Hail Claim – Declaratory Judgment

Burleson lawyers handling hail damage claims will know that insurance companies try to get cases into Federal Court. The US District Court, Northern District of Texas, Dallas Division issued an opinion in a case, illustrative of this tactic. The style of the case is, Tudor Insurance Company, et al. v. Ocotillo Real Estate Investments I, LLC.
This is declaratory judgment action in which Tudor and Lexington Insurance Company seek a declaration that they have no duty to provide coverage to Ocotillo for losses resulting from alleged hail damage to Ocotillo’s property. In its motion to dismiss, Ocotillo argues that because it has filed a state court action that will resolve all issue between the parties, the Court should abstain from considering this case.
Ocotillo filed the State Court Action on August 1, 2014. In the State Court Action, Ocotillo alleges claims against Carriers and additional defendants for violations of the Texas Insurance Code, violations of the Texas Deceptive Trade Practices Act, breach of contract, and negligence. Carriers timely removed the State Court Action. By separate order of this date, the Court denied the motion to remand on the grounds that Ocotillo had improperly joined in-state defendants.
The question of whether a declaratory judgment action is justiciable generally turns on whether an “actual controversy” exists. “As a general rule, an actual controversy exists where ‘a substantial controversy of sufficient immediacy and reality between parties having adverse legal interests.
There can be little question that an actual controversy exists in this case. The threat of litigation, if specific and concrete, can indeed establish a controversy upon which declaratory judgment can be based. According to Ocotillo, it “notified the Carriers that it intended to a file a lawsuit against them” and “sent emails to counsel for the Carriers asking if they were authorized to accept service for their clients.” Moreover, Ocotillo does not dispute the justiciability of this action. Accordingly, the Court concluded that a justiciable controversy exists.
It is now well-settled in the Fifth Circuit that a district court has discretion over whether to decide or dismiss a declaratory judgment action.” In exercising this discretion, a court should consider several nonexhaustive factors:
(1) whether there is a pending state action in which all of the matters in controversy may be fully litigated;
(2) whether the plaintiff filed suit in anticipation of a lawsuit filed by the defendant;
(3) whether the plaintiff engaged in forum shopping in bringing the suit;
(4) whether possible inequities in allowing the declaratory plaintiff to gain precedence in time or to change forums exist;
(5) whether the federal court is a convenient forum for the parties and witnesses;
(6) whether retaining the lawsuit would serve the purposes of judicial economy; and
(7) whether the federal court is being called on to construe a state judicial decree involving the same parties and entered by the court before whom the parallel state suit between the same parties is pending.
The Court concluded, after weighing all the factors, that dismissal was improper in this case.
First, there is no parallel state action currently pending. As previously discussed, Carriers removed the State Court Action, and the Court denied Ocotillo’s motion to remand that case. That case was currently pending in this Court. As the Fifth Circuit has stated, “the lack of a pending parallel state proceeding . . . is a factor that weighs strongly against dismissal.” However, because the Fifth Circuit has not adopted a per se rule that a Court must hear a declaratory judgment action in the absence of a parallel state action, the Court turned to the remaining factors.
Second, Ocotillo asserts that Carriers filed this action in anticipation of Ocotillo’s State Court Action. Even if Carriers did so, a declaratory action is an appropriate and recognized method of resolving an insurance coverage dispute. Moreover, federal declaratory judgment suits are routinely filed in anticipation of other litigation. Merely filing a declaratory judgment action in a federal court with jurisdiction to hear it, in anticipation of state court litigation, is not in itself improper anticipatory litigation or otherwise abusive forum shopping. In fact, a “specific and concrete” threat of litigation can in some cases make a declaratory action justiciable in the first place. Carriers’ filing of this suit, even if it anticipated a later filing by Ocotillo, is thus not improper or illegitimate. This factor, then, points toward retaining the action.
Third, there is no evidence that Carriers engaged in improper forum shopping. Ocotillo has not indicated why Carriers would have a strategic advantage in this action as opposed to another action. Moreover, this Court, like the state court, will apply Texas state law to this case. Because there is no evidence of forum shopping, the third factor suggests that the Court should not dismiss this case.
Fourth, there is no evidence of possible inequities in allowing Carriers to proceed in this forum. The fact that Carriers filed suit before Ocotillo did does not give them an unfair advantage. Ocotillo has identified no reason why proceeding here would somehow prejudice it. This factor favors retaining the case.
Fifth, this Court provides a convenient forum for the parties and witnesses. The dispute involves property located in Rowlett, Texas, which is part of the Dallas Division of the Northern District of Texas. This factor, then weighs in favor of Carriers.
Sixth, retaining this case would serve the purposes of judicial economy. The previous State Court Action was removed and is currently pending in this Court. As discussed below, this Order consolidates the previous State Court Action and this action. Therefore, retaining the suit would not waste judicial resources as both cases will be litigated in the same forum before the same judge.
Seventh, the Court is not being called on to construe a state judicial decree involving the parties from a parallel action. This factor thus points toward not dismissing the lawsuit. In conclusion, the factors weigh in favor of retaining the case.