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TIG Insurance Co. v. Tyco International

January 21, 2009

TIG INSURANCE CO., PLAINTIFF,
v.
TYCO INTERNATIONAL, LTD., GRINNELL CORPORATION, AND THE BROOKLYN HOSPITAL CENTER, F/K/A THE BROOKLYN HOSPITAL - CALEDONIAN HOSPITAL, DEFENDANTS.



The opinion of the court was delivered by: Judge Caputo

MEMORANDUM

Presently before the Court is Defendant Brooklyn Hospital Center's ("BHC") motion to dismiss for lack of jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(1). (Doc. 6.) Plaintiff TIG Insurance, Co. ("TIG") brings a claim for declaratory relief under the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, against BHC, Tyco International, Ltd. ("Tyco"), and Tyco's subsidiary, Grinnell Corporation ("Grinnell"). For the reasons stated below, the Court will deny BHC's motion.

BACKGROUND

This case arises out of fire that occurred on May 5, 1997, destroying business records and other property housed in document storage warehouses owned by Diversified Records & Services, Inc. ("Diversified") in Luzerne County, Pennsylvania. (Compl. ¶ 12, Doc. 1.) At the time, BHC had utilized Diversified for storage of its medical and business records since May 1991. (Doc. 1, Ex. 2 ¶¶ 3-4.) Diversified contracted with Grinnell to install sprinkler systems in its warehouses, including those housing BHC's record. (Id. ¶¶ 9-10.) The May 5, 1997 fire overwhelmed the sprinkler system installed by Grinnell, spreading through several warehouses and burning a significant amount of BHC records. (Id. ¶¶ 11-13.)

BHC initiated litigation against Diversified in 1999 in the Supreme Court of the State of New York, in which Diversified later joined Grinnell. (Id. ¶¶ 14-17). In 2002, The New York state court allowed BHC to amend its complaint to add Grinnell as a Defendant, but also granted Grinnell's motion to dismiss on forum non conveniens grounds. (Id. ¶ 20.) The suit was transferred to the Luzerne County Court of Common Pleas and docketed there in 2003, where it was pending at the time of briefing this motion and was scheduled to go to trial in October 2008 (the "Underlying Action"). (Doc. 1, Ex. 2; Def.'s Br. in Supp. 2-3, Doc. 6.)

The May 5, 1997, fire also resulted in a variety of other suits, including seventeen (17) suits consolidated to In re Diversified Litigation, No. 2953-C-1999, in the Luzerne County Court of Common Pleas. (Doc. 1, Ex. 7.) The In re Diversified case resulted in a verdict in favor of the plaintiff with the finding that Diversified was sixty percent (60%) liable and Grinnell was forty percent (40%) liable. (Doc. 1, Ex. 2 ¶ 21.) Consequently, in its case with BHC, Grinnell has agreed by stipulation to accept liability and proceed only on the question of BHC's damages. (Id. ¶ 22.)

The plaintiff in the present action, TIG, issued to Tyco an "Excess Umbrella [Insurance] Policy," for the period between July 1, 1997 and July 1, 1998, with limits of thirty million dollars ($30,000,000) in excess of underlying insurance for each qualifying "occurrence" under the policy. (Compl. ¶ 8.) Grinnell is insured under this policy. (Id. ¶ 9.) The policy potentially provides coverage for events occurring prior to July 1, 1997, under a type of policy endorsement commonly called "nose coverage." (Id. ¶ 13.) However, by its terms, the nose coverage endorsement at issue here does not apply to "[a]ny claims resulting from an occurrence of which the [insured] had actual or constructive notice prior to the commencement of coverage under this policy." (Id. ¶ 14.) TIG alleges that BHC's current demand in the Underlying Action would exhaust Grinnell's underlying insurance. (Id. ¶ 16.) It further alleges that the Defendants to the instant action contend TIG may be obligated to indemnify the insured for the excess losses. (Id. ¶ 17.) TIG therefore seeks a declaration that the above-mentioned policy exclusion precludes it from any obligation to provide coverage for Defendants with respect to the Underlying Action. (Id. ¶ 26.)

TIG filed its complaint for relief under the Declaratory Judgment Act (Doc. 1) on May 14, 2008 in the U.S. District Court for the Eastern District of Pennsylvania. The parties stipulated to the suit's transfer to the U.S. District Court for the Middle District of Pennsylvania on August 12, 2008. (Doc. 5.) Directly thereafter, BHC filed the present motion to dismiss. (Doc. 6) While this Court has jurisdiction over TIG's claim pursuant to 28 U.S.C. § 1332 (diversity jurisdiction),*fn1 BHC argues the Court should decline to exercise its jurisdiction in light of the pending state proceedings. This motion has been fully briefed and is ripe for disposition.

LEGAL STANDARD

The Declaratory Judgment Act ("DJA"), 28 U.S.C. §§ 2201 and 2202, provides that "[i]n a case of actual controversy within its jurisdiction . . . any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought."

At the outset, the parties dispute the applicable standard to appropriately decline or exercise jurisdiction. TIG applies the test announced in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813, 817 (1976), holding that, because federal courts have a "virtually unflagging obligation" to exercise the jurisdiction conferred on them by Congress, they may decline jurisdiction in favor of parallel state proceedings only in "exceptional circumstances." BHC applies the more permissive standard announced in Brillhart v. Excess Ins. Co. Of America, 316 U.S. 491, 494 (1942), holding that the jurisdiction conferred by the DJA is discretionary. "Brillhart makes clear that district 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." Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995).

The U.S. Supreme Court and the U.S. Court of Appeals for the Third Circuit have both confirmed that Colorado River does not undermine the jurisdictional discretion afforded district courts by the DJA. Id. at 287; Terra Nova Ins. Co., Ltd. v. 900 Bar, Inc., 887 F.2d 1213, 1223 (3d Cir. 1989). Rejecting the Colorado River "exceptional circumstances" test, the Wilton court reasoned that the unique nature of the DJA justifies greater discretion. Wilton, 515 U.S. at 286. "In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yield to considerations of practicality and wise judicial administration." Id. at 288. Thus, the Court applies the discretionary Brillhart standard in determining whether or not exercise jurisdiction in this case.

DISCUSSION

BHC argues the Court should decline jurisdiction because the Underlying Action has been in state court since 2003 and related cases have already worked through the Pennsylvania state court system. TIG counters that the Underlying Action shares no common legal or factual issues with the instant action and the latter involves a simple application of settled state law to an isolated issue of insurance ...


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