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Colony National Insurance, Co. v. UHS Children Services

September 11, 2009

COLONY NATIONAL INSURANCE, COMPANY, PLAINTIFF,
v.
UHS CHILDREN SERVICES, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Eduardo C. Robreno, J.

MEMORANDUM

I. BACKGROUND

Plaintiff Colony National Insurance Co. ("Plaintiff") is in the business of selling property and casualty insurance to commercial policyholders. Plaintiff's principal place of business of business is located in Richmond, Virginia. However, Plaintiff regularly conducts business in the State of Tennessee.

Defendants UHS Children Services, Inc. d/b/a Universal Health Services, Inc. ("UHS") and Chad Youth Enhancement Center, Inc. ("Chad"), (collectively "Defendants"), own and operate a behavioral health center in Ashland, Tennessee. Chad is a Tennessee corporation with its principal place of business located in Ashland, Tennessee, whereas UHS is a Delaware corporation with its principal place of business located in King of Prussia, Pennsylvania.

Plaintiff filed the instant action for declaratory judgment against Defendants relating to the scope of coverage of an insurance policy issued to Defendants by Plaintiff. Defendants are currently defendants in a wrongful death lawsuit pending in this district concerning alleged negligence with respect to the use of improper restraint and improper force while Omega Leach, III was detained in the Chad youth detention center in Ashland, Tennessee (the "Underlying Action").*fn1 The complaint in the Underlying Action seeks both compensatory and punitive damages.

Defendants have multiple layers of general liability insurance and Plaintiff provides Defendants with a second level excess policy for the policy period April 30, 2007 through April 30, 2008, with limits of $10 million per occurrence in excess of Defendants' self-insured retention and first level excess policy (the "Colony Policy"). The first named insured on the Colony Policy is UHS. Chad is an additional named insured on the Colony Policy.

On June 11, 2009, Defendants filed a complaint against Plaintiff in the Middle District of Tennessee(the "Tennessee Action").*fn2 In the Tennessee Action, Defendants seek a declaratory judgment as to the applicability of the coverage provided pursuant to the Colony Policy with respect to punitive damages. The Defendants also assert claims for breach of contract and violation of certain Tennessee consumer protection statutes.

Fourteen days later, on June 25, 2009, Plaintiff filed the complaint in this action seeking a declaratory judgment as to

(1) whether the Colony Policy provides coverage with respect to punitive damages that may be awarded in the Underlying Action, and (2) whether the Colony Policy requires coverage where the Defendants' first level excess insurance is not exhausted.

On July 10, 2009 Plaintiff filed a motion in the Middle District of Tennessee seeking to have the Tennessee Action transferred to this district (the "Transfer Motion"). The Transfer Motion currently is pending in the Middle District of Tennessee. On the same day, Defendants filed a motion to dismiss this action on the ground that the "first-filed" rule mandates that this action be litigated in the Middle District of Tennessee.

II. APPLICABLE LAW

Under the "first-filed" rule applied in the Third Circuit in cases of concurrent federal jurisdiction, the court which first has possession of the subject must decide it. EEOC v. Univ. of Pa., 850 F.2d 969, 971 (3d Cir. 1988); Crosley Corp. v. Hazeltine Corp., 122 F.2d 925, 929 (3d Cir. 1941). Exceptions to the rule are "rare." EEOC, 850 F.2d at 976. In order to depart from the rule, a showing of "exceptional circumstances" is generally required. Id. at 979. Established exceptions to the first-filed rule include (1) forum shopping; (2) bad faith; (3) the second-suit having developed further than the initial suit; and (4) the first-filing party acting in anticipation of an imminent suit in a less favorable forum. Id. at 976-77; Koresko v. Nationwide Life Ins. Co., 403 F. Supp. 2d 394, 399 (E.D. Pa. 2005). "On balance, due consideration to the orderly administration of justice counsels in favor of ordinarily respecting the first-filed rule." Koresko, 403 F. Supp. 2d at 400; see EEOC, 850 F.2d at 979 (emphasizing that application of the first-filed rule is the norm rather than the exception).

III. DISCUSSION

Defendants argue that since the Tennessee Action involves identical parties and the same subject matter, the first-filed rule dictates that the present action be dismissed to allow the Tennessee Action to proceed in the original forum. Plaintiff responds that in light of the Underlying Litigation in the Eastern District of Pennsylvania, ...


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