Federal Court Retains Jurisdiction on Insurance Coverage Issue
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Posted on January 26, 2022 by Barry Zalma
After an automobile collision in which James Bryant (“Bryant”) was driving a vehicle owned by RSS, LLC, and Steven Hughes (“Hughes”), and hit Glynn Allan Smith (“Smith”) (collectively “Defendants”) resulted in an insurance coverage claim. The vehicle was insured by Auto-Owners Insurance Company (“Auto-Owners” or “Plaintiff”), which claims there is no coverage because Bryant was not a permissive driver. Smith filed a Motion to Dismiss asking the Court to abstain from exercising jurisdiction over this matter pursuant to Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 377 (4th Cir. 1994) because among others reasons, there is a potential for unnecessary entanglement between this action and the personal injury action pending in State Court. The USDC, in Auto-Owners Insurance Company v. Glynn Allan Smith; RSS, LLC; Steven Hughes; and James Bryant, No. 4:21-cv-03693-JD, United States District Court, D. South Carolina, Florence Division (January 19, 2022), found it proper to resolve the insurance coverage issue.
BACKGROUND
The underlying State Court case arises from injuries suffered by Smith arising out of a motor vehicle collision. AutoOwners issued a Commercial Auto Policy (the “Policy”), to RSS, LLC, and Hughes with combined liability limits of $500,000.00 per accident. The 2005 pickup truck involved in the accident is insured under the Policy and appears as vehicle number 5 on the Declarations page. Plaintiff contends Bryant is not a scheduled driver on the Policy. Moreover, the insurer claims that “Bryant was not a scheduled driver for the subject vehicle or any vehicle [on the insurance policy] owned by the Named Insureds, nor was he authorized to drive the subject vehicle or any vehicle owned by RSS, LLC and/or Defendant Hughes.”
On August 4, 2020, Smith was hit by a vehicle driven by Bryant, when Bryant crossed the center line. The Complaint alleges Bryant was formally charged with, among other things, “Driving under suspension, license suspended for DUI – 1st offense; and . . . Driving under the Influence, less than 10, 1st offense.” Plaintiff, AutoOwners, is not a party in the State Court case as all the claims are based in tort. Plaintiffs sued seeking declaratory judgment contesting coverage to provide a defense or indemnification in the underlying State Court case.
DISCUSSION
Smith contends that facts weighs in his favor of the USDC abstaining from the case because the collision occurred in South Carolina, the Policy was issued in this State, and South Carolina has a strong interest in having its own courts interpreting South Carolina law.
This is an insurance coverage case that requires the Court to review the Policy and the applicable facts and issue a Declaratory Judgment as to the rights and responsibilities of the parties under the Policy. Federal Courts routinely adjudicate insurance policies governed by State.
Smith also asserted that this case can efficiently be resolved in the pending State Court case because the alleged coverage issue is being litigated in the underlying State Court case, which has been litigated for over a year. However, a review of the underlying State Court case indicates that resolution of this case in State Court would not be more efficient.
Plaintiff is not a party to the underlying State Court case. Additionally, as the underlying State Court case concerns tort issues while this case involves contract issues, the issues in each case are different.
Smith, in addition, contended that there exists the potential for entanglement between the State Court and this Court because AutoOwner’s obligations under the Policy will be addressed and litigated in the underlying State Court case. Entanglement occurs where many of the issues of law and fact sought to be adjudicated in the federal action are already being litigated by the same parties in the related state court action.
Entanglement is unlikely because the Auto-Owner’s contract dispute will not be adjudicated in the Underlying State Court case. Thus, no issues regarding AutoOwner’s rights or obligations are likely to be resolved in that action because the underlying State Court claims (i.e., negligence, vicarious liability etc . . .) do not relate to the USDC’S coverage determination. If the USDC determines during the course of litigation that it needs to wade into fact-finding in a manner that would impede upon the questions being considered by the State Court in the underlying case, the Court reserved its right to revisit this order and decide to abstain from hearing the case.
Lastly, in considering the last factor, the USDC found that this case is not being used merely as a device for procedural fencing. Accordingly, the Court found that the declaratory relief sought will serve a useful purpose in clarifying and settling the legal relations in issue, and will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.
For the foregoing reasons, the USDC decided to exercise jurisdiction over this case; and therefore, Smith’s Motion to Dismiss is denied.
ZALMA OPINION
A declaratory relief action has no relationship to a tort action. If AutoOwners is correct – and it appears so – that it owes neither defense nor indemnity to the defendant unlicensed driver it is entitled to seek a quick, simple and direct action in federal court to determine if it is correct in its conclusion that it owes neither defense nor indemnity to Byrant.
© 2022 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
Subscribe to “Zalma on Insurance” at https://zalmaoninsurance.locals.com/subscribe and “Excellence in Claims Handling” at https://barryzalma.substack.com/welcome.
You can contact Mr. Zalma at https://www.zalma.com, https://www.claimschool.com, [email protected] and [email protected] . Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
You may find interesting the podcast “Zalma On Insurance” at https://anchor.fm/barry-zalma; you can follow Mr. Zalma on Twitter at; you should see Barry Zalma’s videos on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; or videos on https://rumble.com/zalma. Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims–library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/
Jury’s Findings Interpreting Insurance Contract Affirmed
Post 5105
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Madelaine Chocolate Novelties, Inc. (“Madelaine Chocolate”) appealed the district court’s judgment following a jury verdict in favor of Great Northern Insurance Company (“Great Northern”) concerning storm-surge damage caused by “Superstorm Sandy” to Madelaine Chocolate’s production facilities.
In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
Great Northern refused to pay the full claim amount and paid Madelaine Chocolate only about $4 million. In disclaiming coverage, Great Northern invoked the Policy’s flood-exclusion provision, which excludes, in relevant part, “loss or damage caused by ....
Failure to Name a Party as an Additional Insured Defeats Claim
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Contract Interpretation is Based on the Clear and Unambiguous Language of the Policy
In Associated Industries Insurance Company, Inc. v. Sentinel Insurance Company, Ltd., No. 23-CV-10400 (MMG), United States District Court, S.D. New York (June 16, 2025) an insurance coverage dispute arising from a personal injury action in New York State Supreme Court.
The underlying action, Eduardo Molina v. Venchi 2, LLC, et al., concerned injuries allegedly resulting from a construction accident at premises owned by Central Area Equities Associates LLC (CAEA) and leased by Venchi 2 LLC with the USDC required to determine who was entitled to a defense from which insurer.
KEY POINTS
Parties Involved:
CAEA is insured by Associated Industries Insurance Company, Inc. ...
Exclusion Establishes that There is No Duty to Defend Off Site Injuries
Post 5103
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Attack by Vicious Dog Excluded
In Foremost Insurance Company, Grand Rapids, Michigan v. Michael B. Steele and Sarah Brown and Kevin Lee Price, Civil Action No. 3:24-CV-00684, United States District Court, M.D. Pennsylvania (June 16, 2025)
Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
Presently before the Court are two ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
