Gen. Star Indem. Co. v. Condustrial, Inc.

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General Star Indemnity Company, Plaintiff, v. Condustrial, Inc., et al., Defendants.

Civil Action No. 2:22-3811-RMG

United States District Court, D. South Carolina, Charleston Division

January 25, 2023

ORDER AND OPINION

Richard Mark Gergel, United States District Judge

Before the Court is Defendant Condustrial, Inc. (“Condustrial” or “Insured”)'s motion to dismiss. (Dkt. No. 20). For the reasons set forth below, Defendant's motion is denied.

Background

Plaintiff General Star Indemnity Company (“Insurer”) brings this declaratory judgment action regarding the rights and obligations under a policy of insurance issued by Insurer to Insured in connection with an underlying action filed by Defendant Tawanna Gamble, as Personal Representative of the Estate of Richard Lee Lance.

In Gamble v. Southern Health Partners, Inc., et al. 2022-CP-0155 (Dkt. No. 15-2) (amended complaint filed in South Carolina state court on November 15, 2022) (the “Underlying Action”), Gamble alleges that Richard Lee Lance (“Decedent”) was “arrested and transported to the Georgetown County Detention Center” on September 8, 2022. (Id. ¶ 12). Gamble alleges Insured provided “healthcare services within county correctional facilities.” See (id. ¶¶ 4, 5) (alleging LPN Falkenhagen was an employee/independent contractor of Insured and “was responsible for providing nursing care to” Decedent); (Id. at 20-23) (affidavit of Medical Malpractice Case expert Dr. Edward O'Bryan III, M.D. stating that after reviewing “the records submitted to me . . . the medical staff working within Georgetown County Detention Center committed” various acts of negligence). Gamble alleges Decedent began experiencing symptoms of opioid withdrawal, was not properly treated, and subsequently died. (Dkt. No. 15-2 at 4-9). Against Insured, Gamble brings claims for (1) Negligence/Medical Malpractice/Survival and (2) Negligence/Medical Malpractice/Wrongful Death. Gamble seeks punitive damages. (Id. at 9-13, 16).

On November 1, 2022, Insurer commenced this action (the “Federal Action”). Per its amended complaint, Insurer seeks declarations that under the policy it issued to Insured-Policy No. IJG932123 (the “Policy”)-it has: (1) no duty to defend or indemnify per the Locations Endorsement; (2) no duty to defend or indemnify per the Designated Professional Services Limitation Endorsement; and (3) no duty to indemnify Insured for any punitive damages per the Punitive Damages Exclusion. (Dkt. No. 15).

On December 21, 2022, Insured moved to dismiss this action. (Dkt. No. 20). On January 3, 2023, Insurer filed a response in opposition. (Dkt. No. 22).

Insured's motion is fully briefed and ripe for disposition.

Legal Standard

Federal courts are courts of limited jurisdiction. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005). Standing and ripeness are jurisdictional issues that courts must consider on their own initiative. See FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 230-31 (1990); National Park Hospitality Ass'n v. Dep't of Interior, 538 U.S. 803, 808 (2003). Standing requires a plaintiff to allege a concrete injury that is “actual or imminent, not ‘conjectural' or ‘hypothetical[.]'” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1990) (quoting Whitmore v. Arkansas, 495 U.S. 149, 155 (1990)). Ripeness determines when a case or controversy is fit for federal judicial review. Abbott Labs. v. Gardner, 387 U.S. 136, 148-49 (1967).

Even when standing and subject matter jurisdiction exist, a court has discretion to decide whether to exercise jurisdiction in declaratory judgment actions.

Under the Declaratory Judgment Act, a district court, in “a case of actual controversy within its jurisdiction ... may declare the rights and other legal relations of any interested party seeking such declaration.” 28 U.S.C. § 2201(a) (emphasis added). This Act gives federal courts discretion to decide whether to declare the rights of litigants ... Rather than grant litigants a right to judgment in their case, it merely permits the courts to hear those cases.

Trustgard Ins. Co. v. Collins, 942 F.3d 195, 201 (4th Cir. 2019) (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 286-87 (1995)). “In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration.” Wilton, 515 U.S. at 288. When an ongoing proceeding in state court overlaps with a federal declaratory judgment action, courts must particularly consider whether “federalism, efficiency, and comity” counsel against exercising jurisdiction. Trustgard, 942 F.3d at 202. In making this determination, courts look to (1) the state's interest in having its own courts decide the issue; (2) the state courts' ability to resolve the issues more efficiently than the federal courts; (3) the potential for unnecessary entanglement between the state and federal courts based on overlapping issues of fact or law; and (4) whether the federal action is mere forum-shopping. Id. (citing Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 376 (4th Cir. 1994), abrogated in part on other grounds by Wilton v. Seven Falls Co., 515 U.S. 277 (1995)) (the “Nautilus factors”).

Analysis

Relevant here, the Policy defines a “medical incident,” in pertinent part, as “any act, error or omission, or a series of related acts, errors or omissions, in the providing of or failure to provide professional services ....” (Dkt. No. 15-1 at 15). The Policy defines “professional services” to mean “services performed in the treatment or care of any person, including medical . . . other professional healthcare services, including . . . furnishing of food, beverages, medications, or equipment or appliances in connection with such treatment or care ” (Id. at 16). The Policy contains several endorsements which modify coverage including a Limitation of Coverage to Specified Locations Endorsement (the “Locations Endorsement”). (Id. at 29-31) (stating “Coverage as is afforded by the terms and conditions of this policy shall apply only with respect to the Named Insured's owners of, or Professional Services conducted at, the following locations” and providing a chart listing 21 facilities). Similarly, the Policy also contains a Designated Professional Services Limitation Endorsement, which limits coverage of medical incidents to “Nurse (RN and LPN) Staffing at scheduled correctional facilities.” (Id. at 28). The amended complaint in the Federal Action alleges Georgetown County Detention Center is not listed on the Location Endorsement. With the above in mind, the Court turns to Insured's motion to dismiss.

Insured moves to dismiss the Federal Action on two bases. First, Insured argues this court lacks Article III jurisdiction to hear this case while the Underlying Action is pending. (Dkt. No. 20 at 1-2). Second, Insured argues the Court should exercise its discretion and decline to hear this action per Nautilus.

As to Article III jurisdiction, Insured argues that Trustgard requires dismissal of this lawsuit because “suits about the duty to indemnify [are] ordinarily advisory when the insured's liability remains undetermined.” (Dkt. No. 20 at 1) (emphasis added) (citing Trustgard, 942 F.3d at 200). Insured argues that because each of Insurer's cause of action seeks a declaration regarding the duty to indemnify, and because the Underlying Action is ongoing, this Court lacks “subject matter jurisdiction.” (Id. at 2). Insured does not dispute, however, that Insurer explicitly seeks an initial declaration as to its duty to defend. See (id.).

In Trustgard, an insurer sought a declaratory judgment delineating its duty to indemnify. 942 F.3d at 197. The Fourth Circuit vacated the district court's declaratory judgment, finding that the district court abused its discretion when it assumed jurisdiction under the Declaratory Judgment Act. Id. It concluded, applying the Nautilus factors, that considerations of comity and judicial efficiency weighed strongly in favor of permitting the state court to address the relationship among the various parties. Id. at 204. The Fourth Circuit emphasized that the declaratory judgment precluded a state court from considering certain issues, required a federal court to extensively analyze state law, and resulted in duplicative discovery. Id. at 202-04.

The Fourth Circuit also questioned the existence of Article III jurisdiction. First, it doubted that the insurer plaintiff had standing. Id. at 200. The Fourth Circuit characterized the insurer's alleged injury as potentially “guarantee[ing] a future judgment” against the insured and described it as “hypothetical and contingent” because the injury may or may not occur depending on the outcome of the state lawsuit. Id. Second, it considered the suit unripe for adjudication. Id. Since the state court had not determined the insured defendant's liability, a federal suit adjudicating the insurer plaintiff's duty to indemnify would be advisory. Id. As a result, the Fourth Circuit advised that “courts should exercise their discretionary jurisdiction with caution when doing so would raise serious questions about Article III jurisdiction[.]” Id. at 202.

The Court finds Trustgard inapposite and denies Insured's motion on this point. Trustgard did not address a court's ability to adjudicate an insurer's duty to defend and explicitly concerned the duty to indemnify where underlying factual questions remained unresolved. Id. at 200 (noting “we distinguished duty-to-defend cases that addressed who was required to pay the costs of defending a suit prior to judgment. Thus, suits about the duty to indemnify-unlike the duty-to-defend suits-would ordinarily be...