United States District Court, W.D. North Carolina, Charlotte Division
C. Mullen United States District Judge
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
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. 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
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
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
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.
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
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.
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).
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