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American Western Home Insurance Co. v. Lovedy

December 15, 2006


The opinion of the court was delivered by: Magistrate Judge Lee


I. Introduction

In this action for declaratory judgment brought pursuant to 28 U.S.C. § 2201, Plaintiff American Western Home Insurance Co. ("Plaintiff") filed a motion for judgment on the pleadings [Doc. No. 11]. Defendant Smokehouse, Inc. ("Smokehouse") filed a response in opposition to Plaintiff's motion [Doc. No. 17], and Plaintiff filed a reply [Doc. No. 20]. Defendant Carroll R. Lovedy, Sr. ("Lovedy") filed no responsive pleading to Plaintiff's motion for judgment on the pleadings, but did file a motion seeking an order allowing him and his counsel to be excused from the November 7, 2006 hearing on Plaintiff's motion stating Lovedy takes no position on Plaintiff's motion [Doc. No. 22].

A hearing on Plaintiff's motion was held on November 7, 2006. Present at the hearing were: 1) Attorney Christopher H. Crain for Plaintiff and 2) Attorney Michael D. Hall for Smokehouse. At the hearing, the parties were given the opportunity to file supplemental briefs on the issue of whether the claims in the underlying action constitute an "occurrence" as defined in the policy. Both Smokehouse and Plaintiff filed a supplemental brief [Doc. Nos. 24, 25], and Plaintiff's motion is now ripe for review.

For the reasons that follow, the Court will GRANTPlaintiff's motion [Doc. No. 11] and DECLARE that Plaintiff has no duty to defend or to indemnify Smokehouse with regard to the claims brought by Lovedy in the underlying litigation pending in this Court, Lovedy v. Jim Oliver's Smokehouse Restaurant, et al., No. 4:05-CV-44 (E.D. Tenn.) (the "underlying litigation").

II. The Underlying Litigation

On July 2, 2005, a complaint was filed in the underlying litigation by Lovedy alleging Smokehouse*fn1 violated his rights under the Americans with Disabilities Act, 42 U.S.C. §§ 12101-213 ("ADA"), and the Tennessee Consumer Protection Act, Tenn. Code Ann. § 47-18-103 ("TCPA") [Doc. No. 1-1]. Lovedy alleges Smokehouse was and is the owner/operator of a public accommodation that on its website advertised it had "all the up-to-date conveniences to make your stay most comfortable . . . The lodge is newly remodeled with 85 oversized rooms." [Doc. No. 1-1, at 2, ¶ 4]. Lovedy alleges Smokehouse discriminated and continues to discriminate against him by denying him "access to, and denying full and equal enjoyment of goods, services, facilities, and/or benefits" at their place of business in violation of the ADA [id. at 3, ¶ 11]. Lovedy alleges he suffered an injury because Smokehouse is a "pubic accommodation facility" that "denies, limits, marginalizes, restricts, impedes, and/or impairs [him] in enjoying full and safe access to the public accommodation's programs, privileges, advantages, benefits and services" [id. at 3, ¶ 12]. Lovedy alleges Smokehouse discriminated against him as a result of various facility and access barriers, including: steep, blocked, and inaccessible ramps and pathways and insufficient markings and signage for disabled parking [id. at 4, ¶ 14].

Lovedy also alleges violations of the TCPA based upon the aforementioned statements allegedly from the Smokehouse website. Lovedy alleges that, despite the representations on its website, the Smokehouse made the knowing choice "not to make its facilities, programs and services accessible to" him [id. at ¶ 37]. Lovedy alleges such actions by Smokehouse "constitutes an 'unfair or deceptive act or practice"' within the meaning of the TCPA [id. at ¶ 38].

III. Declaratory Judgment

Plaintiff brought this action for declaratory judgment to determine if it has a duty to defend or to indemnify Smokehouse in the underlying litigation pursuant to the Commercial General Liability Insurance policy, number Q61002538 (the "Policy"), issued by Plaintiff to Smokehouse as its insured [Doc. No. 1-1]. The Declaratory Judgment Act provides a court "may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C § 2201 (emphasis added); accord Bituminous Cas. Corp. v. J & L Lumber Co., 373 F.3d 807, 812 (6th Cir. 2004) (citing Brillhart v. Excess Ins. Co., 316 U.S. 491, 494 (1942)). This statutory discretion is broad, but not unbounded.

The Sixth Circuit Court of Appeals ("Sixth Circuit") provides specific guidance regarding whether to hear a declaratory judgment claim, stating the district courts should consider:

(1) whether the declaratory action would settle the controversy;

(2) whether the declaratory action would serve a useful purpose in clarifying the legal relations in issue; (3) whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race for res judicata;" (4) whether the use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and (5) whether there is an alternative remedy which is better or more effective.

Grand Trunk W. R.R. Co. v. Consol. Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984).

The district court also considers three additional factors expressed by the Supreme Court in Wilton v. Seven Falls Co., 515 U.S. 277 (1995). The factors, which serve to refine the federalism-focused inquiry under the fourth factor of the above test, are: (1) whether the underlying factual issues are important to an informed resolution of the case; (2) whether the state trial court is in a better position to evaluate those factual issues than is the federal court; and (3) whether there is a close nexus between the underlying factual and legal issues and state law and/or public policy, or whether federal common or statutory law dictates a resolution of the declaratory action. Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000).

The factors set forth above apply in those situations where there is a parallel or underlying state court proceeding to the declaratory judgment action. See, e.g., id; Employer's Fire Ins. Co. v. Danis Building Construction Co., No. 99-3987, 2000 WL 1234321, * 2 (6th Cir. Aug. 22, 2000). There is, however, no requirement that a parallel proceeding be pending in a state court before a federal court should decline to exercise jurisdiction over a declaratory judgment action. Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co., 139 F.3d 419, 423 (4th Cir. 1998).*fn2

Balancing the relevant factors, the Court finds they weigh in favor of exercising jurisdiction over this declaratory judgment action. There is no parallel or underlying state court action and there is no indication there is likely to be an underlying or parallel state court action. As there is no underlying or parallel state court proceeding, there is little or no risk of conflicting or inconsistent state and federal rulings. There is no indication that allowing this declaratory judgment action to proceed would result in piecemeal litigation or that Plaintiff is using this declaratory judgment action to engage in either procedural fencing or forum shopping. Although this declaratory judgment action will not resolve the underlying litigation, it will further the underlying litigation by clarifying Plaintiff's obligations to Smokehouse in the underlying litigation. While not determinative, the Court also notes neither party objects to the Court's exercise of jurisdiction over this declaratory judgment.

It is settled a "declaratory judgment action is an appropriate avenue to determine whether an insurer has a duty to defend or indemnify an insured." TIG Ins. Co. v. Merryland Childcare and Development, No. 04-2666 B, 2005 WL 1923115, * 2 (W.D. Tenn. Aug. 4, 2005) (quoting NGK Metals Corp. v. National Union Fire Ins. Co., No. 1:04-CV-56, 2005 WL 1115925, * 2 (E.D. Tenn. Apr. 29, 2005)). Accordingly, having considered the factors set forth above both individually and weighing them as a whole, the Court ACCEPTS jurisdiction over Plaintiff's declaratory judgment action.

IV. Analysis

Plaintiff states it has provided Smokehouse with a defense under a reservation of rights and now seeks a judgment declaring it has no duty to defend or to indemnify Smokehouse for the claims made by Lovedy in the underlying litigation [Doc. No. 11 at 4]. Plaintiff also asserts there are no factual disputes concerning the provisions of the Policy and argues the claims made by Lovedy in the underlying litigation are not covered by the Policy as matter of law [id. at 5-8].

Smokehouse does not challenge Plaintiff's assertion that there are no factual disputes [Doc. Nos. 17, 18]. Instead, Smokehouse asserts the Policy covers loss of use of property and asserts Lovedy has alleged such a loss of the use of property by claiming a loss of the "use of lodging facilities; use of swimming facilities; use of parking facilities; and use of ramps and walkways" [Doc. No. 17 at 1, ¶ 2]. Relying upon the Policy and Marlin Financial & Leasing Corp. v Nationwide Mut. Ins. Co., 157 S.W.3d 796 (Tenn. Ct. App. 2004), Smokehouse contends Lovedy's claims for loss of use of property are covered by the Policy [Doc. No. 17 at 1-2], and thus Plaintiff has a duty to defend and indemnify it.

A. Standard of Review

Plaintiff moved for judgment on the pleadings pursuant to Fed. R. Civ. P. 12(c) [Doc. No. 11]. Because Plaintiff's motion refers to the Policy and the complaint in the underlying litigation, the Court construes it as a motion for summary judgment under Fed. R. Civ. P. 56.*fn3

See Stanley v. City of Norton, 124 F. App'x. 305, 309 (6th Cir. 2005) (citing Weiner, D.P.M. v. Klais & Co., Inc., 108 F.3d 86, 88 (6th Cir. 1997)). Treating the motion as one for summary judgment is consistent with Tennessee law which provides that issues involving coverage under an insurance policy present a question of law amenable to resolution by summary judgment.

Keller v. Monumental Life Ins. Co., No. E2006-00610-COA-R9CV, 2006 WL 2855095, * 4 (Tenn. Ct. App. Oct. 9, 2006).

Summary judgment is appropriate where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). In ruling on a motion for summary judgment, the court must view the facts contained in the record and all inferences that can be drawn from those facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); National Satellite Sports, Inc. v. Eliadis Inc., 253 F.3d 900, 907 (6th Cir. 2001). The court cannot weigh the evidence or determine the truth of any matter in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).

The moving party bears the initial burden of demonstrating that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To refute such a showing, the non-moving party must present some significant, probative evidence indicating the necessity of a trial for resolving a material, factual dispute. Id. A mere scintilla of evidence is not enough. Anderson, 477 U.S. at 252; McLean v. 988011 Ontario, Ltd., 224 F.3d 797, 800 (6th Cir. 2000). The court's role is limited to determining whether the case contains sufficient evidence from which a jury could reasonably find for the non-moving party. Anderson, 477 U.S. at 248, 249; National Satellite Sports, 253 F.3d at 907.

B. Choice of Law

At the hearing, the parties agreed Tennessee law applies with respect to this matter. Unless an insurance policy contains an enforceable choice of law clause, Tennessee courts will "apply the substantive law of the state in which the policy was issued and delivered."

Standard Fire Ins. Co. v. Chester O'Donley & Associates, Inc., 972 S.W.2d 1, 5 (Tenn. Ct. App. 1998). The Policy states it "is issued and delivered as a surplus line coverage pursuant to the Tennessee insurance statutes" and contains no choice of law clause to the contrary [Doc. No. 1-2 at 2]. Thus, the law of Tennessee governs the construction and interpretation of the Policy. See U.S. Fidelity & Guar. Co. ...

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