State Auto Ins Co v. Summy

Opinions of the United

2000 Decisions States Court of Appeals

for the Third Circuit

12-1-2000

State Auto Ins Co v. Summy

Precedential or Non-Precedential:

Docket 00-1116

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2000

Recommended Citation

"State Auto Ins Co v. Summy" (2000). 2000 Decisions. Paper 241.

http://digitalcommons.law.villanova.edu/thirdcircuit_2000/241

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2000 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Filed December 1, 2000

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 00-1116

STATE AUTO INSURANCE COMPANIES,

v.

ERIC SUMMY; JEFFREY ENCK, trading as E & J

RENTALS; BRYANT DIXON, a minor by and through his

parent and natural guardian, SHAWNA DIXON; SHAWNA

DIXON,

Eric Summy; Jeffrey Enck, trading as E & J Rentals,

Appellants

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

(D.C. Civ. No. 99-cv-1747)

District Judge: Honorable Eduardo C. Robr eno

Argued October 6, 2000

Before: BARRY, WEIS and ROSENN, Circuit Judges.

(Filed: December 1, 2000)

John R. Trotman, Jr., Esquir e

(ARGUED)

Peter Russell Kohn, Esquire

Monheit, Monheit, Silverman

& Fodera, P.C.

Eleven Penn Center, Suite 1101

1835 Market Street

Philadelphia, Pennsylvania 19103

Attorneys for Appellants

Jonathan C. Deisher, Esquire

(ARGUED)

Post & Schell, P.C.

1245 South Cedar Crest Boulevard

3rd Floor

Allentown, Pennsylvania 18103

Attorneys for Appellee

Laura A. Foggan, Esquire

Daniel E. Troy, Esquire

Erin N. McGonagle, Esquire

Wiley, Rein & Fielding

1776 K Street, N.W.

Washington, D.C. 20006

Attorneys for Amicus Curiae

Insurance Environmental Litigation

Association

OPINION OF THE COURT

WEIS, Circuit Judge.

Despite the pendency of a case in state court on the

same issues, the District Court granted a declaratory

judgment in favor of an insurance carrier on a coverage

case based solely on state law. We conclude that in the

circumstances, the District Court should have declined to

exercise jurisdiction. Accordingly, we will vacate the

judgment and direct that the complaint be dismissed.

Underlying this controversy is a suit for damages brought

on behalf of Bryant Dixon, a child who allegedly was

2

poisoned by lead paint in his home, a structur e owned and

leased by E & J Rentals. Dixon's complaint against E & J

was filed in the Court of Common Pleas of Lancaster

County, Pennsylvania on March 12, 1999. After r eceiving

notice of the impending suit, E & J notified State Auto

Insurance Co., its liability carrier, of the claim. State Auto

advised E & J that the policy's pollution exclusion applied

to preclude coverage and, consequently, E & J would have

no insurance protection against the Dixon claim.

On March 23, 1999, E & J's attorney sent a letter to

State Auto, disagreeing with its denial of coverage and

advising that he intended to ask for a declaratory judgment

in state court to resolve the matter. State Auto responded

by filing the present declaratory judgment action in the

District Court for the Eastern District of Pennsylvania on

April 7, 1999.

On June 11, 1999, E & J moved to dismiss or stay the

federal action, arguing that the court should, in its

discretion, decline to exercise jurisdiction over the matter.

Three days later, E & J filed its own suit for declaratory

judgment in state court. State Auto moved to dismiss the

state suit; both parties filed motions for summary judgment

in the two courts. After briefing that vigor ously contested

jurisdiction, the District Court denied E & J's motion to

dismiss or stay on August 25, 1999 without stating its

reasons for doing so.

On January 28, 2000, the District Court granted State

Auto's motion for summary judgment.1 E & J has appealed,

challenging the decision of the District Court to adjudicate

the declaratory judgment. E & J also argues the merits of

the coverage issue.

Generally speaking, insurance companies include

pollution exclusions in their liability policies to shield

themselves from claims for injuries caused by exposure to

harmful substances, irritants, contaminants, or chemicals

as defined more precisely in the policies. The interpretation

_________________________________________________________________

1. On February 10, 2000, based on res judicata, the state trial court

denied E & J's motion for summary judgment in its declaratory

judgment action.

3

of these clauses, particularly in lead poisoning cases

similar to Dixon's, has resulted in extensive litigation in

state and federal courts throughout the country. No

consensus on the interpretation and scope of the

exclusionary clauses has emerged among courts nationally,

nor in Pennsylvania, whose law applies here.

At the time the District Court denied E & J's motion to

dismiss, only two Pennsylvania trial courts had ruled on

this issue. See Fayette County Hous. Auth. v. Housing &

Redev. Ins. Exch., No. 2440-1997, slip op. (C. P . Fayette Co.

(Pa.) Apr. 7, 1999); Lititz Mut. Ins. Co. v. Steely, No. 1044-

1997, slip op. (C. P. Lancaster (Pa.) Apr . 17, 1998). Both

courts held that pollution exclusion clauses similar to the

one at issue here were ambiguous, and ther efore the

insurers were required to defend and indemnify the insured

property owners.

In the interim between the District Court's denial of E &

J's motion to dismiss and the grant of summary judgment

for State Auto, the Pennsylvania Superior Court, in a 2-1

decision, reversed the order of the Court of Common Pleas

of Lancaster County, and ruled in favor of the insur er. Lititz

Mut. Ins. Co. v. Steely, 746 A.2d 607 (Pa. Super . 1999). The

policyholders in Lititz have since petitioned the state

supreme court for allocatur.

The other Common Pleas case, Fayette County Housing

Authority, also came before the Superior Court. Rather than

following Lititz, the Superior Court sua sponte ordered

rehearing en banc of the decision fr om the Court of

Common Pleas of Fayette County. Fayette County Hous.

Auth. v. Housing & Redev. Ins. Exch., No. 693-WDA-99,

Order (Pa. Super. Ct. March 9, 2000). The case was argued

in September 2000.

United States District Courts within this cir cuit also have

examined the pollution exclusion's application to lead

poisoning cases, with varying results.2

_________________________________________________________________

2. The following cases held that pollution exclusions applied to preclude

coverage: St. Leger v. American Fire and Cas. Co., 870 F. Supp. 641 (E.D.

Pa. 1994), aff'd w/o opinion, 61 F .3d 896 (3d Cir. 1995); Kaytes v.

Scottsdale Ins. Co., No. 97-3225, 1997 WL 763022 (E.D. Pa. Dec. 9,

4

I.

The Declaratory Judgment Act, 28 U.S.C. SS 2201 and

2202, provides a remedy that may be used by the federal

courts in appropriate circumstances. This statute provides

that a court "may declare the rights. . . of any interested

party," 28 U.S.C. S 2201(a) (emphasis added), and

contemplates that district courts will exercise discretion in

determining whether to entertain such actions.

The unique characteristics of the Act werefirst made

clear by the Supreme Court in Brillhart v. Excess Insurance

Co. of America, 316 U.S. 491, 495 (1942), a case involving

a dispute between insurance carriers. The Court

emphasized that the jurisdiction conferred by the Act was

discretionary, and district courts were under no compulsion

to exercise it. Id. at 494.

"Ordinarily it would be uneconomical as well as

vexatious for a federal court to proceed in a declaratory

judgment suit where another suit is pending in a state

court presenting the same issues, not gover ned by

federal law, between the same parties. Gratuitous

interference with the orderly and comprehensive

disposition of a state court litigation should be

avoided."

Id. at 495.

After articulating the rationale, the Court listed specific

factors for district judges to consider in deciding whether to

hear declaratory judgment actions. A critical question,

according to the Court, was "whether the questions in

controversy between the parties to the federal suit, and

which [were] not foreclosed under the applicable

substantive law, can better be settled in the pr oceeding

pending in the state court." Id. Naturally, this requires

some inquiry into the scope of the state court pr oceeding,

_________________________________________________________________

1997); Kaytes v. Imperial Cas. & Indem. Co., No. 93-1573, 1994 WL

78090 (E.D. Pa. Jan. 7, 1994). Contra Nationwide Mut. Ins. v. Fair, No.

96-1975 (W.D. Pa. Oct. 3, 1997) (holding that pollution exclusion was

ambiguous and that insurer was obligated to defend and indemnify

insured.).

5

the nature of defenses available there, and whether the

claims of all parties in interest can satisfactorily be

adjudicated in that proceeding. Id.; see also Edwin

Borchard, Discretion to Refuse Jurisdiction of Actions for

Declaratory Judgments, 26 Minn. L. Rev. 677 (1942)

(observing that district courts are not obliged to exercise

jurisdiction in declaratory judgment actions and concluding

that refusal to exercise jurisdiction is proper where issues

before state and federal courts are substantially the same

and entertaining action would only duplicate judicial effort).

The discretionary nature of the declaratory judgment

remedy became somewhat clouded after Colorado River

Water Conservation District v. United States , 424 U.S. 800

(1976). There, the Court proclaimed that federal courts

have a "virtually unflagging obligation" to exercise the

jurisdiction conferred on them by Congr ess. Id. at 817.

Although Colorado River was an abstention case involving

federal claims, some courts applied its restrictive teachings

to limit or abolish the discretion to deny declaratory

judgments. See, e.g., Terra Nova Ins. Co., Ltd. v. 900 Bar,

Inc., 887 F.2d 1213, 1221 (3d Cir . 1989) (listing cases in

which Colorado River test was applied in declaratory

judgment context). Notably, in Terra Nova , this Court

disagreed with that approach. Id. at 1222. After exploring

the ramifications of Colorado River and Moses H. Cone

Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1

(1983) (holding that a district court may not grant a stay

pending arbitration absent exceptional circumstances), we

concluded that neither case diminished the jurisdictional

discretion contained in the Declaratory Judgment Act, and

that Brillhart retained its vitality. Terra Nova, 887 F.2d at

1223.

Because of lingering confusion among the courts over

whether Colorado River eroded Brillhart, the Supreme Court

revisited the issue in Wilton v. Seven Falls Co., 515 U.S.

277, 279, 281 (1995). Reviewing the declaratory judgment

remedy at some length, the Court reaffir med Brillhart's

standard of broad discretion and r ejected Colorado River's

restrictive "exceptional circumstances" test as inappropriate

for the Declaratory Judgment Act. Id. at 286. As Wilton

phrased it, "[i]n the declaratory judgment context, the

6

normal principle that federal courts should adjudicate

claims within their jurisdiction yields to considerations of

practicality and wise judicial administration." Id. at 288.

The statute "confers a discretion on the courts rather than

an absolute right upon the litigant." Id. at 287.

Wilton's emphasis upon "practicality" and "wise judicial

administration" echoes Brillhart's specific admonition: "It is

not our function to find our way through a maze of local

statutes and decisions on so technical and specialized a

subject [matter] . . . . For one thing, it is too easy to lose

our way." Brillhart, 316 U.S. at 497. The Court concluded

that district court decisions should be reviewed under an

abuse of discretion standard in actions for "declaratory

relief where parallel proceedings, pr esenting opportunity for

ventilation of the same state law issues, wer e underway in

the state court." Id. at 290.3

Two years after Terra Nova, in United States v.

Commonwealth of Pennsylvania, Department of

Environmental Resources, 923 F .2d 1071, 1075 (3d Cir.

1991), we applied a limiting factor from Brillhart to draw a

distinction between declaratory judgment actions that

district courts should entertain, and those in which

jurisdiction ought to be declined. We concluded that the

District Court did not have open-ended discr etion to decline

jurisdiction over a declaratory judgment action when the

issues included federal statutory interpretation, the

government's choice of a federal forum, an issue of

sovereign immunity, or inadequacy of the state proceeding.

Id. at 1076-79. That case was quite differ ent from Brillhart,

where the declaratory judgment action was r estricted to

issues of state law.

For cases like Brillhart, where district courts must decide

whether to hear declaratory judgment actions involving

insurance coverage issues, we have suggested r elevant

considerations:

1. A general policy of restraint when the same issues

are pending in a state court;

_________________________________________________________________

3. We have applied Wilton's standard of discretion to interpleader actions

as well. See NY Life Distributors, Inc. v. Adher ence Group, Inc., 72 F.3d

371 (3d Cir. 1995).

7

2. An inherent conflict of interest between an

insurer's duty to defend in a state court and its

attempt to characterize that suit in federal court as

falling within the scope of a policy exclusion;

3. Avoidance of duplicative litigation.

Department of Environmental Resour ces, 923 F.2d at 1075-

76 (discussing Terra Nova).4

These precedents counsel hesitation by federal courts in

exercising jurisdiction over declaratory judgment actions

when the state law involved is close or unsettled. See

Mitcheson v. Harris, 955 F.2d 235, 240 (4th Cir. 1992)

(noting that where there seemed to be equally relevant

statements by the state courts on either side of the issue,

it would be prudent to leave the question to be decided in

the state proceeding).5 A federal court should also decline to

exercise its discretionary jurisdiction when doing so would

promote judicial economy by avoiding duplicative and

piecemeal litigation. See id. at 239 (noting that "the

prospects for coordinated management and alleviation of

abrasion are greater when the litigation is handled under

one jurisdictional roof."). Moreover , district courts should

give serious consideration to the fact that they do not

establish state law, but are limited to pr edicting it. This is

especially important in insurance coverage cases, although

we do not mean to confine its relevance to that category.

In diversity matters, the federal courts are often called

upon to apply state law without the guidance of state

appellate rulings. To aid in the correct disposition of such

_________________________________________________________________

4. In Kiewit Eastern Co., Inc. v. L & R Construc. Co., Inc., 44 F.3d 1194,

1198 n.3 (3d Cir. 1995) the Court noted the discretionary factor in

declaratory judgment actions, but proceeded on the merits because none

of the parties contested that issue. Similarly in Nationwide Mutual Fire

Insurance Co. v. Pipher, 140 F.3d 222 (3d Cir. 1998) and Nationwide

Mutual Insurance Co. v. Buffetta, No. 99-1832, 2000 WL 1573085 (3d

Cir. 2000), apparently the parties neither cited Wilton nor contested

jurisdiction.

5. In Nationwide Mutual Fire Insurance Co. v. Cassel, 881 F. Supp. 133,

136 (M.D. Pa. 1994), the court declined to exer cise jurisdiction where

the

claim presented "a novel, and hence, unsettled issue of state law which

the state courts should address."

8

cases, some courts have adopted the practice of certifying

questions of law to the state's highest court. This practice

has been encouraged and utilized by the United States

Supreme Court. This Court has also used this pr ocedure

and found it to be a great benefit. W e recognize the

necessity of restraint, however, so that we do not

overburden the already crowded dockets of the state

appellate courts with too many certifications.

"[I]n declaratory judgment actions Congr ess has afforded

the federal courts a freedom not present in ordinary

diversity suits to consider the state interest in having the

state courts determine questions of state law." Mitcheson,

955 F.3d at 238. Consequently, it is counterproductive for

a district court to entertain jurisdiction over a declaratory

judgment action that implicates unsettled questions of state

law, questions which might otherwise be candidates for

certification to the state's highest court. Such matters

should proceed in normal fashion thr ough the state court

system. See id. at 240 (4th Cir. 1992) ("The [state] interests

assume greater saliency where, as her e, the issues of state

law are close."); see also Meritcar e, Inc. v. St. Paul Mercury

Ins. Co., 166 F.3d 214, 225 n.7 (3d Cir . 1999). In short,

where the applicable state law is uncertain or

undetermined, district courts should be particularly

reluctant to entertain declaratory judgment actions.

II.

Clearly, the case at hand falls outside the ar ea outlined

by Brillhart and Wilton as appr opriate for the District Court

to exercise its jurisdiction. At the time the court denied E

& J's motion to dismiss, Dixon's personal injury suit and E

& J's petition for declaratory judgment were both pending

in state court before the same judge, who was presumably

already familiar with the insurance policy and with the

scientific evidence available on lead paint poisoning.

Judicial efficiency was not promoted when the District

Court also considered this evidence, as it inevitably had to

when deciding the federal declaratory judgment action.6 If

_________________________________________________________________

6. In McDowell Oil Service, Inc. v. Interstate Fire and Casualty Co., 817

F.

Supp. 538, 546 (M.D. Pa. 1993), a district judge noted that it would be

inefficient for a federal court to decide a declaratory judgment action

that

would turn on the assessment of scientific data when the state court

judge in the underlying tort action was already familiar with this data.

9

the District Court had not interfered, the state court would

have been able to develop a coordinated schedule of briefing

and discovery that would have promoted the efficient

resolution of both the declaratory judgment action and the

underlying tort action, thereby conserving judicial

resources as well as those of the parties.

Not only were there strong factors militating against the

exercise of jurisdiction over this declaratory judgment

action, but no federal interests were pr omoted by deciding

this case in the District Court. Not a single federal question

was presented to the District Court by State Auto. As noted

earlier, two trial court decisions, but no appellate cases,

were in existence in the state system, a forum that was

fully able and prepared to resolve this purely state law

issue. Entertainment of a federal declaratory judgment suit

in these circumstances fits Brillhart's description of a

"vexatious" and "gratuitous interfer ence" with state court

litigation.

It is irrelevant that the state declaratory judgment

petition was filed after its counterpart in the District Court.

Moreover, E & J's vigorous objection to the District Court's

assumption of jurisdiction should have weighed in favor of

refusing to entertain the action. Even in the absence of

such a challenge, however, the circumstances presented

here would readily have supported a decision to decline

jurisdiction sua sponte.

In order to maintain the proper relationship between

federal and state courts, it is important that district courts

"step back" and allow the state courts the opportunity to

resolve unsettled state law matters. As W ilton reminded us,

the Declaratory Judgment Act confers a discr etion on the

courts rather than an absolute right on litigants. Wilton,

515 U.S. at 287. It follows that the state's inter est in

resolving its own law must not be given short shrift simply

because one party or, indeed, both parties, perceive some

advantage in the federal forum. When the state law is firmly

established, there would seem to be even less r eason for the

parties to resort to the federal courts. Unusual

circumstances may occasionally justify such action, but

declaratory judgments in such cases should be rar e.

10

We appreciate the efforts of the able and conscientious

district judge in this case to expedite the disposition of

litigation assigned to him, but as we have mentioned, other

overriding considerations come into play. Decisions in

declaratory judgment actions must yield to "considerations

of practicality and wise judicial administration." Wilton, 515

U.S. at 288. The desire of insurance companies and their

insureds to receive declarations in federal court on matters

of purely state law has no special call on the federal forum.

Whether declaratory relief should be granted"will depend

upon a circumspect sense of its fitness infor med by the

teachings and experience concerning the functions and

extent of federal judicial power." Id . at 287. We conclude

that the assumption of jurisdiction under the Declaratory

Judgment Act in this case was not consistent with a sound

exercise of discretion.

Accordingly, we will vacate the judgment of the District

Court and remand with directions to dismiss the complaint.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

11