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Capitol Specialty Insurance Corp. v. Tayworsky LLC

United States District Court, S.D. West Virginia, Charleston Division

April 20, 2018

CAPITOL SPECIALTY INSURANCE CORPORATION, Plaintiff,
v.
TAYWORSKY LLC, et al, Defendants.

          MEMORANDUM OPINION AND ORDER

          THOMAS E. JOHNSTON, CHIEF JUDGE

         Pending before the Court are Defendant Melissa Dawn Tate's (“Tate”) Motion to Dismiss Pursuant to Rule 12(b)(1) or in the Alternative, Motion to Stay, (ECF No. 46), and Motion to Dismiss for Lack of Proper Service, (ECF No. 49). For the reasons that follow, both motions are DENIED.

         I. BACKGROUND

         This is a declaratory judgment action in which Plaintiff Capitol Specialty Insurance Corporation seeks a determination of its liability insurance coverage with respect to Tate's state tort suit. That state suit, which now includes the insurance coverage dispute at issue in this matter, is pending against Defendants Kent Taylor, Matthew Dworsky, Tayworsky LLC d/b/a Monkey Barrel Bar (“Tayworsky”), Frame Electric, Inc., and now Plaintiff after the state court granted Tate's motion for leave to amend the complaint on February 28, 2018. Plaintiff here seeks a declaration that it has no duty to defend or indemnify Tayworsky in that related litigation.

         Tate's state court claims against Tayworsky and the other Defendants arise from a gunshot wound she suffered while patronizing the Monkey Barrel Bar in Charleston, West Virginia, on July 4, 2015. That bar is operated by Tayworsky. Tate filed suit in the Circuit Court of Kanawha County, West Virginia, alleging that Defendants breached their duty to keep the bar in a safe condition and that her injury was a direct and proximate result of that breach. In addition to two premises liability claims, she also alleges claims of negligence and loss of consortium against the various Defendants. Tate's amended state court complaint adds Plaintiff as a named defendant in state court for the purpose of seeking declaratory relief regarding the insurance coverage dispute.

         Plaintiff initiated this action on November 23, 2016, pursuant to the Declaratory Judgment Act (“DJA”) and the Court's diversity jurisdiction, which this Court upheld as proper in a previous memorandum opinion and order entered on June 7, 2017. (ECF No. 28 at 3-6.) Plaintiff's Second Amended Complaint (“the Complaint”) filed on October 18, 2017, is the operative pleading in this matter. Plaintiff claims in the Complaint that two clauses in its provided insurance policy-an assault and battery exclusion and a liquor liability exclusion-exclude coverage for any injuries suffered by Tate. Tate filed two distinct motions to dismiss on December 18, 2017. Plaintiff responded to Tate's first motion, entitled Motion to Dismiss Second Amended Complaint Pursuant to Rule 12(b)(1), or in the Alternative, Motion to Stay, (ECF No. 46), on December 29, 2017, (ECF No. 54). Tate filed her reply on January 5, 2018. (ECF No. 57.) Plaintiff's response to Tate's second motion to dismiss based on lack of proper service, (ECF No. 49), was filed January 2, 2018, (ECF No. 55), and Tate replied on January 9, 2018, (ECF No. 58). Both motions are ripe for adjudication.

         II. DISCUSSION

         A. Abstention

         Tate's first motion, filed pursuant to Federal Rule of Civil Procedure 12(b)(1), requests that the Court abstain from exercising jurisdiction over this declaratory judgment action based on parallel state court proceedings. While “federal courts have a strict duty to exercise the jurisdiction that is conferred upon them by Congress, ” Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 716 (1996) (citation omitted), the duty is not absolute, and this Court has discretion to decline to exercise jurisdiction over declaratory judgment actions. See 28 U.S.C. § 2201 (providing that federal courts “may declare the rights and other legal relations of any interested party seeking such declaration” (emphasis added)); Centennial Life Ins. Co. v. Poston, 88 F.3d 255, 257 (4th Cir. 1996) (citing Wilton v. Seven Falls Co., 515 U.S. 277, 289 (1995)); see also Wilton, 515 U.S. at 282 (“[D]istrict courts possess discretion in determining whether . . . to entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies subject matter jurisdictional prerequisites.”). Nonetheless, a pending state action does not necessarily bar a federal suit concerning the same subject matter if the federal court has jurisdiction. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 13-19 (1983).

         Despite the Court's discretion to adjudicate declaratory judgment claims, “a district court may not refuse to entertain a declaratory judgment action out of whim or personal disinclination . . . but may do so only for good reason.” Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 375 (4th Cir. 1994) (internal quotation marks omitted) (citations omitted), abrogated on other grounds by Centennial Life Ins. Co., 88 F.3d at 257-58. If the issue before the Court involves only questions of insurance coverage, then settling the matter in this forum “will not result in a piecemeal determination of ‘the controversy, '” First Fin. Ins. Co. v. Crossroads Lounge, Inc., 140 F.Supp.2d 686, 691 (S.D. W.Va. 2001), which federal courts should seek to avoid in declaratory judgment actions. See Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937). Where “questions presented by the declaratory judgment complaint circumscribe the entire controversy between the declaratory plaintiff and the declaratory defendants, [the Fourth Circuit's decision in] Quarles will normally resolve in favor of retention of the federal action.” First Fin. Ins. Co., 140 F.Supp.2d at 692.

         As this Court previously explained, “[t]he controversy in the case at hand is limited to Plaintiff's duties to defend and indemnify Tayworsky in any tort claims arising from the shooting at Tayworsky's bar, and the Court's adjudication of the suit will not result in ‘piecemeal' litigation.” (ECF No. 28 at 7-8.) As such, “the existence of parallel state court litigation alone does not require dismissal” of this action. USF Ins. Co. v. Stowers Trucking, LLC, 684 F.Supp.2d 786, 791 (S.D. W.Va. 2010) (citing First Fin. Ins. Co., 140 F.Supp.2d at 686). Tate argues, however, that this Court should abstain from exercising its jurisdiction because the West Virginia court is where this matter “can more easily be resolved . . . .” (ECF No. 47 at 4.)

         In determining whether to abstain where an insurer seeks declaratory judgment while related litigation against the insured is ongoing in state court, the Fourth Circuit has announced four factors to guide district courts. See Mitcheson v. Harris, 955 F.2d 235, 237 (4th Cir. 1992). Those factors for the Court's consideration are the following:

(i) the strength of the state's interest in having the issues raised in the federal declaratory action decided in the state courts; (ii) whether the issues raised in the federal action can more efficiently be resolved in the court in which the state action is pending; and (iii) whether permitting the federal action to go forward would result in unnecessary “entanglement” between the federal and state court systems, because of the presence of “overlapping issues of fact or law.”

Nautilus Ins. Co., 15 F.3d at 377 (internal citations omitted) (citing Mitcheson, 955 F.2d at 237- 40). “To these three factors, Nautilus added a fourth: ‘whether the declaratory judgment action is being used merely as a device for ‘procedural fencing'-that is, to provide another forum in a race for res judicata or to achieve a federal hearing in a case otherwise not removable.'” (ECF No. 28 at 8 (quoting Nautilus Ins. Co., 15 F.3d at 376 (alterations omitted) (internal quotation marks omitted)).)

         First, the Court must consider West Virginia's interest in having this declaratory judgment action decided in its state courts. West Virginia law controls in a diversity case such as this where the issue involves the interpretation of an insurance contract, and the State has an interest in resolving questions involving its own insurance laws. See Mitcheson, 955 F.2d at 237 (“There exists an interest in having the most authoritative voice speak on the meaning of applicable law, and that voice belongs to the state courts when state law controls the resolution of the case.”). “However, federal courts routinely decide matters of state law, and the Fourth Circuit has routinely recognized that the discretion to abstain ‘may be exercised only when the questions of state law involved are difficult, complex, or unsettled.'” (ECF No. 28 at 9 (citations omitted) (quoting Great Am. Ins. Co. v. Gross, 468 F.3d 199, 211 (4th Cir. 2006)).) If the question involves the routine application of the State's insurance laws, this factor will not weigh in favor of abstention. See USF Ins. Co., 684 F.Supp.2d at 791; First Fin. Ins. Co., 140 F.Supp.2d at 696 (“[T]he Court [finds] that application of the assault and battery exclusion involves legal questions that are neither novel, unsettled, difficult, complex, nor otherwise problematic, and that the first Nautilus factor is neutral . . . .”).

         Tate argues that this first factor supports abstention because “one of the issues that must be resolved in order to resolve this declaratory judgment action is whether Plaintiff's liquor liability exclusion applies and whether it was clearly brought to the state court defendants' attention and whether they would have purchased a policy of liability for a bar with a liquor liability exclusion.” (ECF No. 47 at 6.) Conversely, Plaintiff asserts that “the issues presented in this action for declaratory judgment are not novel issues, and there are no issues at bar that have not been ruled on by West Virginia courts.” (ECF No. 54 at 6 (citations omitted).) Plaintiff further argues that Tate's focus on the liquor liability exclusion is misplaced as “it is the assault and battery exclusion which is primarily at issue in this case.” (Id.)

         The Complaint alleges that the activity central to the underlying state action is not covered by the insurance policy at issue due to the applicability of the following two exclusion provisions: the liquor liability exclusion and the assault and battery exclusion. (ECF No. 40 at 5-8 ¶¶ 22- 27.) The Court agrees with Plaintiff that the issues presented by the two provisions' possible application to the facts in this case are not novel and unsettled as Tate purports to believe.

         The Supreme Court of Appeals of West Virginia (“WVSCA”) has been clear that “the rules of construction that are applicable to contracts generally” also control insurance policies, Payne v. Weston, 466 S.E.2d 161, 166 ( W.Va. 1995), and that a “[d]etermination of the proper coverage of an insurance contract when the facts are not in dispute is a question of law” for the trial court to decide. Syl. pt. 1, Tennant v. Smallwood, 568 S.E.2d 10 ( W.Va. 2002); see also Syl. pt. 2, Riffe v. Home Finders Assocs., Inc., 517 S.E.2d 313 ( W.Va. 1999) (“The interpretation of an insurance contract, including the question of whether the contract is ambiguous, is a legal determination . . . .”). Importantly, “[t]he mere fact that parties do not agree to the construction of a contract does not ...


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