Contract Interpretation is a Matter of State Law
Post 4918
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Lititz Mutual Insurance Company sought a declaratory judgment that it is under no obligation to defend or indemnify Steve Wilson in the underlying/related action. The USDC issued a rule to show cause why the instant case should not be dismissed for lack of subject matter jurisdiction.
In Lititz Mutual Insurance Co. v. Steve D. Wilson, et al., No. 5:24-cv-0155, United States District Court, E.D. Pennsylvania (October 22, 2024) the court resolved the question of subject matter jurisdiction.
BACKGROUND
Steve Wilson is an insured under a homeowner’s policy issued by Lititz Mutual Insurance Company. Lititz, sued Wilson seeking a declaratory judgment that it is under no obligation to defend or indemnify him pursuant to that policy in the underlying/related action.
The Complaint premised the Court’s jurisdiction on 28 U.S.C. § 2201 and because Plaintiffs in the underlying matter allege violations of the United States Constitution.
Lititz moved for Summary Judgment arguing that there exists no issue of material fact that the underlying claims arose outside of the Policy period and that the Policy excludes coverage for the intentional acts alleged in the underlying suit.
Analysis – The Court has no subject matter jurisdiction over this suit.
Lititz bears the burden of proving subject matter jurisdiction exists.
In its Complaint, Lititz seeks two counts of declaratory relief. However, the Declaratory Judgment Act does not provide an independent basis for subject-matter jurisdiction; it merely defines a remedy. The controversy must have its own jurisdictional basis.
Lititz invoked federal question jurisdiction because Plaintiffs in the underlying matter allege violations of the United States Constitution. In the declaratory judgment context, federal courts have regularly taken original jurisdiction over suits in which, if the declaratory judgment defendant brought a coercive action to enforce its rights, that suit would necessarily present a federal question.
However, there is no federal question where, in a hypothetical suit bringing a coercive action to enforce his rights, Wilson would be asserting a state law breach of contract claim against Lititz, not violations of the United States Constitution.
Since breach of contract does not arise under the Constitution or any federal law, Lititz failed to establish federal question jurisdiction.
Special Limited Federal Question
In special and limited federal question cases, explaining that federal jurisdiction over a state law claim will lie if a federal issue is:
necessarily raised,
actually disputed,
substantial, and
capable of resolution in federal court without disrupting the federal-state balance approved by Congress.
The question faced by the court is “would the hypothetical breach of contract suit necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities?” The USDC held that it does not.
Lititz’s first argument is that the conduct alleged in the underlying complaint occurred before the policy was in effect. This plainly does not necessarily raise a federal question. It is simply a matter of timing regarding the intended harm exclusion.
Contract interpretation is a matter of state law and thus does not necessarily raise a federal issue. Resolving the hypothetical breach of contract suit does not turn on substantial questions of federal law, it merely requires comparing the four corners of the insurance contract to the four corners of the complaint.
In this context, that would require a court to determine whether Wilson’s alleged actions were expected or intended within the meaning of the policy exclusion, not whether a constitutional violation occurred.
Since Lititz failed to establish the Court’s subject matter jurisdiction over the case, it was dismissed.
ZALMA OPINION
Insurance companies seem to prefer dispute resolution to happen in federal court. Lititz failed to allege facts that would raise federal jurisdiction for its declaratory relief action. Jurisdiction was clear in any state court and this waste of time will arise in a state court shortly after this decision. The duty to defend can be resolved in state court by bringing the same cause of action where jurisdiction resides.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Concurrent Cause Doctrine Does Not Apply When all Causes are Excluded
Post 5119
Death by Drug Overdose is Excluded
See the full video at https://lnkd.in/geQtybUJ and at https://lnkd.in/g_WNfMCZ, and at https://zalma.com/blog plus more than 5100 posts.
Southern Insurance Company Of Virginia v. Justin D. Mitchell, et al., No. 3:24-cv-00198, United States District Court, M.D. Tennessee, Nashville Division (October 10, 2024) Southern Insurance Company of Virginia sought a declaratory judgment regarding its duty to defend William Mitchell in a wrongful death case pending in California state court.
KEY POINTS
1. Motion for Judgment on the Pleadings: The Plaintiff moved for judgment on the pleadings, which was granted in part and denied in part.
2. Duty to Defend: The court found that the Plaintiff has no duty to defend William Mitchell in the California case due to a specific exclusion in the insurance policy.
3. Duty to Indemnify: The court could not determine at this stage whether the Plaintiff had a duty to ...
GEICO Sued Fraudulent Health Care Providers Under RICO and Settled with the Defendants Who Failed to Pay Settlement
See the full video at https://lnkd.in/gDpGzdR9 and at https://lnkd.in/gbDfikRG, and at https://zalma.com/blog plus more than 5100 posts.
Post 5119
Default of Settlement Agreement Reduced to Judgment
In Government Employees Insurance Company, Geico Indemnity Company, Geico General Insurance Company, and Geico Casualty Company v. Dominic Emeka Onyema, M.D., DEO Medical Services, P.C., and Healthwise Medical Associates, P.C., No. 24-CV-5287 (PKC) (JAM), United States District Court, E.D. New York (July 9, 2025)
Plaintiffs Government Employees Insurance Company and other GEICO companies (“GEICO”) sued Defendants Dominic Emeka Onyema, M.D. (“Onyema”), et al (collectively, “Defendants”) alleging breach of a settlement agreement entered into by the parties to resolve a previous, fraud-related lawsuit (the “Settlement Agreement”). GEICO moved the court for default judgment against ...
ZIFL – Volume 29, Issue 14
Post 5118
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You can read the full 20 page issue of the July 15, 2025 issue at https://lnkd.in/giaSdH29
THE SOURCE FOR THE INSURANCE FRAUD PROFESSIONAL
This issue contains the following articles about insurance fraud:
The Historical Basis of Punitive Damages
It is axiomatic that when a claim is denied for fraud that the fraudster will sue for breach of contract and the tort of bad faith and seek punitive damages.
The award of punitive-type damages was common in early legal systems and was mentioned in religious law as early as the Book of Exodus. Punitive-type damages were provided for in Babylonian law nearly 4000 years ago in the Code of Hammurabi.
You can read this article and the full 20 page issue of the July 15, 2025 issue at https://zalma.com/blog/wp-content/uploads/2025/07/ZIFL-07-15-2025.pdf
Insurer Refuses to Submit to No Fault Insurance Fraud
...
Rulings on Motions Reduced the Issues to be Presented at Trial
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CASE OVERVIEW
In Richard Bernier v. State Farm Mutual Automobile Insurance Company, No. 4:24-cv-00002-GMS, USDC, D. Alaska (May 28, 2025) Richard Bernier made claim under the underinsured motorist (UIM) coverage provided in his State Farm policy, was not satisfied with State Farm's offer and sued. Both parties tried to win by filing motions for summary judgment.
FACTS
Bernier was involved in an auto accident on November 18, 2020, and sought the maximum available UIM coverage under his policy, which was $50,000. State Farm initially offered him $31,342.36, which did not include prejudgment interest or attorney fees.
Prior to trial Bernier had three remaining claims against State Farm:
1. negligent and reckless claims handling;
2. violation of covenant of good faith and fair dealing; and
3. award of punitive damages.
Both Bernier and State Farm dispositive motions before ...
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 ...
