiss the instant action in its entirety. The court considers the merits of these arguments in the following memorandum and order. LEGAL STANDARD

  Under the Declaratory Judgment Act, a district court "may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). The text of the Act "has been understood to confer on 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). Consequently, "[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." Id. at 288. These considerations include refraining from unnecessary determination of state law issues, discouraging litigants from forum shopping, and avoiding duplicative proceedings. Government Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998) (en banc).

  DISCUSSION

  I. Discretionary Jurisdiction Under the Declaratory Judgment Act

  The question presented by defendant's motion is whether the court should refrain from exercising jurisdiction over the instant declaratory judgment action out of deference to the related proceedings now pending before the United States District Court for the Northern District of Ohio. As plaintiff seeks only declaratory judgment, the decision to stay or dismiss this action is committed to the sound discretion of the court. Cf. Diozol, 133 F.3d at 1225-26 (distinguishing between purely declaratory judgment actions and actions seeking declaratory judgment along with other claims for relief and noting the reduced scope of discretion to refrain from exercising jurisdiction in the latter case).*fn4 In exercising this discretion, the court is guided by the considerations set forth in Brillhart v. Excess Insurance Co. of America, 316 U.S. 491 (1941): avoiding needless determination of state law issues, discouraging litigants from filing declaratory actions as a means of forum shopping, and avoiding duplicative litigation. See Diozol, 133 F.3d at 1225 (observing that these considerations "remain the philosophic touchstone for the district court"). While these "Brillhart factors" counsel restraint in the exercise of the court's authority to entertain declaratory judgment actions, the degree of restraint that a district court should exercise varies with the facts and circumstances of a particular case. Typically, courts will be most circumspect in exercising jurisdiction over a "defensive" declaratory judgment action that seeks to litigate issues identical to those that will be resolved in another proceeding. See, e.g., Continental Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1372 (9th Cir. 1991), overruled on other grounds, Dizol, 133 F.3d at 1227. In light of the considerations identified by the Brillhart Court, the Ninth Circuit has observed that "federal courts should generally decline to entertain" these so-called "reactive declaratory actions." Dizol, 133 F.3d at 1225. This observation is particularly apposite where an insurer brings a declaratory judgment action against its insured during the pendency of a state court proceeding involving the same parties and the same issues, a scenario that the Ninth Circuit has characterized as "an archetype of what we have termed `reactive' litigation." Robsac, 947 F.2d at 1372 (citation omitted).

  However, more subtlety is required where a request for declaratory judgment implicates issues that arise in a related dispute to which the plaintiff in the declaratory judgment action is not a party. Not surprisingly, this situation also frequently arises in insurance litigation. The instant action is typical in that it involves an insurer seeking a declaration of its rights and liabilities with respect to a third-party tort claim that has been filed against its insured in another court. Unlike "reactive declaratory actions," such "coverage actions" typically involve different parties and issues than the underlying liability claim. See, e.g., Nationwide Ins. v. Zavalis, 52 F.3d 689, 693 (7th Cir. 1995) (observing that the issues raised in an insurer's coverage action are "fundamentally distinct" from the underlying tort claims). Id. at 693. Yet in spite of these differences in the parties and issues involved, the Ninth Circuit has taken a rather dim view of the propriety of granting declaratory relief under such circumstances. For example, in American National Fire Insurance Co. v. Hungerford, 53 F.3d 1012 (9th. Cir. 1995), overruled on other grounds, Dizol, 133 F.3d at 1227, an issuer of directors and officers liability insurance sought a declaration that it had no duty to indemnify the chief executive office ("CEO") of the insured corporation against potential liability arising from a breach of fiduciary duty action that was pending in a California court. Id. at 1014. In spite of the fact that the insurance company was not a party to the state court action (and ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.