Federal Court Should Not Conflict With State Court Action

Post 5432

Posted on August 24, 2026 by Barry Zalma

New Mexico State Lawsuits Cannot be Confused with a Federal Declaratory Relief Action

In Old Guard Insurance Co. v. Rudolfo Rodriguez; Emilio Pinon; et al, The City Of Albuquerque; Mayor Tim Keller; Jesse Valdez; And Consolidated Builders Of New Mexico et al., No. 1:26-cv-00073-MIS-JMR, United States District Court, D. New Mexico (August 18, 2026), Old Guard Insurance sought a federal declaratory judgment that it owed no duty to defend or indemnify Consolidated Builders and related defendants in asbestos-related New Mexico state lawsuits arising from renovation work at Albuquerque’s Gibson Health Hub/Gateway Center.

FACTS

On January 15, 2026, Old Guard filed the instant lawsuit seeking a declaration that there is no coverage for various asbestos-related claims under the Policy

Old Guard initially denied coverage to Consolidated Builders when the underlying state suits were filed, but reversed its denial of coverage on May 19, 2025, and began supporting Consolidated in all of the personal injury suits and the City’s breach of contract suit.

The district court declined to exercise jurisdiction under the Declaratory Judgment Act and the Tenth Circuit’s precedent, concluding that the state proceedings were the better forum because the federal action would not fully resolve the parties’ coverage dispute, could create friction with ongoing state litigation, and involved duty-to-defend and duty-to-indemnify issues better resolved in the consolidated state actions.

Old Guard issued commercial general liability and umbrella policies to Consolidated Builders, which performed renovation work at the Gibson Health Hub/Gateway Center. Multiple state-court plaintiffs alleged they were exposed to asbestos and other hazardous materials during the project. The City also sued Consolidated Builders for contractual defense and indemnity, later adding Old Guard. Old Guard filed this federal declaratory judgment action seeking a ruling that asbestos-related claims were excluded from coverage.

LAW:

Under the Declaratory Judgment Act, federal courts may declare parties’ rights but are not required to do so. The court considered whether the declaratory action would settle the controversy, clarify legal relations, constitute procedural fencing, increase friction with state courts, and whether a better alternative remedy existed. New Mexico law also treats the duty to defend as broader than and distinct from the duty to indemnify, with doubts about potential coverage resolved in favor of the insured at the defense stage.

Discussion/Analysis:

The court found that a federal declaration focused on the asbestos exclusion would not fully settle the parties’ dispute because the underlying complaints also referenced other hazardous substances and theories that might implicate coverage outside the asbestos exclusion. Although the court found insufficient evidence of procedural fencing, it concluded that exercising jurisdiction would risk friction with New Mexico courts because the state actions were already consolidated, involved overlapping facts, and could resolve coverage-related issues more effectively. The court emphasized New Mexico’s preference for resolving exclusion and duty-to-defend issues in the primary litigation when factual development may be necessary.

CONCLUSION:

Here, given the consolidation of the tort cases, the significant time that has already been spent in the litigation process, and the fact that the same judge presides over all the consolidated tort cases and the City’s action against Consolidated and Old Guard, the Court found that refraining from exercising jurisdiction is appropriate at this juncture and the best remedy rests with the state court actions. Even if the Court were to declare Old Guard had no duty to defend or indemnify with respect to the asbestos policy, there are other facts mentioned in the underlying complaints that potentially fall outside asbestos exclusion provision.

As such the declaratory judgment action at issue here would still leave controversy and not resolve all potential claims, nor does it place the Court in a position to fully clarify the legal relations at issue. The federal court granted defendants’ motions to dismiss, declined to proceed with Old Guard’s declaratory judgment action, and closed the case.

ZALMA OPINION

Federal Courts refuse to screw with state court actions. The case brought to federal court covered many of the issues pending in New Mexico State Court and that is why the USDC dismissed the federal action to avoid contradictory judgments and to accept the fact that the state court was capable of dealing with the insurance issues. The USDC found that exercising jurisdiction would risk friction with New Mexico courts because the state actions were already consolidated, involved overlapping facts, and could resolve coverage-related issues more effectively.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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