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Burlington Insurance Co. v. Greenwood Rollerdrome, Inc.

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

October 1, 2019

THE BURLINGTON INSURANCE COMPANY Plaintiff
v.
GREENWOOD ROLLERDROME, INC. Defendant

          AMENDED MEMORANDUM OPINION AND ORDER [1]

          Rebecca Grady Jennings, United States District Judge.

         This matter comes before the Court on Plaintiff's Motion for Summary Judgment. [DE 26]. Briefing is complete. [DE 27; DE 28]. The Court issued a sua sponte order requesting additional briefing on the exercise of discretionary jurisdiction under the Declaratory Judgment Act. [DE 33]. The parties filed the requested briefs and responses. [DE 34; DE 35; DE 36; DE 37]. The matter is ripe. For the reasons below, the Court will exercise its discretionary jurisdiction to entertain this declaratory judgment, and GRANT Plaintiff's Motion for Summary Judgment [DE 26].

         I. BACKGROUND

         Greenwood Rollerdrome, Inc. (“Greenwood”) operated a bingo hall in Louisville. [DE 1 at 1-2, ¶ 3]. Stephanie Walker (“Walker”), a Greenwood patron, filed suit in Jefferson County Circuit Court alleging that Greenwood negligently failed to install and maintain reasonable and necessary safety features in its parking lot (the “Kentucky suit”). [DE 15-3 at 167, ¶ 11]. According to the Complaint, Walker was in the bingo hall parking lot one evening when “an unidentified man approached her and shoved a firearm into her head, forcing her over into the passenger seat as he drove the car away from the parking lot [where he] proceeded to carjack, kidnap, sexually assault, and sodomize [her].” [DE 15-3 at 167, ¶¶ 8-9].

         Greenwood held a Commercial General Liability insurance policy (the “Policy”) from The Burlington Insurance Company (“TBIC”) for the period at issue. [DE 1 at 2, ¶ 6]. Greenwood notified TBIC of the Kentucky suit and TBIC undertook Greenwood's defense under a reservation of rights. Id. at 3, ¶¶ 13-14. TBIC then brought this action, seeking a declaratory judgment that the Kentucky suit cannot support liability for TBIC under the Policy. Id. at 6, ¶ 24. TBIC moved for summary judgment. [DE 26].

         TBIC argues that it need not defend Greenwood under Coverage A (“Bodily Injury”) and Coverage B (“Personal and Advertising Injury”) because the Policy contained an “Exclusion for Assault, Battery or Other Physical Altercation” (the “Assault and Battery Exclusion”), which precludes liability on TBIC's part. [DE 26-1 at 201-11]. Greenwood, conversely, argues that the Policy covers at least some claims in the Kentucky suit. Greenwood asserts that coverage should not be denied even if the Assault and Battery Exclusion applies, under the doctrines of reasonable expectations and illusory coverage. [DE 27 at 218-22].

         Before addressing TBIC's summary judgment motion, the Court must determine whether to exercise jurisdiction under the Declaratory Judgment Act. TBIC moves the Court to retain jurisdiction. [DE 34 at 250]. Greenwood moves the Court to reject it. [DE 35 at 255].

         II. DECLARATORY JUDGMENT ACT

         Under 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).[2] While the Act authorizes district courts to exercise jurisdiction, it does not mandate or impose a duty to do so. Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373 F.3d 807, 812 (6th Cir. 2004). The Act confers on the “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).

         This court considers five factors (the “Grand Trunk factors”) to determine whether the exercise of Declaratory Judgment Act jurisdiction is appropriate. Grand Trunk W.R.R. Co. v. Consol. Rail Co., 746 F.2d 323, 326 (6th Cir. 1984) (internal quotation marks omitted). The Court must balance the five factors and “[t]he relative weight of the underlying considerations of efficiency, fairness, and federalism will depend on facts of the case.” Id. at 563; W. World Ins. Co. v. Hoey, 773 F.3d 755, 759 (6th Cir. 2014).

         1. Whether the declaratory action would settle the controversy and clarify the legal relations.

         The first two Grand Trunk factors assess “(1) whether the declaratory action would settle the controversy” and “(2) whether the declaratory action would serve a useful purpose in clarifying the legal relations in issue.” Grand Trunk, 746 F.2d at 326. Because “it is almost always the case that if a declaratory judgment will settle the controversy, . . . it will clarify the legal relations in issue, ” the inquiries required by these two factors often overlap substantially. United Specialty Ins. Co. v. Cole's Place, Inc., 936 F.3d 386, 397 (6th Cir. 2019) (citing Flowers, 513 F.3d at 557; Bituminous, 373 F.3d at 814; and Northland Ins. Co. v. Stewart Title Guar. Co., 327 F.3d 448, 454 (6th Cir. 2003)).

         There are two lines of cases in the Sixth Circuit. Cole's Place, Inc., 2018 WL 1914731 at *4 (citing Flowers, 513 F.3d at 555). “One line of cases approved of declaratory actions because they can ‘settle the insurance coverage controversy,' while a second line of cases disapproved of declaratory actions because while they ‘might clarify the legal relationship between the insurer and the insured, they do not settle the ultimate controversy.'” Id. (quoting Flowers, 513 F.3d at 555).

         The parties agree this matter falls into the first line of cases [DE 34 at 4; DE 35 at 2], that is, “a technical or legal issue is [ ] at the heart of the coverage controversy, and to the extent the facts of the underlying case matter, they are undisputed.” Emplrs. Ins. Co., 2011 WL 2119360, at *6. It is undisputed that the plaintiff in the Kentucky suit was assaulted in the bingo hall parking lot. It is also undisputed that whether assault occurred is not before the state court. Rather, the plaintiff in the Kentucky suit has sued Greenwood for alleged failure to install and maintain reasonable and necessary safety features. Thus, the issue there is whether Greenwood negligently failed to protect the patron plaintiffs, not (as in the present suit), whether some claims in the Kentucky suit arose out of a “carjacking and kidnapping.” [DE 15-3 at 167, ¶ 9].

         In this action, liability is established under the Personal and Advertising Injury Coverage portion of the Policy because kidnapping is a type of detention. This issue is not present in the Kentucky suit, but only here between the insured and insurer. As a result, this declaratory judgment action will “settle the controversy, ” as it resolves the dispute between the insurer and insured over who will pay for the state-court litigation. See, e.g., W. World Ins. Co. v. Hoey, 773 F.3d 755, 760-61 (6th Cir. 2014). The first two factors therefore support jurisdiction.

         2. 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.

         The third factor considers “whether the use of the declaratory judgment action is motivated by ‘procedural fencing' or [is] likely to create a race for res judicata.” Flowers, 513 F.3d at 558. The Sixth Circuit seldom finds procedural fencing if the declaratory-plaintiff filed after the start of litigation in state court. Cole's Place, 936 F.3d at 399. The Kentucky suit was filed on August 17, 2017. [DE 15-3]. This action was filed on September 25, 2017. [DE 1]. “[W]hen the plaintiff has filed his claim after the state court litigation has begun, [the Sixth Circuit] ha[s] generally given the plaintiff ‘the benefit of the doubt that no improper motive fueled the filing of [the] action.'” Id. (fourth alteration in original) (quoting Bituminous, 373 F.3d at 814). This factor supports jurisdiction.

         3. Whether the use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction.

         The fourth Grand Trunk factor addresses “whether accepting jurisdiction would increase friction between federal and state courts” and is broken into three sub-factors. Flowers, 513 F.3d at 559.

         The first sub-part “focuses on whether the state court's resolution of the factual issues in the case is necessary for the district court's resolution of the declaratory judgment action.” Flowers, 513 F.3d at 560. As discussed above, any factual determinations the Court may have to make about the Policy's Assault and Battery Exclusion will not overlap with those at issue in the Kentucky suit. The first sub-factor therefore supports jurisdiction.

         a. Whether the State Trial Court is in a Better Position to Evaluate Those Factual Issues than is the Federal Court.

         The second sub-part examines “which court, federal or state, is in a better position to resolve the issues in the declaratory action.” Id. The Sixth Circuit has “found that ‘issues of insurance contract interpretation are questions of state law with which the Kentucky state courts are more familiar and, therefore, better able to resolve.'” Id. (quoting Travelers Indemnity Co. v Bowling Green Prof. Assoc., 495 F.3d 266, 273 (6th Cir. 2007)). The questions that would arise here do not, however, do not involve novel issues of Kentucky law. See Cole's Place, 2018 WL 1914731, at *8.

         Determining whether TBIC has an obligation to Greenwood under the Policy requires addressing whether a violent kidnapping by a third-party qualifies as a “[f]alse arrest, detention or imprisonment” under the Personal and Advertising Injury Coverage clause; and, if so, whether the illusory coverage doctrine prevents applying the exclusion. While it appears no Kentucky court has addressed the illusory coverage doctrine for an assault and battery exclusion, the Kentucky Court of Appeals has addressed this doctrine in the context of exclusions in general. See Ritchie v. Turner, 547 S.W.3d 145, 149 (Ky. App. 2018). Thus, the Federal Court can apply the doctrine of illusory coverage to the undisputed factual situation and Policy here. The second sub-factor therefore is neutral and does not weigh heavily in the balance. Cole's Place, 936 F.3d at 401.

         b. Whether There is a Close Nexus Between Underlying Factual and Legal Issues and State Law and/or Public Policy, or Whether Federal Common or Statutory Law Dictates a Resolution of the Declaratory-Judgment Action.

         The third sub-part “focuses on whether the issue in this federal action implicates important state policies and is, thus, more appropriately considered in state court.” Flowers, 513 F.3d at 561. Kentucky state courts are “more familiar and, therefore, better able to resolve” interpretation of insurance contracts. Id. Even when the state law is not difficult to apply, the Sixth Circuit has usually found “that the interpretation of insurance contracts is closely entwined with state public policy.” Cole's Place, 936 F.3d at 400 (citing e.g., Flowers, 513 F.3d at 561 and Travelers, 495 F.3d at 273). Because this action involves an interpretation of a Kentucky insurance contract, the third sub-factor counsels against jurisdiction.

         4. Whether there is an alternative remedy which is better or more effective.

         The fifth and final factor asks “whether there is an alternative remedy which is better or more effective” than federal declaratory relief. Grand Trunk, 746 F.2d at 326. Kentucky law provides a declaration of rights procedure, under KRS § 418.040. Mass. Bay Ins. Co. v. Christian Funeral Dirs., Inc., No. 18-5267, 2018 WL 6787945, at *8 (6th Cir. Dec. 26, 2018). The Sixth Circuit has held that, “[i]n many ways, this alternative would have been better.” Flowers, 513 F.3d at 562. Specifically, “[t]he Kentucky courts are in a superior position to resolve undecided questions of ...


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