Erie Insurance Exchange v. Gary Rose, Individually and d/b/a American Masonry and Capital Builders, LLC

IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

June 29, 2012 Session

ERIE INSURANCE EXCHANGE v. GARY ROSE, INDIVIDUALLY AND

D/B/A AMERICAN MASONRY AND CAPITAL BUILDERS, LLC

Appeal from the Chancery Court for Davidson County

No. 081566IV Russell T. Perkins, Chancellor

No. M2011-02495-COA-R3-CV - Filed July 24, 2012

Defendant in a lawsuit filed in Williamson County appeals the dismissal of its separate action

filed in Davidson County seeking a declaratory judgment; the Davidson County action was

dismissed on the basis of prior suit pending. Finding no error, we affirm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

R ICHARD H. D INKINS, J., delivered the opinion of the court, in which F RANK G. C LEMENT,

J R. and A NDY D. B ENNETT, JJ., joined.

David B. Scott and T. William A. Caldwell, Nashville, Tennessee, for the Appellant, Erie

Insurance Exchange.

Brett A. Oeser, Nashville, Tennessee, for the Appellee, Capital Builders, LLC.

Gary Rose, Lexington, Kentucky, Pro Se, not participating.

OPINION

On October 24, 2007, Capital Builders, LLC (“Capital”), a general contractor on a

building construction project in Williamson County, filed a complaint in Williamson County

Chancery Court (the “Williamson County action”) against Gary Rose, individually and doing

business as American Masonry (hereinafter “Rose”), Capital’s masonry subcontractor on the

project, and Erie Insurance Exchange (“Erie”), which issued a general liability insurance

policy for Rose. The complaint alleged that, pursuant to its subcontract with Capital, Rose

agreed to maintain commercial general liability insurance and to have Capital named as an

additional insured under the policy; that a structural masonry wall being erected by Rose

collapsed and resulted in damage to Capital; and that, despite demand, Rose and Erie “failed

to reimburse [Capital] for its losses.” Capital asserted claims of negligence against Rose, bad

faith failure to pay promptly against Erie, and breach of contract against both parties. On

May 30, 2008, a default judgment was entered against Rose.

On July 15, 2008, Erie filed a complaint in Davidson County Chancery Court (the

“Davidson County action”) against Rose and Capital seeking a declaratory judgment that the

insurance policy issued to Rose excluded coverage for the claims brought by Capital in the

Williamson County action and that Erie did not have a duty to defend Rose in that action.

Capital answered the complaint and asserted, inter alia, that the declaratory judgment action

should be dismissed or transferred to the Williamson County Chancery Court pursuant to the

doctrine of prior suit pending. In a counterclaim, Capital alleged that Erie and Rose had

failed to reimburse Capital for its losses, and that Erie had breached its contractual

obligations under the insurance policy. Neither Rose nor American Masonry responded to

the complaint and, on October 16, 2009, a default judgment was entered against them.

On May 10, 2010, Erie filed a motion to dismiss Capital’s counterclaim on the ground

that the counterclaim restated claims which Capital had alleged in the Williamson County

action and, therefore, was barred by the doctrine of prior suit pending. Capital responded to

the motion, arguing that “to the extent the doctrine of prior suit pending applies in this action,

it applies to all claims asserted in this action, including those asserted by Erie.” On July 6,

2010, the Court granted the motion. Three days later, Capital filed a motion to dismiss Erie’s

complaint on the ground of prior suit pending; Erie filed a response opposing the motion.

The court granted the motion.

Erie appeals and articulates the following issue:

Does the doctrine of prior suit pending preclude an insurance company from

filing a declaratory judgment action regarding insuring coverage for an insured

when that company is concurrently defending a claim by another party under

the same policy?

D ISCUSSION

The doctrine of prior suit pending dictates that a case is subject to dismissal if there

is a prior lawsuit pending that involves the same parties and the same subject matter. See,

e.g., Cockburn v. Howard Johnson, Inc., 385 S.W.2d 101, 102 (Tenn. 1964). Our courts

have consistently held that where two courts have concurrent jurisdiction over a matter, the

first of those courts to acquire jurisdiction takes exclusive jurisdiction over it, and the

subsequent action must be dismissed. Estate of McFerren v. Infinity Transp., LLC, 197

S.W.3d 743, 746 (Tenn. Workers Comp. Panel 2006). There are four elements necessary to

establish the defense of prior suit pending: 1) the lawsuits must involve identical subject

matter; 2) the lawsuits must be between the same parties; 3) the former lawsuit must be

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pending in a court having subject matter jurisdiction over the dispute; and 4) the former

lawsuit must be pending in a court having personal jurisdiction over the parties. West v.

Vought Aircraft Indus., Inc., 256 S.W.3d 618, 623 (Tenn. 2008); see also Metro. Dev. &

Housing Agency v. Brown Stove, 637 S.W.2d 876, 878 (Tenn. Ct. App. 1982). The

resolution of a motion to dismiss on the ground of prior suit pending is a legal rather than a

factual issue which we review de novo with no presumption of correctness. West v. Vought

Aircraft Indus., Inc., 256 S.W.3d 618, 622 (Tenn. 2008) (citing House v. Estate of

Edmondson, 245 S.W.3d 372, 378 (Tenn. 2008)).

Erie concedes on appeal that both lawsuits involve the same parties and that the

Williamson County Chancery Court has personal jurisdiction as well as jurisdiction to issue

a declaratory judgment. It asserts, however, that the subject matter of the lawsuits is not

identical; that the statutes governing declaratory judgments, Tenn. Code Ann. § 29-14-101,

et seq., “do not require an insurer to intervene with coverage issues in a pending lawsuit”;

that “bringing a cross claim against Mr. Rose would interject evidence of liability insurance

into a construction defects case”; and that “if an insurer were required to intervene it could

potentially prejudice the insured and insurer.”

In Tallent v. Sherrell, this Court set forth the test for determining whether two lawsuits

involve identical subject matter and held that “[t]he test of the question of subject matter is

whether the judgment in the first suit could be pleaded to the second suit in bar as former

adjudication.” Tallent v. Sherrell, 184 S.W.2d 561, 563 (Tenn. Ct. App. 1944); see also Fid.

& Guar. Life Ins. Co. v. Corley, W2002-02633-COA-R9-CV, 2003 WL 23099685 (Tenn. Ct.

App. Dec. 31, 2003); Metro. Dev. & Hous. Agency v. Brown Stove Works, Inc., 637 S.W.2d

876, 879 (Tenn. Ct. App. 1982).

After review of the pleadings in both suits, we conclude that the actions involve

identical subject matter, and we agree with the trial court that the Davidson County action

is barred as a result of the suit pending in Williamson County. The complaint in the

Williamson County action alleged that Capital was an insured under the policy, that Erie

breached its contractual obligations to Capital,1 and that it failed to pay Capital promptly in

1

With respect to the breach of contract claim asserted against Erie, Capital alleged in pertinent part:

27. [Capital] is an “Insured” under the Policy.

28. Upon information and belief, the Policy obligate[d] Erie to reimburse [Capital] for those

sums [Capital] is legally obligated to pay as damages because of property damages to which

the Policy applies.

29. [Capital] was legally obligated to pay damages because of property damages to which

the Policy applied.

30. [Capital] made demand on Erie to satisfy its obligations under the policy. Despite this

demand, Erie has failed to do so.

(continued...)

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violation of Tenn. Code Ann. § 56-7-105. Contrary to Erie’s assertions on appeal, its “rights

and obligations” under the insurance policy it issued to Rose were the subject matter of the

Williamson County lawsuit. The manner and extent to which Erie was obligated to

reimburse Capital for its losses and whether it was obligated to indemnify or defend Rose

were issues raised by the complaint.

Erie’s ability to seek a declaratory judgment of its rights and obligations under the

insurance policy pursuant to the applicable statutes does not prevent the application of the

doctrine of prior suit pending. The question presented is whether Erie is required to bring

its declaratory judgment claim as part of the Williamson County action, rather than in a

separate proceeding. Because we have determined that the subject matter of the two suits is

the same, and the other elements necessary to apply the doctrine of prior suit pending have

been met, Erie is required to bring its declaratory judgment claim in the Williamson County

action.2 Because it is already a party to the Williamson County action, Erie is not “required

to intervene” in the action.

With respect to Erie’s argument that a cross-claim would “interject” evidence of

liability insurance into the Williamson County action, Erie’s rights and obligations under the

insurance policy are part of the subject matter of that action. Inasmuch as Capital has alleged

that Erie breached the contract of insurance, evidence regarding the insurance policy will be

already be a part of the proof in resolution of the case and Erie would not be improperly

prejudiced by the introduction of evidence of the coverage available under the policy. In any

event, as to Erie’s concerns regarding potential prejudice, it may seek a separate trial

pursuant to Tenn. R. Civ. P. 42.02.3

1

(...continued)

31. Erie’s failure to satisfy its obligations to [Capital] under the Policy constitutes a breach

of its contractual obligations.

2

Although not raised by either party, Tenn. R. Civ. P. 13.01, which requires that a party being sued

state as a counterclaim “any claim, other than a tort claim, which at the time of serving the pleading the

pleader has against any opposing party, if it arises out of the transaction or occurrence that is the subject

matter of the opposing party’s claim,” would also require Erie’s claim for a a declaration of its rights and

liabilities be litigated in the Williamson County action.

3

Tenn. R. Civ. P. 42.02 states:

The court for convenience or to avoid prejudice may in jury trials order a separate trial of

any one or more claims, cross-claims, counterclaims, or third-party claims, or issues on

which a jury trial has been waived by all parties. For the same purposes the Court may, in

nonjury trials, order a separate trial of any one or more claims, cross-claims, counterclaims,

third-party claims, or issues.

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C ONCLUSION

For the aforementioned reasons, the judgment of the Chancery Court for Davidson

County is AFFIRMED.

___________________________________

RICHARD H. DINKINS, JUDGE

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