UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA
May 8, 2013
JAMES RIVER INSURANCE COMPANY, AN OHIO CORPORATION, PLAINTIFF,
RV TOMLINSON CONSTRUCTION, INC., A CALIFORNIA CORPORATION; TOMLINSON & SON CONSTRUCTION, INC., A CALIFORNIA CORPORATION; DEANNA DAILEY, A CALIFORNIA CITIZEN; NAXOS INSURANCE COMPANY, A DELAWARE CORPORATION; GEMINI INSURANCE COMPANY, A DELAWARE CORPORATION; AND LANDMARK AMERICAN INSURANCE COMPANY, AN OKLAHOMA CORPORATION, DEFENDANTS.
MEMORANDUM AND ORDER RE: MOTION TO STAY
Plaintiff James River Insurance Company ("JRIC") brought this action against defendants RV Tomlinson Construction, Inc., Tomlinson & Son Construction, Inc. (together, "Tomlinson"), Deanna Dailey, Naxos Insurance Company ("Naxos"), Gemini Insurance Company ("Gemini"), and Landmark American Insurance Company ("Landmark") for declaratory relief arising out of its defense of Tomlinson in an underlying lawsuit. Presently before the court is Tomlinson's motion to stay this action until termination of the underlying suit. (Docket No. 16.)
I. Factual and Procedural Background Deanna Dailey, a resident of the Pagoda Gardens Apartments in Yuba City, developed pulmonary disease. (Compl. ¶¶ 11-12 (Docket No. 1).) In a civil suit filed in state court in 2011 (the "Dailey Action"), she alleged that various defendants allowed pigeons to roost in and around air conditioning units mounted on the roof of her apartment building, which resulted in pigeon feathers and fecal particles migrating into the ventilation system of her apartment and causing her injuries. (Id. ¶ 12.) She brings a single cause of action for "Personal Injury/Negligence/Premises Liability." (Id.)
Tomlinson was added to the Dailey Action in April 2012 and Dailey alleged that Tomlinson was responsible for maintenance of the roof of her apartment building during her tenancy. (Id. ¶ 13.) Tomlinson tendered defense of the Dailey Action to plaintiff, Naxos, and Gemini.*fn1 (Id. ¶ 14.) The three insurers agreed to defend Tomlinson under their respective reservations of rights. (Id.)
On January 24, 2013, plaintiff filed an action for declaratory relief in this court, alleging that it had no duties to defend or indemnify Tomlinson pursuant to two Comprehensive General Liability Policies it issued to Tomlinson: Policy Number 00032118-0, having a term of June 2008 through June 2009 ("2008 Policy") and Policy Number 00032118-1, having a term of June 2009 through June 2010 ("2009 Policy") (collectively, the "Policies"). (Compl. Exs. A, B (Docket Nos. 1-1, 1-2).) Plaintiff alleges that there is no coverage or potential for coverage as to any claims arising in the Dailey Action based on four applicable exclusions in the Policies: Occupational Disease Exclusion, Absolute Pollution Exclusion, Claims in Progress Exclusion, and Fungi or Bacteria Exclusion. (Compl. ¶ 17.)
Plaintiff seeks a declaration that it has no duty to defend Tomlinson; that Naxos, Gemini, and Landmark have no right of equitable contribution or equitable subrogation against it for their defense of Tomlinson; and that it is equitably entitled to recover the attorney's fees and costs expended in defense of the Dailey Action. (Id. ¶ 20.) Plaintiff additionally seeks a declaration that it has no duty to indemnify Tomlinson and that Naxos, Gemini, and Landmark have no right of equitable contribution or equitable subrogation against it for their indemnification of Tomlinson. (Id. ¶ 25.)
Tomlinson now moves to stay this action pending resolution of various factual determinations in the Dailey Action. (Docket No. 16.) Naxos filed a statement of non-opposition. (Docket No. 22.) Plaintiff opposes the motion. (Docket No. 23.)
II. Legal Standard
Under the Declaratory Judgment Act, 28 U.S.C. § 2201, district courts have "unique and substantial discretion" in determining whether to decide declaratory relief actions. Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995); see id. at 288 ("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 a declaratory judgment before trial or after all arguments have drawn to a close."). "Of course, this discretion is not unfettered." Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1223 (9th Cir. 1998). Guidance for the district court's exercise of authority is propounded "in Brillhart v. Excess Insurance Co. of America, 316 U.S. 491 (1942), and its progeny." Id. "The Brillhart factors remain the philosophic touchstone for the district court. The district court should avoid needless determination of state law issues; it should discourage litigants from filing declaratory actions as a means of forum shopping; and it should avoid duplicative litigation." Id. at 1225. "However, there is no presumption in favor of abstention in declaratory actions generally, nor in insurance coverage cases specifically." Id.
A. Needless Determination of State Law A district court should avoid a "needless decision of state law." Id. This factor relates to unsettled issues of state law, not unsettled issues of fact in the specific action. Cont'l Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1371 (9th Cir. 1991), overruled on other grounds by Dizol,133 F.3d at 1224-25.
A stay is warranted where "[t]he precise state law issues at stake in the present case are the subject of a parallel proceeding in state court." Id.
This action presents issues involving California insurance coverage law. Specifically, it requires the determination of whether certain exclusions in the Policies apply to preclude coverage. The state law at issue is not being litigated in the underlying Dailey action, a civil suit for negligence by a resident of the building serviced by Tomlinson. While this action requires interpretation of the Policies, no coverage questions are raised in the Dailey action lawsuit and the court's determination of those issues would be original rather than repetitive. Thus, this factor does not weigh in favor staying the action.
B. Forum Shopping
The Ninth Circuit has said that this factor counsels
stay or dismissal when a declaratory judgment suit is defensive or reactive. Robsac, 947 F.2d at 1371. In Robsac, the Ninth Circuit explained that "[a] declaratory judgment action by an insurance company against its insured during the pendency of a non-removable state court action presenting the same issues of state law is an archetype of . . . 'reactive' litigation." Id. at 1372. There, the insured brought a claim for breach of contract in state court when the insurer denied a theft claim under a policy it issued the insured. Id. at 1368. The insurer then sought declaratory relief in federal court that it was not liable under the policy while the case in state court proceeded. Id.
While plaintiff's action for declaratory judgment in this case is one brought by an insurance company against its insured during the pendency of a non-removable state court action, it is distinguishable because the "pending state court case [does not] present the identical issue," as explained in the court's analysis under the first factor. Id. at 1372. Moreover, plaintiff is not a party to the state-court action, nor has it filed any other related action. See Century Sur. Co. v. Byal, Civ. No. 10-03917, 2011 WL 2550832, at *3 (N.D. Cal. June 27, 2011) ("Forum shopping exists if a party files an action in one forum, and then files the same action in a different forum."). Forum shopping is thus not a concern here and this factor does not counsel in favor of a stay.
C. Duplicative Litigation "The third Brillhart factor is the policy of avoidance of duplicative litigation." Cont'l Cas. Co., 947 F.2d at 1372. If the declaratory relief action is duplicative of the issues being litigated in an underlying liability action, a stay is favored. See Dizol, 133 F.3d at 1225 ("If there are parallel state proceedings involving the same issues and parties pending at the time the federal declaratory action is filed, there is a presumption that the entire suit should be heard in state court.").
Plaintiff alleges that four exclusions from the Policies apply. In relevant part, the Occupational Disease Exclusion provides:
This insurance does not apply to: . . .
[A]ny "bodily injury" to any person or any claims by any person that they sustained "bodily injury" or the fear of sustaining "bodily injury" arising out of any contact with, handling of, inhalation, absorption or exposure to any environmental, chemical, or toxic agent or substance, including any dust or fumes there from, arising out of the insured's operations. (Compl. ¶ 17(a).)
In relevant part, the Absolute Pollution Exclusion provides:
This insurance does not apply to any damages, claim, or suit arising out of the actual, alleged or threatened discharge, dispersal seepage, migration, release or escape of "pollutants" including but not limited to any: . . . "[b]odyily injury" . . . . . . . "Pollutants" mean any solid, liquid, gaseous, fuel, lubricant, thermal, acoustic, electrical, or magnetic irritant or contaminant, including but not limited to smoke, vapor, soot fumes, fibers radiation, acid, alkalis, petroleums, chemicals, or "waste". "Waste" includes medical waste, biological infectants, and all other materials to be disposed of, recycled, stored, reconditioned or reclaimed.
(Id. ¶ 17(b).)
In relevant part, the Fungi or Bacteria Exclusion provides:
This insurance does not apply to: . . . "bodily injury" . . . which would not have occurred, in whole or in part but for the actual, alleged or threatened inhalation off, ingestion of, contact with, exposure to, existence of, or presence of, any "fungi" or bacteria on or within a building or structure, including its contents, regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to such injury . . . . . . .
Fungi means any type or form of fungus, including mold or mildew and any mycotoxins spores, scents or by products produced or released by fungi.
(Id. ¶ 17(d).)
In relevant part, the Claims in Progress Exclusion provides:
This policy does not apply to "bodily injury" . . . which begins or takes place before the inception date of coverage, whether such "bodily injury" . . . is known to an insured, even though the nature and extent of such damage or injury may change and even though the damage may be continuous[,] progressive, cumulative, changing or evolving, and even though the "occurrence" causing such "bodily injury" . . . may be or may involve a continuous or repeated exposure to substantially the same general harm.
(Id. ¶ 17(c).)
Tomlinson asserts that numerous factual issues that must be resolved to establish or refute plaintiff's duty to defend and indemnify are duplicative of factual issues that must also be decided in the Dailey action. Examples of such factual issues include: (1) Is pigeon feces an environmental, chemical, or toxic substance?; (2) Is contact with pigeon feces part of the insured's "operations?"; (3) When did the pigeon feces begin to cause injury?; and (4) Is pigeon feces a fungus or bacteria? (See Mem. in Supp. of Mot. to Stay 5-6 (Docket No. 16).)
There is at least one factual issue identified by Tomlinson that is not merely a matter of interpretation of the Policies. Before the court can resolve plaintiff's request for declaratory judgment, it must necessarily decide when Dailey's injury begin for purposes of the Claims in Progress Exclusion, which excludes bodily injury that begins or takes place before coverage begins. (Compl. ¶ 17(c).) This date, however, will also be decided in the Dailey action, as plaintiff must show that the defendants caused her injury. If this action proceeded, the effort to establish the pertinent date would necessarily be duplicated and could result in inconsistent determinations. "[W]hen an ongoing state proceeding involves a state law issue that is predicated on the same factual transaction or occurrence involved in a matter pending before a federal court, the state court is the more suitable forum for a petitioner to bring a related claim." Am. Nat. Fire Ins. Co. v. Hungerford, 53 F.3d 1012, 1017 (9th Cir. 1995), overruled on other grounds by Dizol,133 F.3d at 1224-25. Thus, the fact that this issue must also be decided in the Dailey action favors a stay in this case.
On balance, two of the Brillhart factors counsel against a stay, while one favors a stay. Numerosity is not dispositive, however, and the court finds that the real risk of inconsistent factual determinations in this case requires additional weight in the court's balancing of the factors. See AMCO Ins. Co. v. AMK Enterps., Civ. No. 06-1729, 2006 WL 1980405, at *4 (N.D. Cal. July 13, 2006) (staying insurer's declaratory judgment action regarding duty to defend that required deciding the date allegedly defamatory statements were made when the state court would have to make the same determination in defamation claim brought in underlying suit). Allowing two actions to proceed simultaneously that both have to decide at least one common factual issue would also result in a waste of judicial resources. Accordingly, the court finds staying this action to be proper and prudent under the Brillhart factors.
IT IS THEREFORE ORDERED that plaintiff's motion to stay be, and the same hereby is, GRANTED. The stay is to remain in effect until the underlying Dailey action is concluded.