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International Insurance Co. of Hannover SE v. Connors & Sons Classy Construction, LLC

United States District Court, D. New Mexico

September 20, 2018

INTERNATIONAL INSURANCE COMPANY OF HANNOVER SE, Plaintiff,
v.
CONNORS & SONS CLASSY CONSTRUCTION, LLC, et al., Defendants.

          PROPOSED FINDINGS AND RECOMMENDED DISPOSITION

          JERRY H. RITTER UNITED STATES MAGISTRATE JUDGE.

         THIS MATTER comes before the Court on Defendant's Motion to Dismiss or, in the Alternative, to Stay Proceedings, filed on September 22, 2017 (the “Motion”). (Doc. 9). The Court has considered the Motion and attached exhibits, Plaintiff International Insurance Company of Hannover SE's Response Opposing Defendant Connors & Son's Motion to Dismiss or, in the Alternative, to Stay Proceedings, filed on October 6, 2017 (Doc. 14), and Defendant's Reply in Support of Motion to Dismiss or, in the Alternative, to Stay Proceedings, filed on October 30, 2017. (Doc. 18). Having thoroughly considered the parties' submissions and the relevant law, the undersigned recommends that the Court find that the Motion is not well taken and should be denied.

         Background

         According to the Complaint, Plaintiff issued a commercial general liability policy (CGL) to insure Defendant Connors & Sons Classy Construction, LLC (“Connors & Sons”), between May 1, 2013 - May 1, 2014. (Doc. 1 at ¶ 17).

         Defendant Connors & Sons began general contracting work for a custom home built by Defendants Blaine and Amanda Wiles in August 2013. (Doc. 1 at ¶ 21). Connors & Sons contracted Miller's Insulation & Fireproofing, Inc. to install Icynene SPF, per the Wiles' request. (Doc. 9-1 at 2). After the Icynene SPF was installed and the Wiles moved into the house, they complained that the Icynene SPF was causing noxious and harmful fumes, gases, and odors to fill the house. (Doc. 1-2 at 4-5). The Wiles then submitted a demand letter to Connors & Sons, and IICH retained counsel to represent Connors & Sons as their insured. (Doc. 9 at 5). On November 3, 2016, Blaine and Amanda Wiles filed a complaint against Icynene Corporation, Miller's Insulation & Fireproofing, and Connors & Sons in state court in the Thirteenth Judicial District of New Mexico. (Doc. 1-2). IICH was not added as a defendant in the state court case, and has not sought to intervene in that action.

         On August 11, 2017, IICH filed the instant Complaint for Declaratory Judgment Relief, in which it seeks a declaration from the Court pursuant to the Declaratory Judgment Act, that the allegations in the Wiles' state court complaint are not covered by Connors & Sons' insurance policy with IICH. (Doc. 1 at 18-19). On September 21, 2017, Defendants Blaine and Amanda Wiles filed their Answer to the Complaint. (Doc. 8).

         On September 22, 2017, Defendant Connors & Sons filed the subject Motion to Dismiss, or in the Alternative, to Stay Proceedings. (Doc. 9). Connors & Sons argues that this Court should either dismiss, or abstain from hearing, this case because unresolved factual issues regarding an insurer's duty to defend and indemnify in the primary state court case overlap with the factual issues that will necessarily be at issue in this case. (Id. at 2). IICH responds that federal courts are allowed to make factual determinations in declaratory actions, and Defendant “fails to identify overlapping factual issues that would preclude this Court retaining declaratory judgment jurisdiction.” (Doc. 14 at 2). Connors & Sons, in its Reply, states that the “overlapping nature of the factual issues is manifest, ” the Declaratory Judgment Act is discretionary, and the state court case is the more appropriate forum to address the issues of IICH's duties to defend and indemnify. (Doc. 18 at 2, 3-8).

         Legal Standard

         Plaintiff's Complaint is governed by the Declaratory Judgment Act under 28 U.S.C. § 2201, which states:

In a case of actual controversy within its jurisdiction, … any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

Fed. R. Civ. P. 57 also provides that the Federal Rules of Civil Procedure govern declaratory judgments under 28 U.S.C. § 2201, and states that “the existence of another adequate remedy does not preclude a declaratory judgment that is otherwise appropriate.”

         The decision to exercise jurisdiction over a declaratory judgment action is discretionary. “While this statute vests the federal courts with power and competence to issue a declaration of rights, the question of whether this power should be exercised in a particular case is vested in the sound discretion of the district courts.” St. Paul Fire & Marine Ins. Co. v. Runyon, 53 F.3d 1167, 1168 (10th Cir. 1995) (citing Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962) (per curiam)).

         Analysis

         I. The Court has Subject Matter Jurisdiction to Hear Plaintiff's Declaratory Judgment Action

         Defendant Connors & Sons emphasizes the discretionary nature of the federal court's jurisdiction over declaratory judgments. (Doc. 9 at 4; Doc. 18 at 2) (citing Brillhart v. Excess Ins. Co. of America, 316 U.S. 491 (1942)). In Brillhart, after setting forth the discretionary standard under the Federal Declaratory Judgment Act, the Supreme Court also noted that, “[o]rdinarily 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 governed by federal law, between the same parties.” 316 U.S. at 495. The Supreme Court did not preclude jurisdiction over such cases, but advised that federal courts should “ascertain whether the questions in controversy between the parties to the federal suit, and which are not foreclosed under the applicable substantive law, can better be settled in the proceeding pending in the state court.” Id. In analyzing this question, Courts should inquire “into the scope of the pending state court proceeding and ...


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