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Hanover Insurance Co. v. Superior Labor Services, Inc.

United States District Court, E.D. Louisiana

July 12, 2017

HANOVER INSURANCE COMPANY, Plaintiff
v.
SUPERIOR LABOR SERVICES, INC., ET AL., Defendants Applies to: 16-2490

         SECTION “E”

          ORDER AND REASONS

          SUSIE MORGAN UNITED STATES DISTRICT JUDGE.

         Before the Court is a motion for summary judgment filed by Great American Excess & Surplus Insurance Company (“Great American”) regarding its duty to defend and duty to indemnify Allied Shipyard, Inc. against claims made in the underlying St. Pierre state-court lawsuit, more fully described below, as an additional insured under Masse's policies.[1] Allied opposes the motion.[2] For the reasons set forth below, Great American's motion is GRANTED.

         BACKGROUND

         A. State-Court Lawsuits

         This is a consolidated action. The case originates from two personal-injury actions (“State-Court Lawsuits”) filed in state court against Allied Shipyard, Inc. (“Allied”): Adams, v. Allied Shipyard, Inc., and St. Pierre, v. Allied Shipyard, Inc.[3]The plaintiffs in the State-Court Lawsuits allege Allied negligently performed sandblasting activities and seek resulting damages. The two cases were consolidated in state court on September 9, 2013.[4]

         In both State-Court Lawsuits, Allied filed third-party demands against its contractors who performed the sandblasting jobs, including Superior Labor Services, Inc. (“Superior”) and Masse Contracting, Inc. (“Masse”).[5] Specifically, Allied alleges that Superior and Masse contracted with Allied to perform certain tasks and to indemnify Allied under master work contracts.[6] Allied seeks indemnity from Superior and from Masse with respect to the claims in the State-Court Lawsuits.[7]

         The plaintiffs in Adams amended their petition to name Superior, Masse, other subcontractors, and Gray Insurance Company as direct defendants.[8]

         The third-party-defendant contractors “in turn sought coverage, defense and/or indemnity from their various insurers for the periods of time when these jobs were allegedly performed, which prompted the insurers to file lawsuits in federal courts.”[9]

         On August 18, 2016, Allied filed a cross-claim and third-party demand in state court against its direct insurer, Gray, and against Masse and Superior's insurers, seeking a declaration that it has a right to defense and indemnity as well as a declaration of its status as an additional insured under Masse and Superior's policies.[10]

         The Adams plaintiffs filed their sixth amended petition in state court on April 29, 2016.[11] The St. Pierre plaintiffs have not amended their original petition, which was filed on December 8, 2010.[12]

         B. Declaratory Actions in Federal Court

         Four federal actions related to the Consolidated State-Court Lawsuit are pending in this Court. The Court consolidated the first three cases-11-2375, 14-1930, and 14-1933-on November 21, 2014, and consolidated 16-2490 with those cases on August 10, 2016.[13]

         1. No. 11-2375

         On September 21, 2011, Hanover Insurance Company (“Hanover”) filed a complaint in this Court.[14] Hanover filed an amended complaint on September 27, 2012.[15]Hanover alleges it has been participating in the defense of Superior against Allied's third-party demands in the Consolidated State-Court Lawsuit.[16] Hanover maintains the other insurers it names in its federal suit “are not participating in Superior's defense” in the Consolidated State-Court Lawsuit.[17] Hanover seeks judgment against Superior declaring that it has no duty to defend or indemnify Superior in the Consolidated State-Court Lawsuit.[18] If Hanover has a duty to defend or indemnify Superior, Hanover seeks declaratory judgment that State National Insurance Company (“State National”), Arch Insurance Company (“Arch”), and “other unidentified insurance companies collectively named as ABC Insurance Company” are liable “for their share of defense and indemnity to be paid on behalf of Superior” in the Consolidated State-Court Lawsuit.[19] Hanover also seeks reimbursement, contribution, and/or damages from State National, Arch, and other unidentified insurance companies for defense costs already incurred by Hanover on behalf of Superior in the Consolidated State-Court Lawsuit that, Hanover argues, should have been paid by those insurance companies.[20]

         On January 14, 2015, Hanover filed a second supplemental and amending complaint naming Allied as a defendant.[21] Hanover alleges that “Allied has tendered the [Consolidated State-Court Lawsuit] to Hanover for defense and indemnity in its capacity as an alleged additional insured” under Superior's policies, and Hanover has offered to participate in Allied's defense in the Consolidated State-Court Lawsuit subject to a full reservation of rights.[22] Hanover alleges that Allied is not an additional insured under Hanover's policies, and Hanover seeks judgment against Allied declaring that it has no duty to defend or indemnify Allied in the Consolidated State-Court Lawsuit.[23] In the alternative, if the Court finds Hanover has a duty to defend or indemnify Allied, Hanover seeks judgment declaring that Arch, State National, and other unidentified insurance companies are obligated to pay their portions of defense costs and/or indemnity incurred by Hanover on behalf of Superior and Allied in the Consolidated State-Court Lawsuit.[24]

         On March 8, 2012, State National filed a crossclaim for declaratory judgment against Superior.[25] State National filed its first amended crossclaim for declaratory judgment on September 27, 2012.[26] State National filed a second amended crossclaim for declaratory judgment on January 14, 2015, naming Allied as a defendant-in-crossclaim.[27]State National seeks judgment declaring that there is no coverage afforded to Superior under the State National policies issued to Superior and that State National has no duty to defend or indemnify Superior in the Consolidated State-Court Lawsuit.[28] State National also seeks a declaration that the State National policies afford no coverage to Allied as a purported additional insured and that State National does not owe a duty to defend or indemnify Allied in the Consolidated State-Court Lawsuit.[29]

         2. No. 14-1930

         On August 22, 2014, Arch Insurance Company brought an action for declaratory judgment against Superior and Allied.[30] Arch seeks a declaration of its rights and responsibilities under “certain insurance policies issued by Arch to Superior, ” with respect to Superior's request for defense and indemnity in the Consolidated State-Court Lawsuit.[31] Arch also seeks a declaration of its rights and responsibilities with respect to Allied's request for additional insured status under the Superior policies and defense and indemnity of Allied in the Consolidated State-Court Lawsuit.[32] Arch seeks a declaration against Superior and Allied that Arch has no defense or indemnity obligation to Superior or Allied in the Consolidated State-Court Lawsuit.[33] Arch also seeks recovery of the portion of defense costs already incurred by it on behalf of Superior.[34]

         3. No. 14-1933

         On August 22, 2014, Arch also filed an action for declaratory judgment against Masse and Allied. Arch seeks a declaration of its rights and responsibilities under “certain insurance policies issued by Arch to Masse, ” with respect to Masse's request for defense and indemnity in the Consolidated State-Court Lawsuit.[35] Arch also seeks a declaration of its rights and responsibilities with respect to Allied's request for additional insured status under the Masse policies and defense and indemnity of Allied in the Consolidated State-Court Lawsuit.[36] Arch seeks a declaration against Masse and Allied that Arch has no defense or indemnity obligation to Masse in the Consolidated State-Court Lawsuit.[37]

         On January 14, 2015, Hanover filed a complaint in intervention in Case No. 14-1933 against Defendants Masse and Allied.[38] Hanover seeks judgment declaring that Hanover has no obligation to defend or indemnify Masse or Allied in the State-Court Lawsuits.[39]

         State National Insurance Company (“State National”) also filed a petition for intervention for declaratory judgment on January 14, 2015.[40] State National issued two marine general liability policies to Masse that provided coverage from November 15, 2006, to November 15, 2007, and from November 15, 2007, to November 15, 2008.[41]Allied seeks additional insured status under the policies issued by State National to Masse.[42] State National seeks a judgment declaring there is no coverage afforded to Masse under the State National policies and that State National has no duty to defend or indemnify Masse in the Consolidated State-Court Lawsuit.[43] State National also seeks a declaration that “there is no coverage afforded to Allied under the [State National] policies as a purported additional insured” and that State National does not owe a duty to defend or indemnify Allied in the Consolidated State-Court Lawsuit.[44]

         On April 13, 2016, Lexington intervened in Arch's declaratory judgment action in its capacity as an insurer of Masse, and likewise, sought determinations of coverage for Masse as an insured and Allied as an additional insured for the claims asserted in the underlying Consolidated State-Court Lawsuit.[45] Lexington issued two commercial general liability policies to Masse-one in effect from February 16, 2000 to February 16, 2001 (“2000-2001 Lexington Policy”) and another in effect from November 15, 2008 to November 15, 2009 (“2008-2009 Lexington Policy”).[46]

         4. 16-2490

         On March 25, 2016, Great American E&S Insurance Company (“Great American”) filed a complaint in this Court.[47] Great American filed an amended complaint on August 26, 2016, adding Gray.[48] Great American seeks a declaration of its rights and responsibilities as it relates to its duties to defend or indemnify Masse as an insured or Allied as an additional insured under the Great American Policies with respect to the claims in the Adams and St. Pierre lawsuits.[49] If Great American has a duty to defend or indemnify Masse as an insured or Allied as an additional insured in the Consolidated State-Court Lawsuit, Great American seeks declaratory judgment that “any such obligation should be proportionate to its time on the risk as compared to the period of time during which the underlying Plaintiff's toxic exposures allegedly occurred.”[50]Alternatively, if Great American has a duty to defend or indemnify Masse as an insured or Allied as an additional insured, Great American seeks declaratory judgment that Great American is entitled to contribution from Arch Insurance Company, United Capitol Insurance Company, Lexington Insurance Company, Atlantic Insurance Company, State National Insurance Company, Underwriters at Lloyd's, London, and Clarendon National Insurance Company.[51]

         C. Great American's Motion for Partial Summary Judgment

         Great American filed this motion for partial summary judgment on January 23, 2017 regarding its duty to defend and duty to indemnify Allied as an additional insured under the policies issued to Masse against the claims made in the underlying St. Pierre lawsuit.[52]

         CONSIDERATION OF DECLARATORY JUDGMENT ACTIONS

         Great American seeks a declaratory judgment that Allied is not an additional insured under Great American's policies issued to Masse and that Great American has no duty to defend or indemnify Allied in the St. Pierre lawsuit. The Declaratory Judgment Act, 28 U.S.C. § 2201, provides in pertinent part:

In 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. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.[53]

         The Court must determine whether it will hear the Great American's declaratory judgment claim against Allied before considering a motion for summary judgment. The Fifth Circuit has explained that, when considering a declaratory judgment action, a district court must engage in a three-step inquiry to determine whether to decide or dismiss a complaint for declaratory relief.[54] First, the Court must determine whether the action is justiciable.[55] Second, the Court must determine whether it has the authority to grant declaratory relief.[56] Third, the Court must determine “how to exercise its broad discretion to decide or dismiss a declaratory judgment action.”[57]

         A. Justiciability

         The justiciability doctrines of standing, mootness, political question, and ripeness derive from Article III's “case or controversy” requirement.[58] In a declaratory judgment action, justiciability often turns on ripeness.[59] This case is no exception.

         The ripeness doctrine is drawn “both from Article III limitations on judicial power and from prudential reasons for refusing to exercise jurisdiction.”[60] The purpose of this doctrine is to forestall “entangl[ement] . . . in abstract disagreements” through “avoidance of premature adjudication.”[61] “The key considerations are ‘the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration.'”[62]

         The Fifth Circuit has recognized that “applying the ripeness doctrine in the declaratory judgment context presents a unique challenge.”[63] This stems primarily from the fact that declaratory relief often involves an ex ante determination of rights, i.e., a determination of rights before an injury has occurred, that “exists in some tension with traditional notions of ripeness.”[64] Fortunately, this challenge is not presented today, because the Court's analysis is guided by a distinct subset of ripeness jurisprudence on disputes regarding the duty to defend.

         Because the duty to defend does not depend on the outcome of the underlying law suit, [65] a duty-to-defend claim is ripe when the underlying suit is filed.[66] Accordingly, Great American's claim with respect to its duty to defend Allied is ripe, and the Court finds this claim is justiciable.

         B. Mandatory Abstention

         The Fifth Circuit has explained that “when a state lawsuit is pending, more often than not, issuing a declaratory judgment will be tantamount to issuing an injunction- providing the declaratory plaintiff an end run around the requirements of the Anti-Injunction Act.”[67] The Fifth Circuit has provided an analysis with respect to a district court's authority to issue a declaratory judgment so as to not allow a declaratory plaintiff an end run around the requirements of the Anti-Injunction Act. The district court cannot consider the merits of a declaratory judgment action when (1) a declaratory defendant has previously filed a cause of action in state court against the declaratory plaintiff; (2) the state case involves the same issues as those involved in the federal case; and (3) the district court is prohibited from enjoining the state proceedings under the Anti-Injunction Act.[68] The Fifth Circuit in Jackson held “if an injunction would be barred by [the Anti-Injunction Act], this should also bar the issuance of a declaratory judgment that would have the same effect as an injunction.”[69] The first factor in this analysis is not met in this case. Great American, the declaratory judgment plaintiff in the federal action, filed its declaratory judgment action on March 25, 2016, months before Allied, the declaratory defendant in the federal action, filed its cause of action against Great American in state court on August 18, 2016.[70] The presence of all three factors mandates abstention. The want of any one factor defeats mandatory abstention.[71] Because the first factor has not been met, abstention is not mandatory.

         C. Discretion to Exercise Jurisdiction on the Duty to Defend

         Because there is no mandatory abstention, the Court must consider, in its discretion, whether to exercise jurisdiction over Great American's claim against Allied. “Since its inception, the Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants, ” even when subject-matter jurisdiction is otherwise proper.[72] In Wilton v. Seven Falls Co., the Supreme Court held that the discretionary standard of Brillhart v. Excess Ins. Co. of America[73] governs a district court's decision to stay a declaratory judgment action during the pendency of parallel state-court proceedings.[74] “Although Brillhart did not set out an exclusive list of factors governing the district court's exercise of this discretion, it did provide some useful guidance in that regard.”[75] There are three overarching considerations in the Supreme Court's analysis in Brillhart: federalism, fairness, and efficiency.[76] “Despite the circuits' different expressions of the Brillhart factors, each circuit's formulation addresses the same three aspects of the analysis.”[77]

         The Fifth Circuit uses the Trejo factors to guide a district court's exercise of discretion to accept or decline jurisdiction over a declaratory judgment suit:

(1) whether there is a pending state action in which all of the matters in controversy may be fully litigated;
(2) whether the plaintiff filed suit in anticipation of a lawsuit filed by the defendant;
(3) whether the plaintiff engaged in forum shopping in bringing the suit;
(4) whether possible inequities in allowing the declaratory plaintiff to gain precedence in time or to change forums exist;
(5) whether the federal court is a convenient forum for the parties and witnesses;
(6) whether retaining the lawsuit would serve the purposes of judicial economy; and
(7) whether the federal court is being called on to construe a state judicial decree involving the same parties and entered by the court before whom the parallel state suit between the same parties is pending.[78]

         1. Nature of Pending State Court Action

         The first Trejo factor requires comparison of the declaratory judgment action with the underlying state-court action.[79] “If there is a pending related state proceeding but it is not ‘parallel' because it does not involve all the same parties or issues, the federal district court properly considers the extent of similarity between the pending state court and federal court cases in deciding which court should decide the dispute, rather than relying on a per se rule.”[80]

         On March 25, 2016, Great American filed its declaratory judgment action in federal court, seeking a declaration of whether Great American has a duty to defend or indemnify Masse as an insured or Allied as an additional insured in both the Adams and St. Pierre lawsuits. At the time Great American filed its declaratory judgment action in this Court, the question of Great American's duty to defend or indemnify Allied as an additional insured was not before the state court. After Great American filed its declaratory action in this Court, Allied filed a cross claim and third-party demand in state court seeking a declaration that the insurers of Masse, including Great American, owe Allied duties to defend and indemnify.[81] Great American's federal declaratory judgment claim against Allied and Allied's third-party demand filed in state court are parallel, as they both seek a declaration as to Great American's duty to defend and indemnify Allied as an additional insured under Great American's policies issued to Masse in the Adams and St. Pierre lawsuits. As a result, the first Trejo factor weighs against exercising jurisdiction.

         2. Suit Filed in Anticipation of Lawsuit

         The St. Pierre lawsuit was filed on December 8, 2010, [82] and the Adams lawsuit was filed on December 28, 2010.[83] Great American filed its declaratory judgment claim against Allied in federal court on March 25, 2016.[84] Allied's cross-claim against Great American was filed on August 18, 2016.[85] Great American likely was aware that its insurance coverage of Allied as an additional insured would become an issue in the pending State-Court Lawsuits. Therefore, Great American may have filed its declaratory judgment action in anticipation of becoming a party to the pending State-Court Lawsuits.[86] The second Trejo factor weighs against exercising jurisdiction.[87]

         3. Forum Shopping

         That Great American could have intervened and requested declaratory judgment in the State-Court Lawsuits does not necessarily demonstrate forum shopping.[88] Courts are less likely to find forum shopping where, as here, (1) a foreign insurer files a diversity action in federal court, and (2) the selection of the federal forum does not change the applicable law.[89] “The record does not support a finding that [Great American] engaged in impermissible forum shopping by filing this declaratory judgment suit.”[90] The third Trejo factor weighs in favor of exercising jurisdiction.

         4. Inequities

         The Court cannot conceive of any inequities that flow from allowing Great American to proceed in this action while the State-Court Lawsuits remain pending. No party will be prejudiced if this Court decides whether Great American has a duty to defend Allied as an additional insured before resolution of the State-Court Lawsuits. The fourth Trejo factor weighs in favor of exercising jurisdiction.

         5. Convenience of Federal Forum

         The State-Court Lawsuits are pending in the 17th Judicial District Court for the Parish of Lafourche, State of Louisiana.[91] The state courthouse for the 17th Judicial District Court for Lafourche Parish is approximately 60 miles west of the federal courthouse in New Orleans. No party argues that this forum is inconvenient or that either forum is more convenient than the other for the parties or for the witnesses. This factor is neutral.[92]

         6. Judicial Economy

         Great American's declaratory judgment action in this Court has been pending for over a year. All cases surrounding this controversy have been before this Court for five years. The issue of whether Great American has a duty to defend Allied as an additional insured in the State-Court Lawsuits has been fully briefed before this Court. Exercising jurisdiction is in the interest of judicial economy.[93] This factor weighs in favor of exercising jurisdiction.

         7. Interpretation of Decree from Parallel State Proceeding

         Although a part of the State-Court Lawsuits and this action are parallel, filings by Allied in state court seeking a declaration of its rights to defense and indemnity were made after the filing of Great American's declaratory judgment claim against Allied in this Court.[94] This Court is unaware of a ruling by the state court on the issue of Allied's rights to defense or indemnity from Great American, and there is no indication that such a ruling is imminent. This Court need not interpret any decree issued in the State-Court Lawsuits to determine whether Great American has a duty to defend. The seventh Trejo factor weighs in favor exercising jurisdiction.[95]

         Four of the Trejo factors weigh in favor of exercising jurisdiction, while two weigh against and one is neutral. The Court will exercise jurisdiction over the question of Great American's duty to defend Allied as an additional insured.

         LOUISIANA LAW ON THE DUTY TO DEFEND

         Under Louisiana law, an insurance policy is a contract and should be construed using the general rules of interpretation of contracts set forth in the Louisiana Civil Code.[96] A liability insurer's duty to defend and the scope of its coverage are separate and distinct issues.[97] Under Louisiana law, an insurer's duty to defend is broader than its obligation to indemnify for damage claims.[98]

         Great American is seeking declaratory relief against Allied on two causes of action-its duty to defend and its duty to indemnify. The Court will first consider Great American's duty to defend Allied as an additional insured.

         1. The “Eight-Corners Rule”

         Louisiana courts apply the “eight-corners rule” to determine whether a liability insurer has the duty to defend a civil action against its insured; courts look to the “four corners” of the plaintiff's petition in the civil action and the “four corners” of the insurance policy to determine whether the insurer owes its insured a duty to defend.[99] One Louisiana court explained as follows:

Under [the “eight-corners”] analysis, the factual allegations of the plaintiff's petition must be liberally interpreted to determine whether they set forth grounds which raise even the possibility of liability under the policy. In other words, the test is not whether the allegations unambiguously assert coverage, but rather whether they do not unambiguously exclude coverage. Similarly, even though a plaintiff's petition may allege numerous claims for which coverage is excluded under an insurer's policy, a duty to defend may nonetheless exist if there is at least a single allegation in the petition under which coverage is not unambiguously excluded.[100]

         The duty to defend “arises whenever the pleadings against the insured disclose even a possibility of liability under the policy.”[101] The insurer has a duty to defend unless the allegations in the petition for damages, as applied to the policy, unambiguously preclude coverage.[102] “Once a complaint states one claim within the policy's coverage, the insurer has a duty to accept defense of ...


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