Defendant, Clearwater Insurance Company, f/k/a Skandia America Reinsurance Corporation (“Clearwater”), filed suit against Seaton Insurance Company and Stonewall Insurance Company (“Plaintiffs”) in Connecticut Superior Court, arguing that there was no coverage under certain reinsurance agreements for Plaintiffs’ asbestos claims. Plaintiffs subsequently commenced a declaratory judgment action in Rhode Island federal court concerning the parties’ respective rights and obligations under the same reinsurance agreements, as well as eleven other contracts.

Plaintiffs filed a motion in state court to dismiss or stay the Connecticut action, arguing that that dispute was less complex and should yield to the later filed federal action. The court granted the motion and stayed the case, finding that federal court was the better forum. Clearwater then moved in the Rhode Island district court to stay or dismiss the federal action pursuant to the abstention doctrine.

The parties disagreed over which test should govern the court’s determination of whether abstention was proper. Plaintiffs argued for the test set forth by the Supreme Court in Colorado River Water Conservation Dist. v. United States, 429 U.S. 800, 813 (1976), which requires a party to demonstrate exceptional circumstances to prevail on a motion to abstain. Under that test, a court must balance a number of factors, including: (1) whether either court has assumed jurisdiction over a res; (2) the [geographical] inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; (4) the order in which the forums obtained jurisdiction; (5) whether state or federal law controls; (6) the adequacy of the state forum to protect the parties’ interests; (7) the vexatious or contrived nature of the federal claim; and (8) respect for the principles underlying removal jurisdiction.

Clearwater, on the other hand, argued that the more lenient test set forth in Wilton v. Seven Falls Co. 515 U.S. 277 (1995) applied. Under the Wilton test, a court retains “broad discretion” to abstain, and a party must establish: (1) whether the same parties are involved in both cases; (2) whether the claims made in the declaratory judgment action can be adjudicated in the state court action; (3) whether resolution of the declaratory judgment action turns on factual questions that will be litigated in the state court action; (4) whether the issues presented are governed by state or federal law; and (5) what effect the declaratory judgment action is likely to have on potential conflicts of interest between the parties.

The court concluded that abstention was not proper under either the Colorado River or Wilton tests. Specifically, the court found that: (a) the federal court action was more comprehensive because of the additional reinsurance contracts and claims at issue; (b) there was no inconvenience to litigating in the Rhode Island forum; (c) the state court judge concluded that federal court was more appropriate; (d) common factual questions existed; (e) it was unlikely that Connecticut law applied; and (f) even if it did, applying Connecticut law to the issues in dispute would not be “difficult, complex or otherwise problematic” for the Rhode Island federal court. Therefore, the court denied Clearwater’s motion.

Click here to review a copy of the court’s decision, captioned Seaton Ins. Co., et al. v. Clearwater Ins. Co. f/k/a Skandia America Reinsurance Corp., No. 09-516 (2010).