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Westfield Insurance Co. v. Estate of McMahan

United States District Court, W.D. Kentucky, Louisville Division

May 1, 2017

WESTFIELD INSURANCE COMPANY PLAINTIFF
v.
ESTATE OF ARTHUR GENE MCMAHAN, JR., et al. DEFENDANTS

          MEMORANDUM OPINION

          Thomas B. Russell, Senior Judge United States District Court

         A tragic boating accident on Lake Lanier, Georgia claimed the lives of Arthur and Melissa McMahan and Anthony and Tammy Reece. Westfield Insurance Company insured Arthur McMahan, the boat's operator, as well as his wife Melissa and his company, AM Contracting. After the Reece estates asserted claims against the McMahans' three Westfield policies, Westfield brought this action, seeking a declaration that it has no obligation to pay and defend under the policies. [DN 9.] Shortly thereafter, the Reece estates filed a wrongful death suit against Arthur McMahan's estate in state court. [DN 35-2.] They also filed a counterclaim against Westfield in this suit for its alleged violation of the Kentucky's Unfair Claims Settlement Practices Act. [DN 11.]

         Two motions are pending before the Court. Westfield moves to dismiss the Reece estates' counterclaim, arguing that no bad faith claim can exist because Westfield has not yet denied the estates' claims against the policies. [DN 15.] Arthur McMahan's estate moves to dismiss the entire action, contending that this Court should decline jurisdiction pursuant to the factors set forth in Grand Trunk Western Railroad Co. v. Consolidated Rail Co., 746 F.2d 323, 326 (6th Cir. 1984). [DN 35.] All other Defendants join in that motion. [DN 37; DN 38; DN 40.] Both motions are fully briefed and ripe for adjudication. For the reasons explained below, the Court declines to exercise its discretionary jurisdiction to entertain Westfield's declaratory judgment action. Accordingly, Defendants' motions to dismiss [DN 35; DN 37; DN 38; DN 40] are GRANTED, and this case is DISMISSED WITHOUT PREJUDICE. Westfield's motion to dismiss the Reece estates' counterclaim [DN 15] is DENIED AS MOOT.

         I. Facts and Procedural History

         As relevant to Defendants' motion, the facts of this case are undisputed. On July 15, 2016, two Kentucky couples, the McMahans and the Reeces, were boating on Lake Lanier in northeast Georgia. [DN 9 at 3.] Arthur McMahan was operating his 2009 Skater 388-SS powerboat; his wife Melissa, Anthony Reece, and Tammy Reece were his passengers. [Id.] While traveling down the lake, the boat hit a wake, became airborne, and overturned. [Id.] All four passengers were ejected and killed. [Id.]

         The boat was originally purchased by A.M. Contracting Company, a Kentucky corporation. [Id.] On the date of the accident, the boat is believed to have been owned by either Arthur McMahan, Melissa McMahan, A.M. Contracting, or Art McMahan Muscle Motorsports, Arthur McMahan's sole proprietorship. [Id. at 3-4.] Westfield Insurance Company, an Ohio corporation, insured the McMahans under an estate policy and a personal umbrella policy, and A.M. Contracting under a commercial policy. [Id. at 4.] The personal policies have limits of $500, 000 and $3 million, respectively, and the commercial policy has a limit exceeding $75, 000. [Id.]

         Four months after the accident, attorney for the Reece estates contacted Westfield, asserting that the estates' claims against Arthur McMahan's estate exceeded Westfield's policy limits. [Id.] Westfield then filed the instant declaratory judgment action. It contends that several policy provisions exclude coverage for this accident. [Id. at 6.] Westfield named as Defendants the Estates of Arthur McMahan, Melissa McMahan, Anthony Reece, Tammy Reece, A.M Contracting Company, and Art McMahan Muscle Motorsports. Defendants answered, and the Reece estates included a counterclaim against Westfield for its alleged violation of Kentucky's Unfair Claims Settlement Practices Act, KRS 304.12-010 et seq. See [DN 11.]

         Meanwhile, the Reece estates initiated proceedings against Arthur McMahan's estate in Bullitt County, Kentucky Circuit Court. See [DN 35-2.] There, the estates allege that McMahan operated his boat in a negligent and reckless manner, causing the deaths of Anthony and Tammy Reece. See [id.] Proceedings in that case are still ongoing.

         Westfield then moved to dismiss the Reece estates' counterclaims. [DN 15.] It posits that the Reece estates cannot maintain a cause of action for bad faith against Westfield, because Westfield has not yet denied the estates' claims against the McMahan policies - the sine qua non of a bad faith claim. The Reece estates argue that their claims are not common-law bad faith claims, but rather statutory claims under Kentucky law, and that no refusal to pay is necessary for them to prevail.

         More pressing, though, is the motion to dismiss by the estate of Arthur McMahan. [DN 35.] All other Defendants join his estate in that motion. [DN 37; DN 38; DN 40.] His estate claims that this Court should decline to exercise its discretionary jurisdiction to hear this declaratory judgment case, and instead allow Westfield to litigate the scope of its coverage in the underlying state court action. Westfield responded, [DN 42], and Defendants replied, [DN 43; DN 44; DN 45; DN 46].

         II. Standard of Review

         Pursuant to the Declaratory Judgment Act, a federal court “may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a). The Act is an enabling act that “confers a discretion on the courts” to act “rather than an absolute right upon the litigant.” Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995) (quoting Public Serv. Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 241 (1952)). In other words, the Act authorizes district courts to exercise jurisdiction, but does not impose a duty to do so. Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373 F.3d 807, 812 (6th Cir. 2004); Allstate Ins. Co. v. Mercier, 913 F.2d 273, 276 (6th Cir. 1990), abrogated on other grounds by Wilton v. Seven Falls Co., 515 U.S. 277, (1995). A district court may not decline jurisdiction, however, as a matter of whim or personal disinclination. Mercier, 913 F.2d at 277.

         III. Discussion

         The Sixth Circuit has laid down five factors for courts to consider in determining whether the exercise of ...


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