United States District Court, W.D. Pennsylvania
NATIONWIDE PROPERTY AND CASUALTY INSURANCE COMPANY and NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Plaintiffs,
RANDY SHEARER, ERIN SHEARER, husband and wife, WALTER G. FOX (deceased), ROSEMARY FOX husband and wife, PATRICK B. IORIO, PHILOMENA IORIO, husband and wife, JEFFREY IORIO, DIANE IORIO husband and wife, and EDITH TOMEI, Defendants.
TERRENCE F. McVERRY, Senior District Judge.
The following motions are pending before the Court: the MOTION FOR SUMMARY JUDGMENT PURSUANT TO FED. R. CIV. P. 56 (ECF No. 25) filed by Defendants Walter G. Fox (deceased), Rosemary Fox, Patrick B. Iorio, Philomena Iorio, Jeffrey Iorio, Diane Iorio, and Edith Tomei (the "Policyholders"), with a brief and concise statement of material facts ("CSMF") in support; and PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT (ECF No. 27) filed by Nationwide Property and Casualty Insurance Company and Nationwide Mutual Fire Insurance Company ("Nationwide"), with a brief and CSMF in support. Nationwide and the Policyholders have filed responses in opposition to each other's motions (ECF No. 34, 38). Randy Shearer and Erin Shearer (the "Shearers") have filed a response to Nationwide's motion (ECF No. 36). Nationwide has filed a reply brief (ECF No. 40). Accordingly, the motions are ripe for disposition.
This case involves an insurance coverage dispute. The Policyholders have homeowner insurance policies with Nationwide, which contain identical policy language. Nationwide brings an action under Fed.R.Civ.P. 57 and the Declaratory Judgment Act, 28 U.S.C. § 2201 et seq., seeking to have this Court declare that it does not have a duty to defend or indemnify the Policyholders for claims asserted against them by the Shearers in a civil action now pending in the Court of Common Pleas of Lawrence County, Pennsylvania, at its docket number XXXX-XXXXX, captioned Shearer, et al. v. Seamans, et al. (the "underlying litigation").
The Shearers initiated the underlying litigation on January 13, 2011, naming the Policyholders and 51 other nearby property owners as defendants. They have since amended their complaint three times, most recently on December 12, 2013. The factual allegations, however, have apparently remained largely the same throughout the course of the underlying litigation. In their complaint, the Shearers allege that they purchased approximately 18 acres of undeveloped land (the "property") in 2006 and built their home on it. Pl.'s CSMF ¶ 27, ECF No. 29. The Shearers intended to subdivide the remainder of the property and construct five additional homes, which they would then sell. Id. ¶ 28. In 2009, the Shearers allegedly discovered that multiple sewer pipes were "discharging raw sewage, effluent and wastewater" on their property which had drained from several neighboring properties, including, but not limited to, the properties owned by the Policyholders. Id. ¶ 29. The Shearers allege that the Policyholders or their predecessors in interest "installed, put into service and utilized multiple sewer pipes to discharge their sewage on the surface of the [property]." Id. ¶ 30. The Shearers also allege that they capped the ends of the sewer pipes sometime in late 2009, only to later discover that someone had cut off the caps, thereby allowing the discharge of "raw sewage, effluent and wastewater" to continue. Id. ¶ 31. Furthermore, according the Shearers' complaint, "raw sewage, effluent and wastewater continues to be discharged upon the [property] and absorbed into the groundwater and contaminating the same." Id. ¶ 32. The discharge has been absorbed into the ground and allegedly contaminated the groundwater and likely has impacted the well water of those down grade from the property. Id. ¶ 33.
The Shearers assert several legal theories in their complaint: trespass, continuing trespass, civil conspiracy to trespass, private nuisance, absolute nuisance, creation or maintenance of a dangerous condition, violation of the Pennsylvania Clean Streams Law, negligence, and public nuisance. Id. ¶ 36. They seek to recover damages for: deprivation of their use and quiet enjoyment of portions of the property due to unsightly conditions and noxious aromas; inability to subdivide and develop the property into multiple home sites; lost profits from the inability to subdivide and develop the property; reduction of market value of the property; personal health problems such as nausea, depression, and inability to sleep; and permeation of the drywall of their residence of an objectionable odor and fecal matter and sewage effluent. Id. ¶ 35.
Nationwide has been defending each of its Policyholders since the inception of the underlying litigation, subject to a reservation of rights. The reservation of rights letters sent to the Policyholders stated that Nationwide would investigate the circumstances surrounding the Shearers' claims to determine whether they were covered by the terms of the policies. The reservation of rights letter noted, however, that "this investigation [would be] subject to a Reservation of Rights, meaning that [Nationwide] specifically reserves the right to later deny coverage on [the] claim at the conclusion of its investigation." Ex. 14 at 1, ECF No. 30 (emphasis in original). In particular, Nationwide informed the Policyholders that the Shearers' claims might fall within the pollution exclusion and/or biological deterioration or damage exclusion, inasmuch as they stemmed from "raw sewage and/or waste products being discharged on or near the [Shearers'] property." Id. at 3. At the conclusion of the reservation of rights letters, Nationwide stated:
Nationwide will continue to investigate this claim to determine whether the above quoted provisions from your insurance policy preclude coverage for your claim. Once Nationwide has completed its investigation into the circumstances of your claim, we will notify you in writing of our coverage decision.
Please be advised that Nationwide's willingness to investigate this claim does not constitute a waiver of any rights under the policy. The reasons identified in this Reservation of Rights Letter regarding coverage are not necessarily exhaustive and do not preclude Nationwide from asserting any other valid reason for later denying or reserving coverage. Any action taken to date by Nationwide, its agents, employees or other representatives shall not be deemed to be a waiver of or estoppel of these and all rights under the policy and applicable law.
Id. (emphasis in original)
Nationwide also sent each of the Policyholders a supplemental reservation of rights letter. In this letter, Nationwide explained that it would "continue to handle this matter pursuant to a reservation of rights.... because there are certain exceptions to coverage that may apply." Id. at 4. Nationwide went on to state that it would
investigate this matter to determine if coverage will apply. You should be aware that as the facts are determined, [Nationwide] may assert the right to deny coverage and withdraw from the handling of this claim for any valid reasons that may arise. You should also be aware that even if this case proceeds to trial, we may not be obligated to pay any judgment nor any portion of any judgment that may fall outside the coverage afforded by the policy.
Id. at 4-5. After summarizing the Shearers' allegation, Nationwide reiterated its position that the claims might fall within the pollution and/or biological deterioration or damage exclusions. Id. at 6. Finally, Nationwide concluded the letter by stating that "[b]y investigating, participating in your defense or negotiating settlement, we do not assume any liability in excess of that imposed by the policy, and we do not waive any of our rights to rely upon any of the provisions of the policy and do not admit that the policy provides coverage for the alleged damages." Id. at 9.
A. Jurisdiction under the Declaratory Judgment Act
Before addressing the parties' motions, the Court must address whether it should exercise jurisdiction over this action under the DJA. The DJA provides, in pertinent part, that "any court of the United States... may declare the rights and other legal relations of any interested party." 28 U.S.C. § 2201 (emphasis added). The exercise of jurisdiction under the DJA is, therefore, entirely discretionary. See Reifer v. Westport Ins. Corp., 751 F.3d 129, 139 (3d Cir. 2014) (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995)). "[D]istrict courts are authorized, in the sound exercise of [their] discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after all arguments have drawn to a close.'" Id. (quoting Wilton, 515 U.S. at 288). While the "exercise of discretion must be sound, '" the scope of the district court's discretion has been framed in "broad terms." Id. (citing Wilton, 515 U.S. at 287). "Rather than being subject to the normal principle that federal courts should adjudicate claims within their jurisdiction, ' district courts exercising DJA discretion are governed by considerations of practicality and wise judicial administration.'" Id. (quoting Wilton, 515 U.S. at 288).
In Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942), the Supreme Court set forth several factors a district court should consider before entertaining a declaratory judgment action whenever there is "another proceeding... pending in a state court in which all the matters in controversy between the parties could be fully adjudicated." Id. at 495. "Ordinarily, " the Supreme Court explained, "it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties." Id. "Gratuitous interference with the orderly and comprehensive disposition of a state court litigation should be avoided." Thus, before exercising jurisdiction whenever there is a pending state-court proceeding involving the same matters, the district court must consider a non-exhaustive list of factors, such as the scope of the ...