The opinion of the court was delivered by: Gary S. Austin United States Magistrate Judge
ORDER RE DEFENDANTS' MOTION TO STAY THE INSTANT PROCEEDINGS (Doc. 16)
On July 6, 2009, Defendants Parker, Kern, Nard & Wenzel, David H. Parker and Jeffrey LeMasters Tahir, filed a Motion to Stay the instant proceedings, pending the outcome of an underlying action. (Docs. 16-18.) On August 11, 2009, Plaintiff OneBeacon Insurance Company filed its opposition. (Doc. 23.) Thereafter, on August 21, 2009, Defendants filed a reply to Plaintiff's opposition. (See Doc. 26.)
In November 2005, Defendants were employed by Argonaut Insurance Company to represent its interests in a workers' compensation action before the Workers Compensation Appeals Board (WCAB) in the matter entitled Nunez v. McGuire-Nicholas Company, Argonaut, A.I.G. The Honorable Richard Shapiro in Los Angeles issued his Findings and Award, and Opinion on Decision, on March 5, 2007. (Doc. 2 at 3, ¶ 10 & Doc. 24 at Ex. 1.)*fn1 In his decision, Judge Shapiro noted that defendant Argonaut had not offered any rebuttal evidence to claimants' expert testimony regarding medical opinions that claimant required in home care assistance seven days a week, twenty-four hours a day, for a period commencing June 22, 1998, through to the present. As a result, the judge awarded claimants' three care providers "$45.00 per hour, 24 hours per day, seven days per week, from June 22, 1998 to the present and continuing . . .." Judgment was entered accordingly for claimants and against defendant Argonaut Insurance Company. (Doc. 24 at Ex. 1.)
As part of an application for professional liability insurance dated May 23, 2007, Defendants indicated they were not "aware of any incident, act, error, or omission that may result in a claim or disciplinary action being brought against" them. (Doc. 24 at Ex. 3.) In a subsequent renewal application signed May 15, 2008, Defendants replied zero ("0") to the following inquiry: "How many incidents, circumstances, errors, omissions or offenses which may result in a claim being made against your firm or any individual for this insurance, are you now aware?" (Doc. 24 at Ex. 4.)
On July 8, 2008, Argonaut Insurance Company filed suit against Defendants in Los Angeles County Superior Court, case number BC393988, asserting legal malpractice, breach of fiduciary duty and breach of contract. (Doc. 18 at Ex. 1.) Defendants filed their answers to the complaint, on or about November 14, 2008, asserting twenty-seven affirmative defenses.*fn2 (Doc. 18 at Ex. 2.)
On February 9, 2009, Plaintiff filed the instant action for rescission and declaratory relief. (See Doc. 2.) More particularly, Plaintiff seeks judicial determination regarding its rescission of the 2007 and 2008 policies issued to Defendants, for Plaintiff asserts Defendants made false and material representations about potential claims against the firm or its attorneys. Plaintiff would not have issued the policies had it known of the potential for the underlying action filed by Argonaut Insurance Company. In the alternative, Plaintiff would have issued the policies expressly excluding the Argonaut claim. Lastly, Plaintiff seeks a declaration that it is not obligated to defend and indemnify Defendants based upon the 2007 and 2008 policies. (Doc. 2.)
On July 6, 2009, Defendant moved to stay the instant action, asserting that it will be required to "fight a two-front litigation war" because Plaintiff here seeks to adjudicate facts that are the subject of the underlying action and could result in Defendants being collaterally estopped from contesting issues in the underlying action. Defendants assert they would suffer prejudice were this action to proceed in the absence of a stay. (Doc. 17.)
On August 11, 2009, Plaintiff filed its opposition wherein it argues the "issues and facts to be litigated in the Coverage Action have no bearing on whether the Defendants failed to advise Argonaut of the actions taken in the defense of the WCAB [c]ase." A stay, argues Plaintiff, is not required because the issue presented in the instant action can be determined as a matter of law without prejudice to Defendants. Finally, Plaintiff asserts that Defendants will benefit by a determination in the instant matter because then Defendants will "know what, if any, insurance benefits are available to fund any settlement or adverse judgment." (Doc. 23.)
In the reply to the opposition, Defendants point out that the facts identified by Plaintiff to be uncontested are in fact contested, that the law provides that the instant action should be stayed pending the outcome of the underlying action in Los Angeles, and Defendants would suffer prejudice were factual determinations to be made. (Doc. 26.)
There are two basic duties set out within the typical insurance policy, the duty to defend and the duty to indemnify. An insurer must defend a case which potentially seeks damages within the coverage of the policy, even though it ultimately turns out that coverage may not be afforded. [Citation.] Therefore, the duty to defend has been determined to be much broader than the duty to indemnify. [Citation.]
District courts "possess discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites." Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995); Brillhart v. Excess Ins. Co., 316 U.S. 491, 495 (1942).
Consistent with the nonobligatory nature of the remedy, a district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking an declaratory judgment before trial or after all arguments have drawn to a close. In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within ...