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SCULLY COMPANY v. ONEBEACON INSURANCE COMPANY

United States District Court, E.D. Pennsylvania


May 24, 2004.

THE SCULLY COMPANY, ET AL.
v.
ONEBEACON INSURANCE COMPANY

The opinion of the court was delivered by: JOHN PADOVA, District Judge

ORDER-MEMORANDUM

AND NOW, this 24th day of May, 2004, upon consideration of Defendants' "Motion for Partial Summary Judgment or in the Alternative for a Partial Stay" (Docket No. 22) and Plaintiffs' response thereto, IT IS HEREBY ORDERED that the Motion is GRANTED and this matter is STAYED as to the duty to indemnify (referenced in paragraphs 1, 24-27, 29-30, 32-33, 35, 37, 39, 42, 44, 46, and 51 of the Complaint) pending final resolution of Manlove v. Philadelphia Electric Co., et al., Court of Common Pleas of Philadelphia County, September Term 2001, No. 3022, Williams, et al. v. Scully Co., et al., Court of Common Pleas of Philadelphia County, April Term 2002, No. 2239, and Whitaker, et al. v. Scully Co., et al., Court of Common Pleas of Philadelphia County, March Term 2002, No. 547. IT IS FURTHER ORDERED that this matter shall proceed as to the remaining allegations in the Complaint.

I. BACKGROUND

  Plaintiffs have brought this action seeking a declaration that coverage is owed to the Scully Company and Village Green Associates, L.P., a/k/a Village Green Apartments (collectively "Scully"), under a commercial general liability policy and an umbrella policy issued to Coin Automated Laundry Equipment, Inc. ("CALECO") by OneBeacon Insurance Group ("OneBeacon"), for claims arising from an explosion in building A of the Village Green Apartments on June 16, 2001. (Compl. ¶ 1.) The Complaint alleges the following facts. Scully had entered into an agreement with CALECO on February 2, 2001, whereby CALECO was provided space in the Village Green Apartments in which to install and maintain coin operated washers, dryers and related equipment. (Id. ¶ 9.) Their agreement required CALECO to obtain liability insurance naming Scully as an additional insured. (Id. ¶ 10.) CALECO obtained a comprehensive general liability policy from OneBeacon having a policy period of July 1, 2000 to July 1, 2001, with limits of liability of $1,000,000 per occurrence (the "primary policy"). (Id. ¶ 11.) The primary policy had an additional insured endorsement extending coverage to any organization that CALECO "promised would be added as an additional insured for claims arising out of CALECO's ongoing operations." (Id. ¶ 12.) OneBeacon also issued an umbrella policy to CALECO having a policy period of July 1, 2000 to July 1, 2001, and having limits of liability of $9,000,000 per occurrence (the "umbrella policy"). (Id. ¶ 14.) The umbrella policy provides excess coverage and includes as insureds organizations for which "CALECO was obligated by contract to provide additional insured status for claims arising out of CALECO's operations." (Id. ¶ 15.) On June 16, 2001, there was an explosion in building A of the Village Green Apartments that was caused when flood waters entered the laundry room leased to CALECO, lifted the gas dryer off the floor, and broke the gas pipe. (Id. ¶¶ 19.) Scully and CALECO are defendants in three suits brought in the Court of Common Pleas of Philadelphia County by the estates of six decedents and six surviving tenants arising out of this explosion (the "Philadelphia Court of Common Pleas actions"). (Id. ¶¶ 20-22.) These cases are currently scheduled for trial on October 4, 2004. (Defs.' Ex. B.)

  Scully seeks a declaration that it is an additional insured under the primary and umbrella policies and that it is entitled to a defense and indemnity coverage under these polices for the claims asserted in the Philadelphia Court of Common Pleas actions. (Id. ¶ 29.) Scully also seeks damages for OneBeacon's breach of the insurance contract and damages for OneBeacon's bad faith. (Id.)

 II. LEGAL STANDARD

  District courts have "broad discretion to decline to exercise jurisdiction over declaratory judgment proceedings" brought during the pendency of parallel state-court proceedings. Home Ins. Co. v. Perlberger, 900 F. Supp. 768, 774 (E.D. Pa. 1995); see also Wilton v. Seven Falls Company, 515 U.S. 277, 282 (1995) ("[D]istrict courts possess discretion in determining whether and when to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites.") (citing Billhart v. Excess Ins. Co. of America, 316 U.S. 491 (1942)). The United States Court of Appeals for the Third Circuit ("Third Circuit") has suggested that the following factors are relevant and should be considered by district courts deciding whether to hear declaratory judgment actions involving insurance coverage issues:

1. A general policy of restraint when the same issues are pending in a state court;
2. An inherent conflict of interest between an insurer's duty to defend in a state court and its attempt to characterize that suit in federal court as falling within the scope of a policy exclusion;
3. Avoidance of duplicative litigation.
State Auto Insurance Companies v. Summy, 234 F.3d 131, 134 (3d Cir. 2000) (quoting United States v. Com, of Pennsylvania, Department of Environmental Resources, 923 F.2d 1071, 1075-76 (3d Cir. 1991)). In addition, a state's interest in determining issues of state law "weighs against exercising jurisdiction in declaratory judgment actions." State Automobile Mut. Ins. Co. v. Toure, No.Civ.A. 02-7986, 2003 WL 22100875, at *1 (E.D. Pa. Aug. 7, 2003) (citing Summy, 234 F.3d at 136).

  In this declaratory judgment action, Plaintiffs seek a declaration that Scully is entitled to indemnity under the One Beacon policies as an additional insured. The primary policy extends coverage to additional insureds only with respect to "liability arising out of your ongoing operations performed for that insured." (Pls.' Ex. A, Additional Insured Endorsement.) The umbrella policy similarly limits coverage of additional insureds to CALECO's "operations or facilities" it owns or uses. (Pls.' Ex. B at 5.)

  OneBeacon maintains that it has no obligation to indemnify Scully in the Philadelphia Court of Common Pleas actions unless the June 16, 2001 explosion resulted from CALECO's ongoing operations. OneBeacon further argues that Plaintiffs' indemnity claim should be stayed because this precise issue, whether the explosion resulted from CALECO's ongoing operations, is an issue in the Philadelphia Court of Common Pleas actions. Indeed, in a January 21, 2004 Memorandum of Law filed in this action, Plaintiffs stated that "the complaints in the underlying actions allege that the injuries arose from Caleco's operations." (Pls.' Mem. in Support of Mot. for Judgment by Default at 8.) Thus, the Court finds that the same issue is pending in both the state and federal court actions. Consequently, consideration of the Summy factors compel the Court to stay consideration of Plaintiffs' indemnity claim in the present action. Moreover, there are no federal questions present in this action and the requested relief would require the Court to apply only state law. See Summy, 234 F.3d at 136 ("It follows that the state's interest in resolving its own law must not be given short shrift simply because one party . . . perceive[s] some advantage in the federal forum. When the state law is firmly established, there would seem to be even less reason for the parties to resort to the federal courts."). Accordingly, the Court will stay consideration of OneBeacon's duty to indemnify Scully pending resolution of the Philadelphia Court of Common Pleas actions. See Wilton, 515 U.S. at 288 n.2 ("[W]here the basis for declining to proceed is the pendency of a state proceeding, a stay will often be the preferable course, because it assures that the federal action can proceed without risk of a time bar if the state case, for any reason, fails to resolve the matter in controversy.").

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