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Hartford Insurance Company of the Southeast v. John J. and Lorraine Stead and Jennifer L. Stead

January 27, 2012

HARTFORD INSURANCE COMPANY OF THE SOUTHEAST, PLAINTIFF,
v.
JOHN J. AND LORRAINE STEAD AND JENNIFER L. STEAD, DEFENDANTS.



The opinion of the court was delivered by: Judge Caputo

MEMORANDUM

Presently before the Court is Plaintiff Hartford Insurance's Emergency Motion for Stay of Arbitration. (Doc. 2). In its Motion, Hartford seeks declaratory relief barring issues of coverage at an Underinsured Motorist Arbitration scheduled for the morning of January 30, 2012 with Defendant Jennifer Stead. Having previously consented to the arbitration, Plaintiff also seeks to have its arbitration agreement rescinded and/or have the arbitration stayed until the Court can issue such relief pursuant to the Declaratory Judgment Act. 28 U.S.C. § 2201, et seq. In particular, Plaintiff is concerned that the arbiters will erroneously decide coverage issues at their upcoming arbitration hearing, and that Hartford will be left with no ability to appeal this determination. Defendants argue that, pursuant to the Declaratory Judgment Act, the Court should decline jurisdiction over this state law matter. The Court agrees, and for the reasons below, will dismiss the action for lack of jurisdiction.

BACKGROUND

Plaintiff Hartford Insurance Company of the Southeast filed its Complaint for Declaratory Judgment and for Stay of Arbitration on January 17, 2012. (Doc. 1). This action sounds in diversity jurisdiction pursuant to 28 U.S.C. § 1332 as Hartford is a Connecticut Corporation with a principal place of business in Hartford, Connecticut, all Defendants are residents of the State of Pennsylvania, and the amount in controversy, exclusive of interest and costs, is alleged to exceed $75,000.

In its Complaint, Hartford alleges the following. At all relevant times, Defendants John J. and Lorraine Stead maintained an auto insurance policy with Hartford which provided $100,000 per person and $300,000 per accident of non-stacked underinsured motorist ("UIM") coverage for bodily injury. Defendant Jennifer Stead, the policyholders' daughter, who was covered by the policy, was injured in a motor vehicle accident in Wayne County, Pennsylvania on October 28, 2007. After settling her claim with the underinsured motorist, Jennifer made a claim for UIM benefits under her parent's policy with Hartford. Pursuant to the policy, Jennifer's attorney requested arbitration as to this UIM claim, and Hartford agreed.

Under the terms of the policy, arbitration as to UIM benefits is limited solely to: (a) "[w]hether that insured is legally entitled to recover damages"; and (b) "the amount of damages which are recoverable by that insured." (Compl. at ¶ 16, Doc. 1). The policy is explicit that "disputes concerning coverage under this endorsement may not be arbitrated." (Id.).

In a November 15, 2011 letter, Jennifer's attorney informed Hartford that Jennifer was actually entitled to $400,000 in benefits under the UIM policy as the Defendants had not properly rejected stacking under the pertinent statutory requirements. Pennsylvania law provides that a stacking waiver "must be signed by the first named insured and dated to be valid." 75 Pa. Cons. Stat. § 1738(e). While John Stead did not date his waiver form, Hartford added a date and time stamp to the signed form. This is sufficient under Section 1738 as the waiver needs to be signed by the insured, but can be dated by whomever.

However, this issue--whether stacking applies or not--is an issue concerning coverage. While such a coverage issue is explicitly precluded from arbitration per the aforementioned terms of the policy, Jennifer's attorney intends to raise the issue at arbitration anyway. Problematically, if the arbitrators accept Defendant's position and allow stacking, Hartford may be denied any review of the arbiters' erroneous determination. Therefore, in its Complaint, Hartford requests that the Court: (1) void and rescind its agreement to arbitrate;

(2) stay the arbitration until the Court can rule that the arbiters cannot make a determination on stacking; and (3) declare that John Stead executed a valid rejection of policy stacking. Before me today is Hartford's Emergency Motion for Stay of Arbitration. (Doc. 2). This Motion has been fully briefed and is ripe for my review.

I. Jurisdiction of the Court over this Action as to Declaratory Relief

Defendants first argue that the Court should exercise its discretion and decline jurisdiction over this matter as it is a declaratory judgment action concerning only state law. Plaintiff argues that such restraint is inappropriate in the absence of a parallel state court action and points out that this is both an action for declaratory and injunctive relief, and as such a "mixed" action, jurisdiction is proper.

Of course, district courts generally have a "virtually unflagging obligation . . . to exercise the jurisdiction given them." Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976). This rule, however, does not apply to declaratory judgment actions. "The Declaratory Judgment Act does not mandate that federal district courts exercise jurisdiction over every declaratory judgment action." Allstate Ins. Co. v. Seelye, 198 F. Supp. 2d 629, 630-31 (W.D. Pa. 2002). In pertinent part, the Declaratory Judgment Act states that:

In a case of actual controversy within its jurisdiction, . . . any court of the United States, upon the filing of an appropriate pleading, 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. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such. 28 U.S.C. § 2201(a) (emphasis added).

Both parties, in support of their positions, cite Wilton v. Seven Falls Company, which held that a district court has the discretion to stay a declaratory judgment action in the face of parallel state court proceedings. 515 U.S. 277, 290 (1995). While Wilton expressly reserved judgment on "cases in which there are no parallel state court proceedings," Id., it also held that "a district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after all arguments have drawn to a close." Id. at 288. This ...


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