On Appeal from the United States District Court for the Eastern District of Pennsylvania; D.C. Civil No. 88-09461.
Sloviter, Chief Judge, and Greenberg and Higginbotham, Circuit Judges.
Appellant Lumbermens Mutual Casualty Co., who, along with several other insurance companies and Crown Cork & Seal Co., their insured, was named as a defendant in the district court, appeals from the order dismissing the plaintiff's complaint for lack of subject matter jurisdiction. The district court determined that the parties were improperly aligned, and that once they were properly aligned, with all the insurers on one side and their insured Crown on the other, there would no longer be complete diversity between the plaintiffs and the defendant.
Background Facts and Procedural History
Crown Cork & Seal Co. has been named as a defendant or potentially responsible party in claims arising out of alleged environmental hazards at more than twenty waste disposal sites throughout the country. In February 1988, Crown filed a complaint in New Jersey Superior Court, Law Division, seeking a declaration of the obligations of its insurers to defend and indemnify it in the underlying environmental litigation. It named as defendants seven insurance companies who had issued comprehensive general liability or excess umbrella policies to Crown over the past three decades. Named as defendants were Lumbermens, Employers Insurance of Wausau (Wausau), Aetna Casualty & Surety Company, Insurance Company of North America (INA), Continental Insurance Company, Fireman's Fund Insurance Company, and Allianz Underwriters, Inc.
Ten months after the New Jersey state court action was filed (though before Crown had effected service on the defendants in that action), Wausau initiated this suit in the United States District Court for the Eastern District of Pennsylvania against Crown and the other six insurers who are Wausau's co-defendants in Crown's state court action. Wausau sought a declaration pursuant to the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, of the scope and nature of its obligations and those of the other six insurers under their various policies providing coverage to Crown. Wausau alleged that the district court had subject matter jurisdiction under 28 U.S.C. § 1332 by virtue of the diversity of citizenship between Wausau and all the defendants.
Crown moved to realign the parties and dismiss for lack of jurisdiction. It asserted that all the insurers should be aligned with Wausau as plaintiffs, because they all had the common interest of seeking to avoid liability to Crown. Such a realignment would destroy diversity because Crown and one of the insurers, INA, are both citizens of Pennsylvania. In the alternative, Crown sought a stay of the federal proceeding pending the outcome of the state action. Without deciding the jurisdictional issue, the district court granted Crown's motion for a stay, relying in the alternative on the Declaratory Judgment Act or the abstention principles enunciated in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976).
On appeal, we vacated the district court's order because the court's grant of a stay presupposed that it had subject matter jurisdiction. We remanded the case for further consideration of Crown's challenge to the parties' diversity and motion for realignment of the parties. Employers Ins. of Wausau v. Crown Cork & Seal Co., 905 F.2d 42 (3d Cir. 1990) ( Crown I). Specifically, we instructed the district court to determine the primary issue or controversy in the action and whether the parties need to be realigned in light of that principal purpose of the litigation.
On remand, the district court found that "the primary issue . . . is whether any insurer is obligated according to the terms of its own policy to defend or indemnify Crown against the pending environmental clean-up claims." Employers Ins. of Wausau v. Crown Cork & Seal Co., 753 F. Supp. 160, 164 (E.D. Pa. 1990) ( Crown II). Because the primary dispute was between the insurers and their insured, the district court held that the parties had to be realigned, with all of the other insurers joining Wausau as plaintiffs, leaving Crown as the only defendant. The realignment destroyed diversity, and the court dismissed the action. Id. at 164-65.
Only one insurer, Lumbermens, challenges the district court's order in this court; the others have not joined the appeal. We exercise plenary scope of review because the issue is one of law.