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Allstate Fire and Casualty Insurance Co.

United States District Court, D. New Mexico

September 20, 2019

LYNN SHARP, Defendant.



         Allstate Fire and Casualty Insurance Company (Allstate) filed a declaratory judgment action in this Court seeking a declaration about the proper amount of uninsured motorist (UM) coverage available under Mr. Lynn Sharp’s insurance policy. Shortly thereafter, Mr. Sharp filed his own complaint in New Mexico state court against Allstate, an Allstate agent, and two Allstate adjusters. Mr. Sharp seeks a similar determination of the available UM coverage and brings a variety of other claims against all four defendants. Mr. Sharp now moves to dismiss or stay the federal action. After considering the Mhoon factors, the Court finds it appropriate to decline to exercise jurisdiction in this action and thus will grant Mr. Sharp’s motion to dismiss.

         I. Factual Background[1]

         Mr. Sharp has had an insurance policy with Allstate since 2011. (Doc. 1 (Compl.) ¶ 12.) In 2013, Defendant’s then-wife, Ms. Barbara Sharp, who was also a named insured on the Allstate policy, completed a form to select UM insurance coverage for bodily injury and property damage. (Id. ¶¶ 12–14; Doc. 1-C.) The form allowed the Sharps to choose from stacked or non-stacked bodily injury coverage, specified the limits available for each option, and indicated what the Sharps’ insurance premium amounts would be for each option. (See Doc. 1-C at 2–3.) Ms. Sharp declined to select UM coverage equal to the Sharps’ bodily injury liability insurance limits of $250, 000/person and $500, 000/accident and instead selected non-stacked coverage in the amount of $25, 000/person and $50, 000/accident, the minimum coverage amounts for bodily injury.[2] (See Id . at 3.) Mr. Sharp did not sign the form. (Id. at 4.) The form indicated that Ms. Sharp’s option would apply to all future renewals unless the insureds notified Allstate otherwise in writing. (Id.)

         The Sharps divorced in 2014, and Mr. Sharp asked Allstate to remove Ms. Sharp as a named insured on the policy. (Compl. ¶¶ 3, 17.) Mr. Sharp did not notify Allstate that he wanted to change Ms. Sharp’s UM coverage selection, and policy paperwork continued to reflect the $25, 000/$50, 000 non-stacked coverage. (See Id . ¶ 18; see also Doc. 1-B at 11 (2017 renewal auto policy declarations document noting that the UM insurance coverage limits were $25, 000/person and $50, 000/accident and that the coverage “may not be stacked”).) On an undisclosed date after his divorce, Mr. Sharp added a 2017 Honda Civic to the Allstate insurance policy. (See Compl. ¶ 9; Doc. 6-A ¶ 18.)

         On September 2, 2018, Mr. Sharp, driving the 2017 Honda Civic insured under the Allstate policy, was involved in a traffic accident with Mr. Juan Medina-Delgado. (Compl. ¶¶ 6, 8–9.) Mr. Delgado was at fault, and his insurer (GEICO) paid Mr. Sharp the $25, 000 per person limit available under the GEICO policy. (Id. ¶¶ 6–7.) Mr. Sharp asserted that his injuries exceeded $25, 000 and made a claim for UM benefits under his Allstate policy. (Id. ¶ 10.) Mr. Sharp informed Allstate that he believed Ms. Sharp’s 2013 selection was invalid when made (see Doc. 6-A ¶¶ 9– 12), and that her selection did not apply to his policy after he removed her from the policy (see Compl. ¶ 21). Mr. Sharp has made a demand for stacked UM benefits in an amount equal to his policy liability limits. (Id. ¶ 21.) Allstate’s adjuster also believed that Mr. Sharp had been entitled to a new UM offer after Ms. Sharp was removed from the policy, and Allstate began to adjust the claim for UM benefits “as though the policy had UM limits that matched the liability limits.” (Id. ¶ 22.)

         The parties disagree about Mr. Sharp’s bodily injury damages. (Id. ¶ 23.) On November 9, 2018, Allstate offered Mr. Sharp UM benefits in the amount of $26, 625.82 (id. ¶ 24; see also Doc. 6-B at 5), which Mr. Sharp refused. On the same day that Allstate tendered its offer, it also filed this declaratory judgment action. (See Compl.; Doc. 6-B.) Allstate seeks a declaration from the Court that: (1) “Mr. Sharp’s policy contained only $25, 000 in UM bodily injury coverage at the time of the accident” and (2) Ms. Sharp’s 2013 “selection was in accordance with New Mexico law.” (Compl. at 8.) If the Court finds instead that higher UM limits were available, then Allstate seeks a declaration that: (1) “no further sums are owed” and (2) “it has acted in good faith in its interpretation of the UM coverage limits available for the loss . . . .” (Id. at 8–9.)

         On December 14, 2018, Mr. Sharp filed a complaint in the Second Judicial District Court of New Mexico. (Doc. 6-A.) Mr. Sharp named four defendants: Allstate, Lynn Williamson (an Allstate adjuster), Sarah Tupoumalohi (an Allstate adjuster), and Mystaya Stephens (an Allstate agent). (Id. ¶¶ 2–5.) Mr. Sharp brings claims for breach of contract, reformation of contract, declaratory judgment, insurance bad faith, and equitable estoppel/waiver by estoppel against Allstate; for violations of the Trade Practices and Fraud Act of the New Mexico Insurance Code against Allstate and both adjusters; for violation of the Unfair Practices Act against Allstate and the agent; and for negligence against the agent. (Doc. 6-A.) Mr. Sharp now asks the Court to decline jurisdiction and dismiss this lawsuit in deference to the state court action. (Doc. 6.)

         II. Analysis

         Allstate brought this lawsuit pursuant to the Declaratory Judgment Act, which provides that a court with jurisdiction “may declare the rights and other legal relations of any interested party seeking such declaration . . . .” 28 U.S.C. § 2201(a). District “courts are ‘under no compulsion’ to exercise jurisdiction under” the Declaratory Judgment Act. Century Sur. Co. v. Roybal, Civ. No. 11-1107 BB/ACT, 2012 WL 13005437, at *2 (D.N.M. Aug. 23, 2012) (quoting Brillhart v. Excess Ins. Co. of Am., 316 U.S. 492, 494 (1942); citing Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995)). The Brillhart Court stated that “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.” Brillhart, 316 U.S. at 495. “In such situations, interference with the state court litigation ‘should be avoided.’” Roybal, 2012 WL 13005437, at *2 (quoting Brillhart, 316 U.S. at 495).

         As district courts are not required to declare parties’ rights, the Tenth Circuit has set forth several factors courts must consider “in deciding whether or not to exercise their statutory declaratory judgment authority.”[3] Surefoot LC v. Sure Foot Corp., 531 F.3d 1236, 1240 (10th Cir. 2008) (citing State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 982–83 (10th Cir. 1994)) (subsequent citations omitted). These “Mhoon factors” include:

[1] whether a declaratory action would settle the controversy; [2] whether it would serve a useful purpose in clarifying the legal relations at issue; [3] whether the declaratory remedy is being used merely for the purpose of “procedural fencing” or “to provide an arena for a race to res judicata ”; [4] whether use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and [5] whether there is an alternative remedy which is better or more effective.

Id. (quoting Mhoon, 31 F.3d at 983).

         A. The first two Mhoon factors weigh in favor of ...

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