In this world where decisions are a way of life,
Other people’s problems, they overwhelm my mind.
Insurance companies, like other businesses, generally prefer to litigate disputes with consumers in federal court, and they often invoke diversity jurisdiction to get there. Diversity jurisdiction over declaratory judgment actions is discretionary, however, and courts sometimes find they should abstain from exercising it in situations that might “interfere with the orderly and comprehensive disposition of a state court litigation.” Brillhart v. Excess Ins. Co. of America, 316 U.S. 491 (1942). See, e.g., Nami Resources Co., LLC v. South Mississippi Elec. Power Ass’n, No. 12-68-GFVT (E.D. Ky. March 29, 2013). In the Ninth Circuit, for example, “[t]here is no presumption in favor of abstention in declaratory judgment actions generally, nor in insurance cases specifically.” Nevertheless, courts “generally decline to assert jurisdiction in insurance coverage and other declaratory relief actions presenting only issues of state law during the pendency of parallel proceedings in state court.” Chartsis Specialty Ins. Co. v. Telegraph Hill Properties, Inc., Nos. C 11-05696-RS, 12-02935-RS (N.D. Cal. April 16, 2013).
Reifer v. Westport Ins. Corp., No. 4:12-CV-0533 (M.D. Pa. May 1, 2013), did not involve “parallel proceedings”; it is a coverage dispute that the defendant insurer removed to federal court, without objection from the plaintiff. The parties fully briefed a dispositive motion (among other motions), and a Magistrate Judge, in a 41-page opinion, upheld the insurer’s position on coverage and recommended that the case be dismissed on the merits. But the district court rejected that recommendation and sua sponte dismissed the case, without prejudice, on the ground that the court did not wish to exercise jurisdiction. In explanation of why it would refuse to hear the case, even after a dispositive motion on the merits had been decided, the court stated:
[T]his action presents the common case of an insurance company coming to federal court, under diversity jurisdiction, to receive declarations on purely state law matters. This weighs heavily against the Court exercising jurisdiction . . . .
Reifer was quoting Allstate Prop. & Cas. Ins. Co. v. Owens, No. 11-4 (W.D. Pa. Jan. 11, 2011), which was the first of a string of similar decisions from the Middle and Western Districts of Pennsylvania. In these cases, the courts have declined to hear declaratory judgment actions about insurance coverage—even in the absence of any state court proceeding—if jurisdiction is based solely on diversity, and if the court is not called upon to interpret federal law. See, e.g., Encompass Indemnity Co. v. Rutherford, No. 12-114 (W.D. Pa. Feb. 10, 2012); Maxum Indemnity Co. v. Heyl & Patterson, Inc., No. 2:11-01111 (W.D. Pa. Sept. 12, 2011).
Owens and its progeny rely heavily on the decision of the U.S. Court of Appeals for the Third Circuit, in State Auto Ins. Cos. v. Summy, 234 F.3d 131 (3d Cir. 2000). Summy was a coverage dispute that was “parallel” to a state court declaratory judgment action (albeit one that the insured filed in response to the insurer’s diversity suit), and it concerned an issue that was “not settled law” in Pennsylvania. The Court of Appeals noted that “it is important that district courts ‘step back’ and allow the state courts the opportunity to resolve unsettled state law matters.” It therefore ruled that the district court should have abstained from hearing the case, because it “[c]learly . . . [fell] outside the area outlined by Brillhart . . . as appropriate for the District Court to exercise its jurisdiction.”
In dicta, however, the Third Circuit suggested that the reasoning of Brillhart, which governed the facts presented in Summy, did not go far enough:
[I]t is important that district courts “step back” and allow the state courts the opportunity to resolve unsettled state law matters. . . . [T]he state’s interest 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 reason for the parties to resort to the federal courts.
Although it took them a decade to do so, the courts of the Middle and Western Districts of Pennsylvania now appear to read this statement to mean that, under normal circumstances, there is never a good reason for a federal court to assert diversity jurisdiction over a declaratory judgment case that involves coverage issues under state law.
The court in Reifer noted that this is not the only possible reading. In the Eastern District of Pennsylvania, declaratory judgment cases are still being dismissed only where there is also a parallel state law proceeding. E.g., O’Neill v. GEICO Ins. Co., No. 12-65 (E.D. Pa. Feb. 8, 2012) (“there are no parallel state proceedings here[,] so that any concern about judicial economy is absent”). But in the rest of the state, it now appears to be the law that federal courts will not hear “common” insurance cases, just because nobody can make them.