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The Phoenix Insurance Company v. Michael Kellner

January 30, 2012

THE PHOENIX INSURANCE COMPANY, PLAINTIFF,
v.
MICHAEL KELLNER, DAWN KELLNER, & CODY NOEL, DEFENDANTS.



The opinion of the court was delivered by: Conti, District Judge.

MEMORANDUM OPINION AND ORDER

Pending before the court is a motion to dismiss filed by defendants Dawn and Michael Kellner (collectively, the "Kellners") on October 24, 2011 (ECF No. 6), which was later joined by defendant Cody Noel ("Noel") (ECF No. 14). On August 22, 2011, plaintiff The Phoenix Insurance Co. ("Pheonix") filed a complaint for declaratory judgment against the Kellners and Noel. (ECF No. 1.) Phoenix seeks a declaration that it has "no legal and/or contractual obligation to indemnify any party to this action for any liability that may be imposed on defendant Michael Kellner for his acts of September 7, 2010, or any resulting damages or injuries therefrom" under a homeowners insurance policy (the "policy") it issued to the Kellners. The policy, attached as Exhibit A to the complaint, was in effect on September 7, 2010, when Michael Kellner shot Noel with a handgun. (Compl. (ECF No. 1) ¶ 16.) For the reasons stated below, the court declines to exercise jurisdiction in this matter

I.Factual Background

Phoenix made the following factual allegations in its complaint for declaratory judgment.

The shooting incident occurred at a gas station, after Noel and Michael Kellner exchanged hostile words at the Kellners' home. (Id. ¶¶ 11-14.) Michael Kellner blocked Noel's truck from leaving the gas station, pointed a gun at Noel and demanded an explanation for a derogatory remark made by Noel. (Id. ¶¶ 10-11.) When Noel attempted to drive away, Kellner discharged the gun, causing Noel injuries, including a severed spinal column. (Id. ¶¶ 12-14.) The policy defines occurrence as an "accident" resulting in bodily damage, property damage, or personal injury. (Id. ¶ 18.) It also excludes any damages which are expected or intended by one of the "insured" (i.e., one of the Kellners). (Id. ¶ 21.) Micheal Kellner pleaded guilty to two counts of aggravated assault under Pennsylvania law.*fn1 (Id. ¶ 24.) Noel filed a claim with Phoenix under the policy. (Id. ¶ 15.) Importantly, Noel did not file a complaint in a civil action in any court, either against the insurer or any insured.

II.Discussion

In their motion to dismiss, defendants present two arguments. The first argument, raised under Federal Rule of Civil Procedure 12(b)(6), is that the complaint is premature because legal obligations of an insurer to defend its insured depend upon the allegations raised in the complaint filed against the insured. In other words, because there is no complaint yet filed based on this incident, it is too early for a court to determine the factual parameters of the duty to defend and the duty to indemnify. Phoenix responds by emphasizing that Noel filed a claim under the policy, which it argues is the functional equivalent of a complaint. The second argument presented by defendants' motion to dismiss is that the aggravated assault guilty pleas are not conclusive proof that Phoenix has no duty to indemnify the Kellners. Phoenix responds this argument is not properly suited to a motion to dismiss, because it asks the court to make assessments properly raised in a motion for summary judgment-i.e., whether the guilty plea conclusively establishes that Phoenix is entitled to a judgment as a matter of law-instead of the proper question which is whether the claim raises a sufficient factual plausibility of entitlement to relief. Because the court is declining jurisdiction, this memorandum opinion will not reach the substance of the arguments raised by defendants.

The first argument is indirectly related to the issue of jurisdiction, although framed in terms of an insufficient pleading of facts. Defendants rely upon American and Foreign Insurance Co. v. Jerry's Sport Center, Inc., 2 A.3d 526, 541 (Pa. 2010), where the Pennsylvania Supreme Court held that "[a]n insurer is obligated to defend its insured if the factual allegations of the complaint on its face encompass an injury that is actually or potentially within the scope of the policy" and that "[t]he question of whether a claim against an insured is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the complaint." Defendants also cite Erie Insurance Exchange v. Transamerica Insurance Co., 533 A.2d 1363 (Pa. 1987), and Donegal Mutual Insurance Co. v. Baumhammers, 938 A.2d 286 (Pa. 2007) ("a carrier's duties to defend and indemnify an insured in a suit brought by a third party depend upon a determination of whether the third party's complaint triggers coverage" (citing Mutual Benefit Insurance Co. v. Haver, 725 A.2d 743, 745 (Pa. 1999))).

Phoenix responds that the claim is not premature because Noel filed a claim for coverage with the insurance company, although not in court. Phoenix cites to State Farm Fire and Casualty Co. v. Cooper, No. CIV.A. 00--5538, 2001 WL 1287574 (E.D. Pa. 2001). There, the District Court for the Eastern District of Pennsylvania granted summary judgment in favor of an insurance company. Contrary to Phoenix's asserted reliance on that case, the insurance company there sought a declaration that it had no obligation to defend or indemnify an insured in an underlying wrongful death suit which had been filed against the insured. Id. at *1. To resolve the issue, the district court in Cooper compared the allegations in the complaint filed against the insured with the coverage provisions of the insurance contract. Id. at *2-3.

The duty to defend is distinct from the duty to indemnify under Pennsylvania law. Regis Ins. Co. v. All Amer. Rathskeller, Inc., 976 A.2d 1157, 1161 (Pa. Super. Ct. 2009); see C.S. v. Colony Ins. Co., No. 05 CV 586, 2010 WL 2841396 (Pa. Com. Pl. March 29, 2010). "Unlike the duty to defend, the duty to indemnify cannot be determined merely on the basis of whether the factual allegations of the complaint potentially state a claim against the insured." American States Ins. Co. v. State Auto Ins. Co., 721 A.2d 56, 63 (Pa. Super. Ct. 1998). "The duty to defend arises whenever claims asserted by the injured party potentially come within the coverage of the policy, while the duty to indemnify arises only when the insured is determined to be liable for damages within the coverage of the policy." Britamco Underwriters, Inc. v. Stokes, 881 F. Supp. 196, 198 (E.D. Pa. 1995). In Britamco, the district court held that when claims have not been adjudicated in the underlying action, the declaratory judgment action must focus on whether the underlying claims could potentially come within the coverage of policy. Id. at 198. In that case, however, the underlying claims had been initiated in state court at the time of the federal declaratory judgment action. Id.

In resolving this motion to dismiss, the court need not resolve the arguments raised by the parties. The Declaratory Judgment Act, 28 U.S.C. §§ 2201 et seq. (the "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). The Act provides, in relevant part, that a court "may declare the rights and other legal relations of any interested party." 28 U.S.C. § 2201 (emphasis added). Accordingly, the jurisdiction conferred by the Act is discretionary, and district courts are under no compulsion to exercise it. State Auto Ins. Cos. v. Summy, 234 F.3d 131, 133 (3d Cir. 2000) (citing Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494 (1942)); see Wilton v. Seven Falls Co., 515 U.S. 277, 287-88 (1995) (holding that the Declaratory Judgment Act affords district courts "unique and substantial discretion in deciding whether to declare the rights of litigants").

The United States Court of Appeals for the Third Circuit has counseled that "federal courts should hesitate to entertain a declaratory judgment action where the action is restricted to issues of state law." Atl. Mut. Ins. Co. v. Gula, 84 F. App'x 173, 174 (3d Cir. 2003) (citing Summy, 234 F.3d at 134-35). In Summy, the Court of Appeals for the Third Circuit stated that "[t]he desire of insurance companies and their insureds to receive declarations in federal court on matters of purely state law has no special call on the federal forum." Summy, 234 F.3d at 136. Indeed, [T]he state's interest in resolving its own law must not be given short shrift simply because one party or, indeed, both parties, perceive 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.

Id.

Importantly, the sole issue of insurance coverage in this case presents no federal question and promotes no federal interest. This action presents the common case of an insurance company coming to federal court, under diversity jurisdiction, to receive declarations on purely state law matters. This weighs heavily against the court exercising jurisdiction over this declaratory judgment action. Seelye, 198 F. Supp. 2d at 631. In addition, "the state's interest in determining issues of state law also weighs against exercising jurisdiction in declaratory judgment actions." ...


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