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Associated Industries Insurance Co. v. Four Four, LLC

United States District Court, M.D. Alabama, Northern Division

June 12, 2018

FOUR FOUR, LLC, Defendant.



         In this consolidated action, Plaintiffs Associated Industries Insurance Company (“Associated”), United Specialty Insurance Company (“United”), and Maiden Insurance Company (“Maiden”) seek a declaratory judgment that they do not owe a duty to defend or indemnify their insured, Defendant Four Four, LLC, in an underlying lawsuit in Alabama state court. (Doc. # 19.[1]) The individual Defendants - who are plaintiffs in the state court action against Four Four - move to dismiss or, in the alternative, stay the actions brought by Associated and United as unripe for adjudication.[2] (Doc. # 41.)

         That motion will be granted in part and denied in part. While it is indeed premature to determine whether and to what extent the insurers must provide coverage if their insured is one day found liable, the question of the insurers' duty to defend is a live controversy properly before the court. Accordingly, the individual Defendants' motion to dismiss will be denied, and their motion to stay will be granted with respect to the duty to indemnify and denied with respect to the duty to defend.


         Plaintiffs call on the court to exercise jurisdiction pursuant to the Declaratory Judgment Act (“DJA”), 28 U.S.C. § 2201. That Act does not itself confer jurisdiction upon the courts. “[A] suit brought under the Act must state some independent source of jurisdiction, such as the existence of diversity or the presentation of a federal question.” Borden v. Katzman, 881 F.2d 1035, 1037 (11th Cir. 1989) (citing Skelly Oil Co. v. Phillips Co., 339 U.S. 667 (1950)). Here, that source is diversity jurisdiction pursuant to 28 U.S.C. § 1332. Plaintiffs are citizens of Florida, Texas, and New Jersey; Defendant Four Four is a citizen of Alabama (see Doc. # 11); the individual Defendants are also citizens of Alabama; and the amount in controversy exceeds $75, 000. The parties do not contest personal jurisdiction or venue.

         Of course, diversity alone is not enough; as the DJA itself makes clear, jurisdiction is proper only if there exists an “actual controversy.” 28 U.S.C. § 2201(a). As pertinent here, that requires the dispute to be ripe for adjudication. See Lake Carriers' Ass'n v. MacMullan, 406 U.S. 498, 505 (1972). The individual Defendants dispute that the litigation is ripe and move for dismissal pursuant to Federal Rule of Civil Procedure 12(b)(1). (They also move for Rule 12(b)(6) dismissal, though that argument is based on lack of ripeness as well. (Doc. # 41, at 1-2.)) The question for the court is “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941).


         For various periods of time between 2011 and 2015, each of the plaintiff insurance companies issued a commercial general liability insurance policy to a non-party company called Ballard Realty. In those policies, Ballard listed Defendant Four Four as an additional insured. Four Four was in the apartment business and owned the Eagle Landing Apartments in Montgomery, Alabama. In April 2016, residents of the complex sued Four Four in Alabama state court, claiming damages from mold, pest infestations, and various other conditions at Eagle Landing. That action is ongoing in the Circuit Court of Montgomery County. See Addams, . v. CityR Eagle Landing, LLC, ., Circuit Court of Montgomery County, No. 03-CV-2016-000202.00.

         The individual Defendants here are some, though not all, of the plaintiffs there. (It depends whether they were residents of the complex during a period of coverage by a plaintiff.) Four Four is a defendant in both actions. None of the insurance companies is a party to the state-court proceeding. They were notified of the suit on April 12, 2016, and within a month advised Ballard Realty and Four Four that they disputed coverage. They are providing Four Four with a defense pursuant to a reservation of rights. (Doc. # 19, at 14.)

         Associated and United filed suit against Four Four in separate actions in federal court on February 21, 2017. Both sought declaratory judgments that they had “no duty to defend or indemnify Four Four from the allegations of the underlying complaint.” (Doc. # 19, at 22.) They amended their complaints to include the individual Defendants on November 28, 2017 (Associated) and November 17, 2017 (United). Maiden filed its suit on November 8, 2017, and the three actions were consolidated on January 11, 2018.

         Prior to amending their federal-court claims, but after initially filing suit, Associated and United moved to intervene in the state-court proceeding. (See Doc. # 67-1, at 26.) As they wrote there, they did so “for the limited purpose of participating in discovery and submitting special interrogatories and/or a special verdict form to the jury only after the jury has deliberated and returned a verdict in this case and only if the jury returns a verdict in favor of the Plaintiff[s] in this case against Defendant Four Four, LLC.” (Doc. # 67-1, at 26.) The insurers clarified that they were not seeking a bifurcated trial proceeding, as allowed by the Alabama Supreme Court in Universal Underwriters Insurance Co. v. Anglen, 574 So.2d 716 (Ala. 1990) (“Universal I”), but were requesting the opportunity to participate in discovery and submit special interrogatories to the jury as needed. (Doc. # 67-1, at 31.)

         The state-court plaintiffs opposed the intervention. They argued (1) that the issue of coverage and the issue of liability were wholly separate and should not be combined; (2) that the insurers had rejected the Universal I bifurcated trial alternative and should not be able to proceed under a different theory; and (3) that the insurers should be estopped from intervening because their declaratory judgment actions were pending in federal court.[3] (Doc. # 67-1, at 36-41.) The state court denied intervention.

         The individual Defendants now move to dismiss the insurers' declaratory judgment actions.


         The individual Defendants make three arguments in their motion to dismiss. First and second, they assert that the court lacks subject-matter jurisdiction because the indemnification issue is unripe and the duty to defend issue is moot. And third, they contend that, even if the court does have jurisdiction, it should decline to exercise it. Each of these arguments will be addressed in turn.

         A. ...

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