OPINION AND ORDER
Van Antwerpen, J.
January 16, 1997
On August 12, 1996 the plaintiff, Nationwide Mutual Fire Insurance Company ("Nationwide"), filed a declaratory judgment action in this court pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201, et seq., seeking a declaration that it is not under any duty to defend, indemnify or otherwise provide coverage to any of the named defendants in connection with another lawsuit. That lawsuit, listed as Wenger v. Shank, Civil Action Number 1856-96, is presently pending before the Court of Common Pleas of Lancaster County, Pennsylvania. The state court suit alleges that Candice Shank, the minor daughter of Celeste and Steven Shank, sexually molested Stephen Wenger, the minor son of Jerry and Joyce Wenger, while Stephen Wenger was entrusted to the care of Celeste Shank's Daycare, a babysitting business operated by Celeste and Stephen Shank and/or while babysitted by Candice Shank. Apparently, Celeste and Stephen Shank, defendants in both actions, are insured by plaintiff Nationwide; Nationwide now seeks a determination of the extent to which they must be involved in the state action.
Nationwide brought the instant Motion for Summary Judgment on November 14, 1996 pursuant to Rule 56 of the Federal Rules of Civil Procedure. On December 23, 1996 we issued an order that we would treat the December 6, 1996 response of defendants Jerry, Joyce and Stephen Wenger as a Motion to Dismiss, or for a Stay, or for Summary Judgment in their favor pursuant to Terra Nova Insurance Co. v. 900 Bar, 887 F.2d 1213 (3d Cir 1989), and directed plaintiff Nationwide to respond. Having received Nationwide's response, cursory though it may be, we now proceed to the issues at hand. We note that defendants Celeste Shank, Celeste Shank's Daycare, Stephen Shank and Candice Shank finally responded to Nationwide's declaratory judgment action on January 6, 1997, and as a default judgment was not entered against them, we will include them in the present discussion of whether to stay or dismiss the instant action in light of the state suit below.
We have jurisdiction in this matter due to the diversity of citizenship of the parties, and the amount in controversy, which exceeds $ 50,000.00. Venue is proper under 28 U.S.C. § 1391(a), in that the events giving rise to the claim asserted by Nationwide arose in the County of Lancaster, in the Commonwealth of Pennsylvania, which is included within the Eastern District of Pennsylvania.
A. Declaratory Judgment Actions
Before we reach the substantive issues behind the duty to defend or the duty to indemnify, we must first discuss the nature of declaratory judgment actions. It is not uncommon for insurers to bring this type of suit to determine their obligations per another lawsuit between one of their insureds and a third party. It is a search for certainty. However, because the suit is almost necessarily prefaced on a similar lawsuit in state court, it behooves us to tread lightly.
Even if a suit under the Declaratory Judgment Act ("Act") otherwise satisfies jurisdictional requirements, we have "discretion in determining whether and when to entertain an action" therein. Wilton v. Seven Falls Company, 515 U.S. 277 132 L. Ed. 2d 214, 115 S. Ct. 2137 (1995). In Wilton, the Supreme Court held that the distinct features of the Act confer upon federal courts greater discretion to hear or not hear a particular action thereunder than is available under the Colorado River or Moses H. Cone line of cases, and it is therefore distinguishable from other areas of law where the discretion to hear a case is more limited. As the court in Wilton said, "there is nothing automatic or obligatory about the assumption of jurisdiction by a federal court to hear a declaratory judgment action." Wilton, 115 S. Ct. at 2143. Moreover, we can stay or dismiss an action at any time. Id.
Consequently, the Wilton court held that when a case is brought pursuant to the Act, as this one is, the court should follow the methodology set out in Brillhart v. Excess Ins. Co., 316 U.S. 491, 86 L. Ed. 1620, 62 S. Ct. 1173 (1942). That is, we should consider whether the issues being decided in the state court are similar enough such that we would be "indulging in gratuitous interference" were we to allow the federal matter to proceed. Wilton, 115 S. Ct. at 2141.
The Third Circuit, in Terra Nova Insurance Co. v. 900 Bar, 887 F.2d 1213 (3d Cir. 1989), anticipated the Supreme Court's opinion. In this case, which is more factually similar than Wilton, an insurer brought an action in federal court under the Act to determine its duty to defend and to indemnify an insured in an underlying state case where it was conceivable that the action committed fell within the exclusions of the insurance policy. The court held that it was appropriate to follow the Brillhart factors, and examined the issue specifically for insurance cases.
Citing Professor Moore, the Terra Nova court said that:
In insurance cases, as in declaratory judgments in general, although both justiciability and federal jurisdiction are present, the court in a proper case may, nevertheless, refuse to proceed with the declaratory action for it is well settled that the exercise of jurisdiction in this area is discretionary .... And frequent, attempted abuses of the declaratory action in this area make the exercise of judicial discretion particularly important.
Terra Nova, 887 F.2d at 1225 (citing 6A J. Moore, J. Lucas & G. Girtheer, Jr. Moore's Federal Practice P 57.19, at 57-206-07).
The Third Circuit continued, noting that in addition to the Brillhart factors of similarity in state law issues, the court should consider "(1) the likelihood that the declaration will resolve the uncertainty of obligation which gave rise to the controversy; (2) the convenience of the parties; (3) the public interest in a settlement of the uncertainty of the obligation; and (4) the availability and relative convenience of other remedies." Terra Nova, 887 F.2d at 1224 (citing Interdynamics, Inc. v. Wolf, 698 F.2d 157, 167 (3d Cir. 1982)).
However, in a case such as the instant one, there is an additional concern that the declaratory judgment action should not be used as a "race for res judicata" or collateral estoppel. Terra Nova, 887 F.2d at 1224. Certainly, there is a serious potential problem if the "same factual question lies at the heart of both an insurance coverage dispute and the underlying tort action." Id. Discussing a similar case, the Third Circuit said:
All parties to the state court suit being present in this action, the insured could well be collaterally estopped from relitigating the issue of intent in the subsequent state court trial. He would thus be subjected to both tort liability and the possibility of punitive damages, all because of the facts established against him in this court by the insurer. Yet the superior resources and expertise of the insurance company in litigating these matters are one aspect of the protection an insured purchases with his policy. Here, the policy language was sufficiently clear to preclude any reasonable expectation of a defense to claims for damages caused intentionally.
At the same time, the insured could not possibly have anticipated that the very resources for which he bargained would be turned against him and used to establish his liability whenever intentional tort was alleged. An early declaratory judgment in these circumstances would serve as a procedural mechanism to defeat the reasonable expectations of the insured, which state courts have so zealously guarded through contract interpretation.