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Brit UW Ltd. v. Smith

United States District Court, E.D. Kentucky, Northern Division, Covington

July 30, 2019

BRIT UW LIMITED on behalf of Lloyd's Syndicate 2987 PLAINTIFF
v.
DENVER SMITH, et al. DEFENDANTS

          MEMORANDUM OPINION AND ORDER

          David L. Bunning United States District Judge.

         Plaintiff Brit UW Limited (“Brit”), for and on behalf of Lloyd's Syndicate 2987, an insurance company, commenced this declaratory-judgment action against Defendants Denver Smith, Loretta Smith, Fat Boy's Dream LLC (“FBD”), Justin Foster, Eliminator Custom Boats Inc. (“Eliminator”), Brunswick Corporation (“Brunswick”), the Estate of Ronald Parker, Roger Lewis, and Carol Martin. (Doc. # 1). FBD is one of several defendants currently being sued in Mason County Circuit Court in connection with a fatal boating accident that occurred in Maysville, Kentucky. See Lewis v. Foster, No. 18-CI-40 (underlying state-court action). Brit seeks a determination that, pursuant to its insurance contract with FBD, it has no duty to defend or indemnify FBD against damages it may be liable for in the state-court lawsuit. (Doc. # 1). After Brit filed its Complaint seeking a declaratory judgment (Doc. # 1), the Court issued an order to show cause why the Court should take jurisdiction. (Doc. # 31). Both sides having submitted briefs, see (Docs. # 32, 35, 36, 37, and 38), and the time for filing of a response having expired, the matter is now ripe for the Court's review. For the reasons set forth below, the Court declines to exercise its jurisdiction over Brit's declaratory-judgment suit.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         A. The State-Court Action

         On August 19, 2017, Justin Foster was operating a speedboat on the Ohio River as part of a charity boating event sponsored by a local restaurant called Fat Boy's Dream (“FBD"). (Doc. # 1 ¶ 17). Foster lost control of the speedboat during the event, and he and his passenger, Ronald Parker, were ejected from the vessel. The speedboat then crashed into a nearby pontoon boat operated by Roger Lewis and Carol Martin. Id. ¶ 18. Parker died as a result of the accident, while Lewis suffered a serious leg injury, and Martin continues to suffer from Post-Traumatic Stress Disorder. Id. ¶¶ 18, 29.

         Lewis and Martin-the owners of the pontoon boat-filed a tort action on February 7, 2018 in Mason County Circuit Court, bringing negligence claims against Foster and against Parker's estate for failure to properly maintain and operate Foster's speedboat. Id. ¶¶ 21, 26. They also brought negligence and products-liability claims against Eliminator, the designer of Foster's speedboat, and against Brunswick, the designer of the stern drives on Foster's speedboat. Id. ¶¶ 23, 24. Finally, Lewis and Martin sued FBD and its owners Denver and Loretta Smith, for allegedly failing to exercise ordinary care in planning and overseeing the boating event. Id. ¶ 27. Ronald Parker's estate then filed a crossclaim against FBD, also alleging negligence in sponsoring and planning the boating event. Id. ¶ 29. Defendant Eliminator removed the case to the Eastern District of Kentucky. Lewis v. Foster, No. 2:18-cv-60-DLB-CJS (E.D. Ky. 2018), ECF No. 1. Shortly thereafter, several parties moved to remand the case back to state court. Lewis v. Foster, No. 2:18-cv-60-DLB-CJS (E.D. Ky. 2018), ECF Nos. 9, 10, and 11. The Court granted those motions on September 5, 2018 and remanded the case back to Mason County Circuit Court. Lewis v. Foster, No. 2:18-cv-60-DLB-CJS, 2018 WL 4224445 (E.D. Ky. Sept. 5, 2018).

         B. This Action

         Brit issued a general liability policy to FBD, which was in effect from June 28, 2017 until June 28, 2018. (Doc. # 1 ¶ 30). Pursuant to this policy, Brit is defending FBD in the state-court action under a reservation of rights that includes the right to deny that it owes FBD “any defense or indemnity obligations with respect to the claims set forth in the [state-court action] or under the Policy.” Id. ¶ 42.

         Brit, which is not a party to the state-court action, filed the instant declaratory-judgment action on June 29, 2018, naming as Defendants all parties who might have an interest in the outcome of the insurance-coverage issue, including the insureds (Denver and Loretta Smith d/b/a Fat Boy's Dream), the tort plaintiffs (Roger Lewis and Carol Martin), and the tort defendants (Justin Foster, Eliminator, Brunswick, and the Estate of Ronald Parker). (Doc. # 1). Brit's Complaint alleges that it has no duty to defend or indemnify Denver and Loretta Smith and/or FBD in connection with any of the claims stemming from the August 19, 2017 boating accident. Id. ¶¶ 44-48. Specifically, Brit alleges that the policy it issued to FBD applies only to risks associated with its restaurant, liquor sales, and gasoline stations, none of which relate to the August 19, 2017 boating event. Id. ¶ 45. Furthermore, Brit claims that even if coverage for the boating event were available under the policy, certain exclusions apply which eliminate Brit's coverage obligation. Brit relies on the exclusions relating to “Athletics or Sports Participants” as well as bodily injury or property damage “arising out of the ownership, maintenance, use or entrustment to others of any watercraft owned or operated by or rented or loaned to [FBD].” Id. ¶ 35.

         Brit requests that the Court declare it not liable under the policy issued to FBD for any judgment entered in the state-court action and that it is “not obligated in any manner to defend or indemnify Denver & Loretta Smith d/b/a Fat Boy's Dream LLC” in the state-court action. (Doc. # 1 at 11).

         Defendants Roger Lewis and Carol Martin (Plaintiffs in the state-court action) filed an Answer and Counterclaim, asserting that Brit's policy issued to FBD does in fact cover damages stemming from the August 19, 2017 boating accident and that no exclusions apply. (Doc. # 9). The Estate of Ronald Parker and Brunswick have also filed Answers. (Docs. # 10 and 11). The Court subsequently ordered briefing on the question of whether it should exercise jurisdiction to hear the declaratory-judgment action. (Doc. # 31). The Court has received responses from the Estate of Ronald Parker, Roger Lewis and Carol Martin, FBD, and Brit. (Docs. # 32, 35, 36, 37, and 38). As alluded to in its show-cause Order (Doc. # 31 at 1), the Court has diversity jurisdiction over this action.[1]

         II. ANALYSIS

         A. Standard of Review

         The Declaratory Judgment Act provides, “[i]n a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a)(emphasis added). In situations where there is a simultaneous state-court action between the insured and an alleged tort victim, the federal court is not obliged to entertain an action under the Declaratory Judgment Act. Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494-95 (1942); Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373 F.3d 807, 812 (6th Cir. 2004). Consequently, the Act “confer[s] on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants.” Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995); accord Western World Ins. Co. v. Hoey, 773 F.3d 755, 758 (6th Cir. 2014).

         To guide the exercise of this discretion, the Sixth Circuit has identified five factors for district courts to consider. Hoey, 773 F.3d at 759. These factors, first introduced in the case Grand Trunk Western Railroad Co. v. Consolidated Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984), are as follows:

(1) whether the declaratory action would settle the controversy;
(2) whether the declaratory action would serve a useful purpose in clarifying the legal relations in issue;
(3) whether the declaratory remedy is being used merely for the purpose of “procedural fencing” or “to provide an arena for res judicata”;
(4) whether the use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; ...

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