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Hartford Fire Insurance Co. v. Employers Mutual Casualty Co.

United States District Court, W.D. North Carolina, Charlotte Division

January 12, 2018

HARTFORD FIRE INSURANCE COMPANY, Plaintiff,
v.
EMLOYERS MUTUAL CASUALTY COMPANY, CAROLINA FLOOR SYSTEMS, INC., AP ATLANTIC, INC., ADOLFSON & PETERSON, INC., CW CONSTRUCTION & DEVELOPMENT, LLC and MILES MCCLELLAN CONSTRUCTION COMPANY, INC., Defendants.

          ORDER

          Graham C. Mullen United States District Judge

         This matter is before the Court upon Defendant Employer Mutual Casualty Company's Motion to Dismiss or Alternatively to Stay Proceedings (Doc. No. 16) as well as Defendants AP Atlantic, Inc. and Adolphson & Peterson, Inc.'s Motion to Dismiss or Alternatively Abstain (Doc. No. 20). Both motions have been fully briefed and are ripe for disposition.

         FACTUAL BACKGROUND

         Plaintiff Hartford Fire Insurance Company (“Hartford”) filed this declaratory judgment action on May 11, 2017 seeking a declaration that Defendant Employers Mutual Casualty Company (“EMC”) owes a duty to continue funding the defense of insured Carolina Floor Systems, Inc. (“Carolina Floor”) and any additional insureds under the EMC policies in several underlying defective construction lawsuits pending in state court or arbitration. Both Hartford and EMC issued commercial general liability insurance policies to Carolina Floor with each carrier having different policy periods of coverage.[1] Hartford and EMC agreed to share the cost of defending Carolina Floor and certain additional insureds in litigation regarding three different projects. EMC is currently defending Carolina Floor under a full and complete reservation of rights in the following cases:

1. Mid-America Apartments, L.P. v. AP Atlantic, Inc., et al., No. 16-CVS-4439, in the Superior Court for Mecklenburg County, concerns the allegedly defective construction of an apartment tower in Charlotte. EMC and Hartford are sharing the cost of Carolina Floor's defense and the defense of AP Atlantic, Inc. and Adolfson & Peterson, Inc. ("AP Parties"), which claim to qualify as additional insureds.
2. Haywood Community College v. Miles McClellan Construction Company, Inc., et al., No. 16-CVS-997, in the Superior Court for Haywood County, concerns the allegedly defective construction of a creative arts building on the campus of Haywood Community College. EMC and Hartford are sharing the cost of Carolina Floor's defense. EMC and Hartford are also sharing the cost of defending the general contractor, Miles-McClellan Construction Company, Inc. ("Miles-McClellan"), as an additional insured under Carolina Floor's policies.
3. Mallard Creek Ltd. v. CW Construction & Development, LLC et al., No. 01-16-002- 42888, before the American Arbitration Association, and CW Construction & Development, LLC, v. 31-W Insulation Co., Inc, et al., No. 16-CVS-10323, in the Superior Court for Mecklenburg County, concern the allegedly defective construction of two buildings in Charlotte. EMC and Hartford are sharing the cost of Carolina Floor's defense. EMC and Hartford are also sharing the cost of defending the general contractor, CW Construction & Development, LLC ("CW Construction"), as an additional insured under Carolina Floor's policies.

         On January 13, 2017, prior to the filing of the present action, EMC filed a declaratory judgment action in Wake County Superior Court (“DJ I”), seeking a declaration that it has no duty to defend or indemnify Carolina Floor or the AP Parties in the Mid-America underlying action as the alleged “property damage” was not caused by an “occurrence” during EMC's policy periods. Hartford then filed this action on May 11, 2017, seeking to resolve whether the allegations in the complaints in each of the underlying actions trigger the EMC policies. On May 26, 2017, in DJ I, the AP Parties filed a counterclaim and third-party claims for declaratory relief against Hartford, various subcontractors, and those subcontractors' insurers.[2]

         Further adding to this quagmire of litigation, on June 15, 2017, EMC filed two additional declaratory judgment actions in Wake County Superior Court. In one action, EMC seeks a declaration that it is not obligated to defend or indemnify Carolina Floor, CW Construction, or Mallard Creek, Ltd. in connection with the Mallard Creek litigation as the alleged “property damage” was not caused by an “occurrence” during EMC's policy periods (“DJ II”). In the other action, EMC seeks to establish that it is not obligated to defend or indemnify Carolina Floor or Miles-McClellan in connection with the Haywood action as the alleged “property damage” was not caused by an “occurrence” during EMC's policy periods (“DJ III”). On October 31, 2017, the judge presiding over DJ II and DJ III entered orders staying those two actions pending a decision by this Court on EMC's Motion to Dismiss herein.

         Both EMC and the AP Parties have moved to dismiss this case, arguing, inter alia, that the three declaratory judgment actions filed by EMC serve the purpose of settling the state law issues regarding EMC's alleged coverage obligations to defend and indemnify its named insured and additional insureds.

         DISCUSSION

         The decision to entertain a declaratory judgment action pursuant to the Federal Declaratory Judgment Act is left to the sound discretion of the Court. See Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995) (holding that a district court “is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment.”). Such discretion “‘is especially crucial when . . . [a] related proceeding is pending in state court.'” Riley v. Dozier Internet Law, PC, 371 Fed.App'x 399, 401 (2010) (quoting New Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d 290, 297 (4th Cir. 2005)). When there is a related state court proceeding pending, “a court considering a declaratory judgment action should specifically consider whether the controversy ‘can better be settled in the proceeding pending in the state court.'” Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 257 (4th Cir. 1996) (quoting Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 495 (1942)). “This consideration should be guided by a number of factors, including the nature and scope of the state proceeding, and ‘whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding . . . .”' Id.

         The Supreme Court in Brillhart stated that it is "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." Brillhart, 316 U.S. at 495. The court must, therefore, determine whether the controversy "can better be settled in the proceeding pending in the state court." Wilton, 515 U.S. at 282. This requires the court to take into account "considerations of federalism, efficiency, and comity." United Capitol Ins. Co. v. Kapiloff, 155 F.3d 488, 493 (4th Cir. 1998). To assist district courts with ...


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