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Ace Capital Limited v. Keystone Services

March 4, 2013



Plaintiff, ACE Capital Limited, seeks a declaration by the Court that it has no duty to defend or provide coverage for Defendants, Keystone Services, Inc., d/b/a Kentuckiana Nursing Services and Bereket Haile, in an underlying action in the Jefferson Circuit Court. The Court ordered supplemental briefing on the issue of whether it can properly maintain jurisdiction over this action under the Declaratory Judgment Act. (See Order [DN 18].) The parties have filed their supplemental briefs. Therefore, this matter is ripe for decision.


On May 20, 2011, Penny Harbin, as next of friend of Kristopher Worthington, filed an action against Defendants and others in the Jefferson Circuit Court alleging that Defendant, Bareket Haile, assaulted and/or "improperly, carelessly, and negligently, hit Kristopher Worthington, on or about his body" on September 9, 2010. (Jefferson Circuit Court Complaint at ¶¶ 8-9; DN 1-3.) Plaintiff sought damages against Haile and his employer for the injuries suffered by Worthington. According to the state court complaint, at the time of the incident Haile was working in the course and scope of his employment with Defendant Kentuckiana Nursing Services and, as a result, Kentuckiana Nursing Services is vicariously liable for his actions. (Id. at ¶¶ 13-14.) The plaintiff in the state court action alleges that Kentuckiana Nursing Services acted negligently in causing the incident, including "negligence in hiring, training, and supervising Bereket Haile." (Id. at ¶ 15.)

Defendants sought insurance defense from Plaintiff, ACE Capital Limited (hereinafter "ACE"), pursuant to the insurance policy issued by ACE providing Kentuckiana Nursing Services with professional liability insurance, commercial general liability insurance, and medical payments insurance. (Complaint at ¶¶ 21-25.) On September 1, 2011, Professional Claims Managers, Inc., a third-party claims administrator for ACE, issued Haile and Kentuckiana Nursing Services a reservation of rights letter reserving ACE's rights under the Policy to limit or deny a defense and/or indemnity to Haile. (Id. at ¶¶ 18, 20.) On November 21, 2011, Professional Claims Managers issued Haile a letter denying a defense and indemnity under the Policy. (Id. at ¶19.) ACE is presently defending Kentuckiana Nursing Services in the state court action subject to the reservation. (Id. at ¶ 20.) ACE has since filed this declaratory judgment action, seeking the Court's declaration on whether it owes Defendants a defense in the underlying state court action.


A court's exercise of jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201(a), is not mandatory. Bituminous Cas. Corp. v. J & L Lumber Co. Inc., 373 F.3d 807, 812 (6th Cir. 2004) (citing Brillhart v. Excess Ins. Co. of America, 316 U.S. 491, 494 (1942)). Instead, the Sixth Circuit has held that courts must examine five factors to determine whether a case is appropriate for declaratory judgment. Id. at 813. These factors are:

(1) whether the judgment would settle the controversy;

(2) whether the declaratory judgment action would serve a useful purpose in clarifying the legal relations at issue;

(3) whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race for res judicata";

(4) whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach on state jurisdiction; and

(5) whether there is an alternative remedy that is better or more effective.

Id. (citing Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000)(citations omitted)). The Sixth Circuit has "held in insurance coverage diversity cases that 'declaratory judgment actions seeking an advance opinion on indemnity issues are seldom helpful in resolving an ongoing action in another court.'" Bituminous, 373 F.3d at 812 (citing Manley, Bennett, McDonald & Co. v. St. Paul Fire & Marine Ins. Co., 791 F.2d 460, 463 (6th Cir.1986)). Further, the Sixth Circuit has emphasized that "such actions . . . should normally be filed, if at all, in the court that has jurisdiction over the litigation which gives rise to the indemnity problem. Otherwise confusing problems of scheduling, orderly presentation of fact issues and res judicata are created." Id. (citing Scottsdale Ins. Co., 211 F.3d 964; Grand Trunk Western R. Co. v. Consolidated Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984)).


Plaintiff urges the Court to exercise jurisdiction over this matter because all five of the Scottsdale factors counsel in favor of jurisdiction. Defendants disagree arguing that the Court should decline to exercise jurisdiction over this case because a balance of the Scottsdale factors ...

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