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NATIONWIDE MUT. FIRE CO. v. SHANK

January 16, 1997

NATIONWIDE MUTUAL FIRE CO., Plaintiff,
v.
CELESTE A. SHANK, t/d/b/a CELESTE SHANK'S DAYCARE, STEPHEN S. SHANK, CANDICE SHANK, STEPHEN WENGER, a minor, by and through JERRY L. WENGER and JOYCE E. WENGER, his parents and natural guardians, JERRY L. WENGER, and JOYCE E. WENGER, Defendants.



The opinion of the court was delivered by: VAN ANTWERPEN

 Van Antwerpen, J.

 January 16, 1997

 I. INTRODUCTION

 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.

 II. DISCUSSION

 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 ...


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