Opinion

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF TENNESSEE

AT CHATTANOOGA

WESTFIELD INSURANCE COMPANY, )

)

Plaintiff, ) Case No. 1:25-cv-184

)

v. ) Judge Atchley

)

) Magistrate Judge Steger

HUDSON CONSTRUCTION COMPANY, )

)

Defendant. )

MEMORANDUM OPINION AND ORDER

Before the Court is Defendant Hudson Construction Company’s Motion to Dismiss or, In

the Alternative, to Stay or Administratively Close the Case Pending the Underlying Litigation

[Doc. 17], asking the Court to exercise its discretion to decline jurisdiction over this declaratory

judgment action or, in the alternative, stay this case pending the resolution of the litigation this

matter arises out of. For the following reasons, the Court will GRANT Hudson’s Motion [Doc.

17] and discretionarily decline to exercise jurisdiction over this action.

I. BACKGROUND

This dispute arises from three consecutive insurance policies (the “Policy”) issued by

Plaintiff Westfield Insurance Company to Hudson, which provided both Commercial General

Liability coverage and Commercial Liability Umbrella coverage. [Doc. 1 at ¶ 20]. After obtaining

the Policy, Hudson entered into a prime subcontract with Urban Partnerships Development

Corporation (“Urban Partnership”), wherein it assumed responsibility for the day-to-day

construction for a 325-unit multifamily housing project in Houston, Texas. [Id. at ¶¶ 9–11]. As

construction progressed on the project, disputes emerged, ultimately giving rise to litigation. [Id.].

On October 21, 2024, Hudson filed a lawsuit in Texas state court against Urban Partnership

and various other entities involved in the project (the “Underlying Litigation”).1 [Id. at ¶¶ 9–11].

Subsequently, TXZNH, LLC, one of the defendants in the Underlying Litigation and owner of the

construction project, filed counterclaims against Hudson, alleging, among other things, breach of

contract and negligence arising from Hudson’s work on the project. [Id. at ¶¶ 10–19].

In response to the Underlying Litigation and the counterclaims against it, Hudson sought

indemnity and a defense under the Policy. [Id. at ¶ 21]. Westfield agreed to defend Hudson in the

Underlying Litigation under a reservation of rights and later filed the instant action seeking a

declaration that it was not obligated to defend or indemnify Hudson under the Policy. [Doc. 1;

Doc. 20 at 2]. Now, Hudson seeks to dismiss, or alternatively stay or administratively close, this

action. [Doc. 17]. Westfield has responded in opposition to the Motion, [Doc. 20], and Hudson has

replied, [Doc. 21]. Having reviewed the record and the parties’ briefing, the Court is now prepared

to rule.

II. ANALYSIS

Pursuant to the Policy, Westfield agreed to defend and indemnify Hudson against all sums

that Hudson becomes legally obligated to pay as damages because of, among other things,

“property damage,” subject to the terms, conditions, and exclusions of the Policy. [Doc. 1 at ¶¶

22–49]. Ultimately, the gravamen of this instant action hinges on whether the counterclaims filed

in the Underlying Litigation assert claims that implicate “property damage,” as defined under the

Policy. If they do, as Hudson contends, Westfield is obligated to defend and indemnify Hudson.

But, if they do not, as Westfield argues, Westfield is under no obligation to defend or indemnify

Hudson. As such, Westfield has brought this declaratory judgment action (“DJA”) pursuant to the

1 Hudson filed the lawsuit in the District Court of Harris County, Texas, styled as Hudson

Construction Company v. TXZNH, LLC, Urban Partnerships Community Development

Corporation, AHG Properties LLC, and TXZNH GP, LLC, Cause No. 2024-73212.

Declaratory Judgment Act, 28 U.S.C. § 2201, asking this Court for a declaration that the

Underlying Litigation does not implicate “property damage,” as defined under the Policy, and,

therefore, Westfield has no duty to defend or indemnify Hudson. [Doc. 1].

“The Declaratory Judgment Act provides that a district court ‘may declare the rights and

other legal relations of any interested party seeking such declaration…’.” Travelers Indem. Co. v.

Bowling Green Professional Associates, PLC, 495 F.3d 266, 271 (6th Cir. 2007) (citing 28 U.S.C.

§2201(a) (emphasis added)). The “Act gives district courts ‘unique and substantial discretion in

deciding whether to declare the rights of litigants.’” American Guarantee and Liability Insurance

Co. v. Norfolk Southern Railway Co., 278 F. Supp. 3d 1025, 1035 (E.D. Tenn. 2017) (quoting

Wilton v. Seven Falls Co., 515 U.S. 277, 286–87 (1995)). The Sixth Circuit, however, has

“cautioned district courts not to jump into the middle of ongoing litigation,” noting that

“declaratory judgment actions seeking an advance opinion of indemnity issues are seldom helpful

in resolving an ongoing action in another court.” Emps. Mut. Cas. Co. v. Clifford, No. 5:23-271-

KKC, 2024 U.S. Dist. LEXIS 87474, at *4 (E.D. Kent. May 15, 2024) (quoting Bituminous Cas.

Corp. v. J & L Lumber Co., 373 F.3d 807, 812 (6th Cir. 2004)).

In the Sixth Circuit, district courts consider the five Grand Trunk factors when determining

whether to exercise jurisdiction under a DJA. These factors are: (1) whether the declaratory action

would settle the controversy; (2) whether the declaratory action would serve a useful purpose in

clarifying the legal relations in issue; (3) whether the declaratory remedy is being used for

procedural fencing or to provide an arena for a race to res judicata; (4) whether the use of

declaratory action would increase friction between state and federal courts or improperly encroach

on state jurisdiction; and (5) whether there is a better or more effective alternative remedy.

Travelers Indem. Co., 495 F.3d at 271.

Hudson argues that dismissal of this action is appropriate because the facts and

circumstances here do not warrant an exercise of discretionary jurisdiction when analyzed under

the Grand Trunk factors. [Doc. 18 at 6–11]. Westfield disagrees, believing that, on balance, the

factors support an exercise of jurisdiction. [Doc. 20 at 5–13]. The Court will now analyze each

factor in turn.

A. Factors One and Two: Will the Declaratory Action Settle the Controversy and

Clarify the Legal Relations?

The first two Grand Trunk factors are generally considered collectively since a declaratory

judgment that settles the controversy will almost certainly clarify the legal relations at issue. United

Specialty Ins. Co. v. Cole’s Place, Inc., 936 F.3d 386, 397 (6th Cir. 2019). However, district courts

within this circuit have recognized “a split in Sixth Circuit decisions regarding these [first two]

factors.” Philadelphia Indemnity Insurance Company v. Priority Pes Control, LLC, 398 F. Supp.

3d 280, 283 (M.D. Tenn. 2019). One line of cases has held that the proper inquiry is whether the

declaratory judgment action will settle the immediate controversy. Id. The other line of cases

concluded that the appropriate question is whether the declaratory action will settle the “ultimate,

underlying state-court controversy, not just the immediate controversy…before the district court.”

Id. Ultimately, the difference in these cases appears to turn on competing policy considerations

and whether the discrete controversy before the court involves factual disputes at the heart of the

underlying litigation. Scottsdale Ins. Co. v. Flowers, 513 F.3d 546, 555 (6th Cir. 2008).

Hudson argues that under any analysis, exercising jurisdiction here will not settle the

controversy between the parties because the Underlying Litigation contains numerous factual

disputes that must be resolved before this Court can make its determination. [Doc. 18 at 7]. In

essence, because the Underlying Litigation includes negligence claims, Hudson maintains that the

existence of “property damage,” as defined under the Policy, will ultimately depend on specific

factual findings, including the nature of the harm to the properties and who is responsible for that

harm. [Id.]. Without such findings, Hudson argues, this Court could only give “advisory opinions

based on differing sets of potential factual outcomes.” [Id.]. Conversely, Westfield argues that the

only issue before this court is the question of coverage since Westfield is not a party in the

Underlying Litigation. [Doc. 20 at 8]. In its view, an exercise of jurisdiction here would settle the

coverage controversy between Hudson and Westfield. [Id.].

Ultimately, a declaration of coverage or non-coverage at this point in the litigation would

do little to resolve the discrete controversy between the parties, nor would it resolve the

controversy in the Underlying Litigation. As it stands, the state court in the Underlying Litigation

will have to make its own findings with respect to a multitude of factual issues regarding Hudson’s

purported negligence and the damage it allegedly caused.2 If this Court was to hold, for instance,

that Westfield was not obligated to indemnify Hudson, that would necessitate a finding that no

“property damage,” as defined under the Policy, occurred. However, to make such a finding, the

Court would need to “inquire into matters being developed through state court discovery,” such as

the type of damages that occurred, who caused the damages, and whether Hudson is ultimately

liable for those damages. Scottsdale, 513 F.3d at 556. These are factual findings that the state court

in the Underlying Litigation will ultimately resolve. See Bituminous Cas. Corp. v. J & L Lumber

Co., 373 F.3d 807, 813–814 (6th Cir. 2004) (holding that a declaratory judgment would not resolve

2 In the Underlying Litigation, the defendants have filed a negligence claim against Hudson

alleging that Hudson, or its subcontractors, damaged the project by “failing to construct the Project

free of defects, failing to construct the Project in accordance with the Project plans and design

criteria, failing to keep the Project site free of water intrusion, failing to properly staff the Project

and/or manage its employees, approving of, and paying for, work that had not been performed

and/or was defectively performed by Hudson’s sub-subcontractors, failing to monitor its sub-

subcontractors and account for Project materials, and otherwise ignoring Project requirements.”

[Doc. 20 at 7].

the insurance coverage controversy because it rested on a fact-based question of state law to be

resolved in the underlying negligence action); White Pine Ins. Co. v. McIntosh, No. 5:21-238-

KKC, 2022 U.S. Dist. LEXIS 118416, at *16–17 (E.D. Kent. July 6, 2022) (“To determine whether

there is indemnity for Rutherford’s claims of negligence and intentional assault, the Court may

have to resolve the same factual issues that go to the merits of those state court claims—factual

questions such as what Williams actually did or did not do, Williams’s employment status, whether

Williams has a history of acting violently or aggressively, and if so, whether Non-Stop had

knowledge of that history.”); Allmerica Fin. Benefit Ins. Co. v. Eagle Sales Co., No. 2:17-cv-

025450JPM-cgc, 2020 U.S. Dist. LEXIS 257750, at *20 (W.D. Tenn. Jan. 14, 2020) (finding that

the first factor weighed in favor of exercising jurisdiction because the DJA did not require the

court to settle factual disputes regarding the underlying tort case in order to settle the controversy).

Westfield disagrees, arguing that this Court “will not have to wait for factual resolution of

whether Hudson’s work was negligent, because Tennessee law makes it clear that claims that the

insured negligently performed its work, standing alone, are not covered by general liability

policies.” [Doc. 20 at 8]. In support of its position, Westfield primarily relies on the facts alleged

in the defendant’s counterclaims in the Underlying Litigation, which it contends demonstrates that

Hudson’s conduct amounted to nothing more than a failure to meet its contractual obligations. [Id.

at 7–8]. As such, Westfield asserts the claims sound solely in breach of contract rather than

negligence and therefore do not implicate “property damage” as defined under the Policy and

Tennessee law. [Id.]; see Blaylock & Brown Constr., Inc. v. AIU Ins. Co., 796 S.W.2d 146, 153

(Tenn. Ct. App. 1990) (finding that “property damage” in an insurance contract covers tort liability

and not contractual liability).

However, Westfield’s argument fails for two reasons. First, Tennessee law recognizes that

while the “duty to defend depends only upon the facts as alleged to be, the duty to indemnify, i.e.,

ultimate liability, depends rather upon the true facts.” St. Paul Fire & Marine Ins. Co. v. Torpoco,

879 S.W.2d 831, 835 (Tenn. 1994) (emphasis added). Whether the Policy here ultimately requires

indemnification is necessarily based upon factual issues to be decided in the Underlying Litigation,

not merely the factual allegations alleged. See Columbia Nat’l Ins. Co. v. JR Livingston Constr.,

LLC, No. 3:14-cv-01781, 2016 U.S. Dist. LEXIS 41499, at *11–12 (M.D. Tenn. Mar. 28, 2016)

(concluding that the resolution of the issue of indemnification would be premature before factual

findings from the state court); Founders Ins. Co. v. Bentley Entm’t, LLC, No. 3:12-cv-01315, 2013

U.S. Dist. LEXIS 100778, *27–28 (M.D. Tenn. July 17, 2013) (“To grant the summary judgment

motion of either the plaintiff or the defendants would require resolution of the issue of whether

McNulty committed a negligent act. Such a determination would be inappropriate in a declaratory

judgment action at this time.”). Second, Westfield’s argument relies on its own assessment of the

scope and viability of the underlying negligence counterclaims. This Court’s role is not to

preemptively evaluate the facts alleged and whether those claims will ultimately succeed or fail.

Rather, what type of negligence Hudson committed and whether the evidence in the Underlying

Litigation ultimately supports a finding of it is a determination more appropriately suited for the

underlying state court to make. Moreover, the factual record in the Underlying Litigation may

continue to develop and change through discovery and trial. Therefore, because any determination

by this Court at this stage would be necessarily speculative, a declaration in this action would be

largely duplicative and would not “settle the controversy.” Travelers Indem. Co., 495 F.3d at 271.

As to the second Grand Trunk factor, a declaration here would also not meaningfully

clarify the legal relations between all the parties involved in both this action and the Underlying

Litigation. Until the state court in the Underlying Litigation resolves the factual disputes before it,

any declaration by this Court would amount to nothing more than an advisory opinion based on a

range of potential outcomes. Moreover, because Hudson and Westfield’s coverage dispute is not

at issue in the Underlying Litigation, it would not settle the controversy as to all the parties.

Accordingly, the Court finds that the first and second factors weigh against exercising

jurisdiction.

B. Factor Three: Is this Action Being Brought for Procedural Fencing Purposes?

According to the Sixth Circuit, a district court should not “impute an improper motive to a

plaintiff where there is no evidence of such in the record.” Scottsdale Ins. Co., 513 F.3d at 558

(internal citation omitted). Here, Hudson agrees that there is no evidence of an improper motive in

the record. [Doc. 18 at 8]. Therefore, this third factor is neutral in the absence of facts

demonstrating improper motive. Travelers Indem. Co., 495 F.3d at 272.

C. Factor Four: Will the Declaratory Action Increase Friction Between State and

Federal Courts?

In the Sixth Circuit, district courts consider these three sub-factors when analyzing

potential friction between state and federal courts in declaratory actions: “(1) whether the

underlying factual issues are important to an informed resolution of the case; (2) whether the state

trial court is in a better position to evaluate those factual issues than is the federal court; and (3)

whether there is a close nexus between the underlying factual and legal issues and state law, or

whether the federal common law or statutory law dictates a resolution of the declaratory action.”

Liberty Mut. Fire Ins. Co. v. Bohms, 490 Fed. Appx. 721, 726 (6th Cir. 2012).

As to the first two sub-factors, resolving the rights and obligations of the parties in this

case would require this Court to make a host of factual findings, such as Hudson’s contractual

obligations to the Project, the extent and type of damages it caused, whether any damage was

caused by Hudson’s subcontractors, and whether any other property was damaged. Surely the state

trial court that is familiar with the underlying case is in a better position to evaluate factual issues

related to coverage or non-coverage under an insurance contract than an unrelated federal district

court. Id. Any finding made by this Court on the coverage issue would be premature and could

lead to inconsistent findings with the underlying state court. Finally, unlike the first two sub-

factors, the third weighs against declining jurisdiction because the underlying state court, which

has not been presented with the coverage issue, is analyzing the contractual, statutory, and tort

claims under Texas law. Conversely, this Court is asked to apply Tennessee law to the coverage

issues. Accordingly, the Court finds that on balance the fourth factor weighs in favor of declining

to exercise jurisdiction

D. Factor Five: Is there a more effective alternative remedy?

“A district court should ‘deny declaratory relief if an alternative remedy is better or more

effective.’” Scottsdale Ins. Co., 513 F.3d at 562 (quoting Grand Trunk W.R.R. Co. v. Consol., Rail

Corp., 746 F.2d 323, 326 (6th Cir. 1984)). Hudson suggests that Tennessee state courts provide a

more effective alternative remedy. The Court agrees.

Here, “Tennessee provides a clear and concise avenue for a plaintiff’s declaratory judgment

action to proceed through Tenn. Code Ann. § 29-14-101 [et seq.] and Tenn. R. Civ. P. 57.” Mass.

Bay Ins. Co. v. Christian Funeral Dirs., Inc., 759 Fed. Appx. 431, 441 (6th Cir. 2018). And, while

it is true that federal courts sitting in diversity routinely apply state contract law, Tennessee courts

are in a “superior position” to resolve questions of Tennessee contract law. Id.; Travelers Indem.

Co. of Am. v. Moore & Assocs., 216 S.W.3d 302, 305–311 (Tenn. 2007) (including an extensive

discussion and analysis on the meaning of contractual terms, such as “property damage” and

“occurrence,” under Tennessee law). A resolution of this case would necessitate a complex

analysis of how Tennessee law defines certain contractual terms under an insurance policy.

Accordingly, the Court finds that the fifth factor also weighs in favor of declining to exercise

jurisdiction.

On balance, the Grand Trunk factors weigh in favor of discretionarily declining to exercise

jurisdiction over this matter. Accordingly, Defendant’s Motion to Dismiss will be GRANTED.

Hudson’s motion [Doc. 17] also requested, in the alternative, that the Court stay this matter

pending resolution of the Underlying Litigation. Because this case will be dismissed, it is not

necessary for the Court to decide whether such relief is appropriate.

III. CONCLUSION

For the reasons explained above, Defendant’s Motion to Dismiss [Doc. 17] is GRANTED.

The Court will decline to exercise jurisdiction over this action. Accordingly, this action is

DISMISSED WITHOUT PREJUDICE. A separate judgment will enter.

SO ORDERED.

/s/ Charles E. Atchley, Jr.

CHARLES E. ATCHLEY JR.

UNITED STATES DISTRICT JUDGE