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December 27, 1976


The opinion of the court was delivered by: LUONGO

 Plaintiff, Bituminous Insurance Companies (BIC), insures Leonard Shaffer Associates, Inc. (Shaffer), a general contractor. Defendant, Pennsylvania Manufacturers' Association Insurance Company (PMA), insures Lessner and Co., a subcontractor hired by Shaffer to do the air conditioning, plumbing, heating and ventilating work on a certain building. In the contract between them, Lessner agreed to indemnify Shaffer, and to defend Shaffer against all claims arising out of the execution of the work covered by their contract. Extensive water damage occurred during the construction work, and suits were instituted by the building owner and the tenant against Shaffer and Lessner in the Philadelphia Court of Common Pleas. Thereafter BIC filed this action seeking a declaratory judgment that PMA is obligated to furnish a defense to Shaffer and to pay all judgments against Shaffer arising out of the Common Pleas suits. BIC also seeks reimbursement for expenses incurred in investigating and defending those suits.

 This matter was tried before me on March 15, 1976. PMA's Trial Memorandum raised a significant issue which had to be decided before I could reach the merits of the case. PMA contended that Shaffer is an indispensable party to this declaratory judgment suit, and unless it is joined, this court lacks power to hear the case under the Declaratory Judgment Act, 28 U.S.C. § 2201. BIC has made no effort to join Shaffer, apparently because its presence would destroy diversity between the parties, *fn1" leaving no basis for this court's jurisdiction. *fn2" I invited the parties to submit supplemental memoranda on the question whether the case could be adjudicated in the absence of Shaffer as a party. Memoranda were submitted and oral argument has been heard. This jurisdictional question will be considered first. I will discuss PMA's contention regarding the need to have Shaffer as a party under the Declaratory Judgment Act, 28 U.S.C. § 2201, and I will also discuss the issue under what I consider its proper analysis under Fed. R. Civ. P. 19.

 "Indispensability" of Shaffer as a party.

 PMA's position depends on a line of cases holding that in a suit between insurers to determine which is obligated to provide coverage or to defend on behalf of an insured, the insured must be made a party. That rule was applied by the late Judge Goodrich in Nationwide Mutual Insurance Co. v. Fidelity & Casualty Co., 286 F.2d 91 (3d Cir. 1961), wherein he stated:

"Federal courts are not authorized to give advisory opinions and if we told the insurance companies their respective rights and duties against each other we certainly would be giving an advisory opinion. Each of the insurance companies has issued an insurance policy. It is called upon under the terms of that policy to defend its insured if action is brought against him. Such actions have been brought. It is impossible for us to say in this action where the insured are not parties that any company is relieved of its duty to defend."
Id. at 92-93 (emphasis added, footnotes omitted).

 Nationwide Mutual relied on American Fidelity & Casualty Co. v. Pennsylvania Threshermen & Farmers' Mutual Casualty Insurance Co., 280 F.2d 453 (5th Cir. 1960). In that case the Court of Appeals for the Fifth Circuit held that the insurer had no right to deny its duty to defend its insured where the claims asserted against the insured were clearly within the coverage of the policy. "That investigation or defense of these suits . . . may fortuitously uncover a potential third party defendant or the existence of some party . . . who has, by some contract to which they are not a party, undertaken to provide protection to another, does not alter or modify in any way the nature of the claim or the obligation to defend it." Id. at 459. See also Diamond Shamrock Corp. v. Lumbermens Mutual Casualty Co., 416 F.2d 707 (7th Cir. 1969); Travelers Indemnity Co. v. Standard Accident Insurance Co., 329 F.2d 329 (7th Cir. 1964); Allstate Insurance Co. v. Federated Mutual Implement and Hardware Insurance Co., 254 F. Supp. 629 (D.S.C. 1966).

 These cases furnished support for PMA's position that Shaffer is an "indispensable" party to this suit between BIC and PMA, but these precedents have been severely undermined by the Supreme Court's decision in Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U.S. 102, 19 L. Ed. 2d 936, 88 S. Ct. 733 (1968).

 Provident Tradesmens was a declaratory judgment suit instituted by Provident Tradesmens as administrator of the estate of John R. Lynch, who died in an automobile accident. Lynch was a passenger in a car driven by Donald Cionci, which Cionci had borrowed from one Edward S. Dutcher. The suit *fn3" was brought against Lumbermens Mutual Casualty Company, Dutcher's insurer, and Cionci's estate, seeking a declaration that the coverage of Dutcher's insurance extended to Cionci. Provident Tradesmens had earlier obtained a default judgment in the amount of $50,000 against Cionci's estate when Lumbermens refused to defend on the ground that Cionci's use of the automobile exceeded the permission granted by Dutcher, and, therefore, Dutcher's policy did not provide coverage to Cionci. Unable to obtain satisfaction of the judgment from Cionci's estate, Provident Tradesmens sought a declaration that Lumbermens was liable as Dutcher's insurer.

 The Court of Appeals reasoned that because of the finite limits of Dutcher's policy, he had an interest adverse to the interests of Lynch's estate and Smith's estate, and the determination of the rights of the two estates to coverage would necessarily affect Dutcher's rights in the policy. The Court then stated:

"It has been settled for more than a century and a half that a party is indispensable when his rights may be affected and that a court 'cannot proceed to a final decision of the cause' until he is made a party.
The indispensable party doctrine is not procedural. It declares substantive law and accords a substantive right to a person to be joined as a party to an action when his interests or rights may be affected by its outcome. The indispensable party doctrine is beyond the reach of, and not affected by, Rule 19 of the Federal Rules of Civil Procedure, since the Rules, as later developed, cannot 'abridge, enlarge or modify any substantive right.' 28 U.S.C.A § 2072 (emphasis supplied)." Id. at 805 (citations omitted).

 The Supreme Court reversed. It noted that the question of whether Dutcher was an indispensable party was "one to which [the newly amended] Rule 19(b) appears to address itself . . . ." *fn5" 390 U.S. at 108-09. Justice Harlan examined the result which would be reached by applying the tests of Rule 19. He concluded that Rule 19 made adequate provision for consideration as to how substantive rights might be affected, and that it was "a valid statement of the criteria for determining whether to proceed or dismiss in the forced absence of an interested person." Id. at 125. In other words, the determination of whether a case could proceed in the absence of a party was to be governed by the tests of Rule 19, even though substantive rights of the absent party would be affected.

 The effect of Provident Tradesmens is to make Rule 19 the test for determining whether a court may proceed with a case in the absence of a person whose interests may be affected by the outcome. Nationwide Mutual Insurance Co. v. Fidelity & Casualty Co., supra, and the other cases on which PMA relies are, therefore, no longer viable precedent. *fn6" Since Provident Tradesmens was itself a declaratory judgment action, there can be no doubt that Rule 19 is also the test for determining the indispensability of parties to a declaratory judgment suit. The lower federal courts have followed the guide of the Supreme Court. See State Farm Mutual Automobile Insurance Co. v. Mid-Continent Casualty Co., 518 F.2d 292, 294 (10th Cir. 1975); County of Wyoming v. Erie Lackawanna Ry. Co., 360 F. Supp. 1212 (W.D.N.Y. 1973), aff'd sub nom., County of New York v. Insurance Company of North America, 518 F.2d 23 (2d Cir. 1975). See also 6A Moore's Federal Practice para. 57.25.

 The test, therefore, is not whether, as suggested by Nationwide Mutual, there is an actual controversy sufficient to satisfy the requirements of the Declaratory Judgment Act in the absence of the insured. Clearly there is a controversy between BIC and PMA as to which insurer is obligated to defend the state court suits. See Sears, Roebuck & Co. v. Zurich Insurance Co., 422 F.2d 587, 589 (7th Cir. 1970). The question is, rather, whether Shaffer's interests are so intertwined in the dispute between the insurers that under the standards of Rule 19 Shaffer is an indispensable party and must be joined. I will now examine Shaffer's interests in the light of Rule 19.

 Rule 19 provides, in pertinent part:

" (a) Persons to be Joined if Feasible. A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties, or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest . . . .
(b) Determination by Court Whenever Joinder not Feasible. If a person described in subdivision (a)(1)-(2) hereof cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable. The factors to be considered by the court include; first, to what extent a judgment rendered in the person's absence might be prejudicial to him or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder."

 In Provident Tradesmens the Supreme Court saw Rule 19(b) as suggesting four "interests" that were to be examined to make the determination as to whether the court should proceed with a suit in the absence of a party whose joinder was not possible: (1) The plaintiff's interest in having an adequate forum. (2) The defendant's interest in avoiding multiple litigation, inconsistent relief, or sole responsibility for a liability he shares with others. (3) The interest of the outsider who would be joined were it possible. (4) The interest of the court and the public in complete, consistent, and efficient settlement of controversies. In addition to the four interests to be considered, "Rule 19(b) also directs a district court to consider the possibility of shaping relief to accommodate these four interests." 390 U.S. at 109-112.

 An examination of the four interests outlined above as they relate to the instant case reveals clearly that Shaffer is not an indispensable party to the present suit. That conclusion is even more apparent when the interests in the present case are compared to those in Provident Tradesmens where the Supreme Court held that the non-joined insured was "dispensable."

 (1) Plaintiff's interest in having an adequate forum.

 The interest of BIC in having a forum is obvious; absent a place to bring the declaratory judgment action, BIC would be obligated to defend Shaffer in the Common Pleas actions. In the present suit the question is whether an alternative forum is available to plaintiff. An alternative forum is available to BIC; it could institute suit for a declaratory judgment in state court, and it could join Shaffer as a party there. In Provident Tradesmens it was unclear whether plaintiffs could have sought a declaratory judgment in state court. In that case, the declaratory judgment action had already been fully litigated and appealed. "Their interest in preserving a fully litigated judgment should be overborne only by rather greater opposing considerations than would be required at an earlier stage when the plaintiffs' only concern was for a federal rather than a state forum." Id. at 112. In the present suit, then, plaintiff's interests do not support a conclusion that the suit should go forward without Shaffer. BIC's interests may be regarded as a neutral factor in the determination of Shaffer's indispensability, while in Provident Tradesmens the plaintiffs' interests affirmatively supported the conclusion that the absent party was "dispensable."

 (2) Defendant's interest in avoiding multiple litigation, etc.

 The interest of defendant, PMA, in having Shaffer joined as a party, and thus its interest in having this suit dismissed, seems to me to be more theoretical than real. Regardless of the outcome of the present suit, if Shaffer is not joined as a party, it can bring suit itself and relitigate the question of whether BIC or PMA is obligated to defend it and indemnify it for any liability it may incur. Thus there is the possibility that PMA could be faced with inconsistent verdicts: one finding it obligated to defend and indemnify, and another finding it not obligated to do so. Shaffer, however, has shown no inclination to litigate the question. The fact of the matter is that Shaffer contracted with Lessner to have Lessner's insurer defend and indemnify Shaffer. It appears to be a matter of indifference to Shaffer whether BIC or PMA provides a defense. Since either PMA or BIC is obligated to defend it, Shaffer really has no reason to litigate the question. Thus there is little, if any, likelihood that PMA will be required to litigate twice the question of its duty to defend Shaffer or that it will be faced with inconsistent verdicts.

 Similarly in Provident Tradesmens, the defendants had "no stake, either asserted or real, in the joinder of . . . [the absent person]." Id. at 112. In that case, as here, the defendant's "only concern with the absence of . . . [a party] was and is to obtain a windfall escape from its defeat at trial." Id. The interest of the defendant, PMA, therefore, in having Shaffer present as a party provides no justification for finding Shaffer to be an indispensable party.

 (3) The interest of the outsider.

 Shaffer chose BIC as its insurer, and in some instances the fact that it bargained for BIC would entitle it to be defended by BIC. See Travelers Indemnity Co. v. Standard Accident Insurance Co., 329 F.2d 329, 331 (7th Cir. 1964); American Fidelity & Casualty Co. v. Pennsylvania Threshermen & Farmers' Mutual Casualty Insurance Co., 280 F.2d 453, 549-60 (5th Cir. 1960). As has been noted previously, however, Shaffer contracted with Lessner to have Lessner's insurer defend Shaffer for claims arising from the construction project. Obviously Shaffer is only concerned that it be defended, and is equally willing to accept either BIC or PMA.

 In Provident Tradesmens the decision as to whether an insurer was obligated to defend and indemnify could have affected the insurance funds which would have been available to Dutcher, the outsider, were he subsequently also found liable. The Court concluded that the threat that the funds of Dutcher's insurer might be exhausted and not be available to him for his own needs was small and that the lower court could shape the judgment in such a fashion as to avoid the problem altogether. In the instant case, the total recovery sought in the state court suits is less than the limits of coverage in either of the policies. Thus there is no danger that whatever result is reached here could leave Shaffer less than fully protected for any liability it might incur.

 After much thought, I have been able to imagine only two interests of Shaffer that could conceivably be affected by the judgment in this case, and upon close examination, these interests appear to be fully protected even without the joinder of Shaffer. First, if it be determined that PMA is obligated to defend Shaffer in the Common Pleas actions, PMA will be representing both Shaffer and Lessner, creating a potential conflict of interest. Under the construction contract between them, Lessner is obligated to defend and indemnify Shaffer for all liability of any kind whatsoever growing out of the execution of the work covered by the contract. Since Lessner is not obligated to indemnify Shaffer for Shaffer's independent negligence, (see infra at p. slip op. 18), the interests of Shaffer and Lessner do not coincide. At trial Lessner's insurer, PMA, would defend, of course, by attempting to show no fault on the part of either Lessner or Shaffer. At some point in the trial, however, if it becomes apparent that at least one of them was at fault, PMA might then be motivated to attempt to show that the damage was caused by some independent act of Shaffer, and thereby relieve PMA of the obligation to indemnify. The conflict is obvious. The solution is, however, equally obvious. PMA would simply be required to provide separate counsel for Lessner and Shaffer under this court's power to fashion the remedy to protect the absent party's interest.

 Even if PMA did not provide separate counsel for Shaffer and Lessner, the conflict of interest would not really endanger Shaffer's interests. Whatever liability Shaffer might incur for which it would not be entitled to be indemnified by Lessner (and therefore, PMA), would be covered by BIC as Shaffer's direct insurer. Thus Shaffer's interest in having counsel provided who will uncompromisingly defend its interests is somewhat illusory; any injury Shaffer might suffer by being represented by biased counsel would in fact be borne by BIC.

 Only one other interest of Shaffer could be affected by the decision as to whether BIC or PMA is obligated to defend and indemnify Shaffer. If it be decided that Shaffer's insurer (BIC) has the obligation to defend, then conceivably Shaffer's insurance premiums could be affected as a result. In this aspect, however, Shaffer's interests are not in conflict with BIC's. While Shaffer wishes to avoid an increase in premiums, BIC wants to avoid liability to defend or pay. BIC's presence in the instant declaratory judgment suit, therefore, fully protects Shaffer's interests as well as its own.

 In sum, the "outsider," Shaffer, does not have a sufficient interest in being a party to this declaratory judgment suit to warrant dismissal of the suit. Whatever interest it has may be fully protected by the presence of its direct insurer, BIC, and by molding the judgment in this action to provide for the appointment of separate counsel to represent Shaffer and Lessner at the trial of the Common Pleas actions.

 (4) Interest of the court and public in efficient adjudication.

 The final interest to be considered is that of court and public in the complete and efficient settlement of controversies. Significantly the presence or absence of Shaffer will have no effect on the issues which this court may adjudicate. Because the Common Pleas actions have not been tried, it is impossible to say whether PMA, as Lessner's insurer, or BIC, as Shaffer's insurer, or neither of them, will be obligated to pay for the water damage that occurred on the construction site. That question cannot be decided until it has been determined whether the damage was the result of the work arising out of the construction contract between Shaffer and Lessner, or was the result of the independent negligence of Shaffer, or resulted from the acts of some third party. Shaffer's presence in this suit would not change that.

 What can be decided in this suit is whether PMA is obligated to defend Shaffer and to assume Shaffer's liability for Lessner's acts in prosecuting the work. It can also be decided in this suit whether PMA must defend Shaffer against allegations that Shaffer was independently negligent, and whether PMA must indemnify Shaffer for its own independent negligent acts. Such an adjudication may well speed the final conclusion of this matter in the state courts or enhance the chances for a settlement. In my view, therefore, the interests of justice will be forwarded by deciding this declaratory judgment action even in the absence of Shaffer. Although the instant case has not reached the appellate level as was the case in Provident Tradesmens, the trial has taken place. To dismiss the suit at this point would result in a repetition of the trial in another forum, and the judgment in the second trial could only decide the issues which are here ripe for decision.

 Applying the tests in Provident Tradesmens, therefore, I conclude that Shaffer is not an indispensable party to the present declaratory judgment action and will now proceed to deal with it on the merits and set forth my Findings of Fact and Conclusions of Law.


 1. Plaintiff, Bituminous Insurance Companies, is an Illinois corporation with its principal place ...

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