Earlier this week, the Sixth Circuit upheld a Michigan district court’s decision that a commercial general-liability insurance policy did not cover a short-term worker injured at a farmer’s market in Michigan. Judge Stranch’s opinion for the court, however, is most interesting for its lengthy discussion of the contours of declaratory judgment actions in the circuit.
Western World Insurance Co. v. Hoey began tragically when a short-term worker hired by Hoey to run a hay wagon on his farm became a paraplegic as a result of an accident with the wagon. The worker sued Hoey for negligence, and Hoey and the worker both sought a state court declaratory judgment that the worker was covered under Hoey’s general liability policy from Western World. Western World sought a declaratory judgment to the opposite effect in federal court in Michigan, removed Hoey’s initial suit, consolidated the two, and obtained a favorable judgment in federal court, denying insurance coverage of the accident.
In affirming both the district court’s exercise of jurisdiction over the declaratory judgment action and its construction of the insurance policy, the court first noted that the Declaratory Judgment Act grants district courts “unique and substantial discretion in deciding whether to declare the rights of litigants.” With a dose of humility, the opinion went on to note the district court’s advantage in construing the five factors (and three subfactors) weighed when deciding to exercise jurisdiction over a declaratory judgment action, noting that ultimately the decision comes down to a balancing among efficiency, fairness, and federalism. After analyzing each of the factors individually, the court “stepped back” to “view the case as a whole,” and gave deference to the district court’s decision to decide “whether Western World was on the hook for Hoey’s legal fees and potential liability,” that “Western World was [not] playing procedural games,” and that it could resolve the declaratory action “without interfering in [the underlying] tort suit or taking on difficult questions of state law.”
The court noted that a different district court might have decided the case differently—but such is the nature of discretionary jurisdictional decisions. Given the deferential abuse of discretion standard on appeal and the district court’s carful weighing of the jurisdictional factors, the case clearly warranted affirmance. The court also pointed out when district courts clearly should not take jurisdiction over declaratory judgment actions in the circuit, as when they involve “novel, unsettled, or complex issues of state law.” However, practitioners in the circuit should also take note of the court’s final advice that declaratory actions are not to be used merely for “procedural fencing” by obtaining a favorable res judicata result in a race to the courthouse, or if the desired declaration is “frivolous or purely advisory.”