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NEW: Declaratory Judgment Actions in Federal Court

Updated: Jun 20, 2022

Federal courts are often the venue chosen for the resolution of insurance coverage disputes. A decision on those issues impacts not only the insurer and the insured but also the claimant, as insurance coverage may be the only viable means of collecting any judgment (or to achieving any settlement). There has been some confusion as to whether a federal court should exercise its jurisdiction to resolve a coverage claim where doing so necessarily involves analysis or decision that could impact an underlying state court action.

A recent decision by the Eleventh Circuit encourages district courts to review all the issues before them when deciding whether to exercise jurisdiction rather than declining based on one issue alone.

Some background (or review for those familiar):

  • The U.S. Supreme Court has held that federal courts have a “virtually unflagging obligation” to exercise the jurisdiction that Congress has conferred to them. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976).

  • But the Declaratory Judgment Act provides that in “a case of actual controversy…any court of the United States...may declare the rights and legal relations of any interested party seeking such declaration.” 28 U.S.C. §2201(a)(emphasis added). So, federal courts have discretion on whether to hear declaratory judgment actions.

  • The Eleventh Circuit previously provided some guideposts for a district court to consider when deciding whether to exercise jurisdiction over a declaratory judgment action with overlapping concurrent state court proceedings. Ameritas Variable Life Ins. Co. v. Roach, 422 F.3d 1328, 1331 (11th Cir. 2005)(the Ameritas guideposts). Nevertheless, the application of the guideposts was unclear where a federal declaratory judgment action asserts multiple claims only a few of which overlap with a pending state court case.

A recent Eleventh Circuit case brings some clarity to these issues:

  • In James River Ins. Co. v. Rich Bon Corp., 2022 WL 1616872 (11th Cir. May 23, 2022), the district court dismissed a declaratory judgment action brought by an insurer because its decision would interfere with an underlying state court action against the insured.

  • A decision would require the court to determine facts relating to the application of a policy exclusion. However, there were other claims and issues, as well.

  • The Eleventh Circuit reversed finding that the district court abused its discretion.

  • The Eleventh Circuit noted that when district courts decide to proceed with declaratory judgment actions that also involve disputed issues in state court actions, “they are called to balance conflicting interests—to foster efficient dispute resolution while still preserving the States’ interest in resolving issues of state law in their own courts.” Id. at *2.

  • The Court further noted that an Ameritas analysis is a “totality-of-the-circumstances analysis” that must consider every claim in considering “cases as a whole.” Id. The district court determined that the policy exclusion claim had a “close nexus” with the State’s public policy and thus that the State was in a better position to resolve the overlapping factual issues but it did not analyze the other claims made. The Eleventh Circuit found that this “lopsided analysis was unreasonable.” Id. It reversed and remanded the case for further proceedings consistent with its opinion.

Regardless whether you believe the impact of this clarity will be good or bad for you and your clients, it is good to know.

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