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Grange Mutual Casualty Co. v. Allen

United States District Court, W.D. Tennessee, Eastern Division

December 24, 2014

JOHN H. ALLEN, et al., Defendants.


J. DANIEL BREEN, Chief District Judge.

Before the Court is the September 4, 2014 motion of Defendant John H. Allen Construction Company, Inc. ("JAC") to decline declaratory jurisdiction in this matter. (D.E. 34.) This declaratory judgment action, brought by Grange Mutual Casualty Company ("Grange") on October 25, 2014 against John H. Allen, Josh Allen, Brad Crouch and Rodger Coffman d/b/a C&C Construction ("C&C") and John H. Allen Construction Company, Inc., and certain underwriters at Lloyd's, London, involves a commercial package policy and a commercial umbrella policy issued by the Plaintiff, effective November 1, 2011, to JAC (the "JAC Policies").

In 2007, a structure known as the "First Baptist Building" in Jackson, Tennessee was deeded to Defendants John H. and Josh Allen.[1] On the same date, the property was deeded from the Allens to the Jackson Downtown Revenue Finance Corporation, which leased the building back to the Allens. After the building suffered wind damage in February 2012, the Allens hired JAC to perform repairs. JAC subcontracted with C&C to repair the First Baptist Building roof. A portion of the work was performed by C&C on February 24, 2012, on which day the structure caught fire.

On March 5, 2013, the Allens filed a complaint in the Circuit Court of Madison County for property damage against C&C and JAC (the "Circuit Court Action"). The complaint alleged negligence and breach of warranty. In May 2013, Crouch and Coffman d/b/a C&C filed a third-party complaint in the Circuit Court Action against McNail Insurance Agency, Inc. ("McNail") averring claims of negligence, breach of fiduciary duty and negligent misrepresentation. According to the third-party pleading, McNail failed to disclose to Grange at the time of C&C's application for insurance the fact that the roofer performed work on commercial as well as residential structures, which resulted in insufficient coverage. McNail's knowledge of the nature of C&C's commercial operations was, it is alleged, imputed to Grange. Following the filing of the Circuit Court Action, JAC demanded a defense and indemnity from Grange pursuant to the JAC Policies. C&C likewise demanded defense and indemnity under a contractor and tradesman insurance policy issued by the Plaintiff. Grange is defending JAC and C&C in the Circuit Court Action under reservation of rights but has asserted that it owes no defense or indemnity under any of the policies.

In this suit, Grange seeks a declaration that it has no duty to defend or indemnify JAC in the Circuit Court Action based on certain exclusions contained in the JAC Policies relating to JAC's possessory interest in the property on which the fire occurred. On the same day this suit was initiated, Grange filed a separate declaratory judgment action in this Court against Crouch and Coffman d/b/a C&C, the Allens and JAC, alleging that it owed no defense or indemnity with respect to C&C and the contractor and tradesman policy. See Grange Mut. Cas. Co. v. Crouch, et al., No. 1:13-cv-01294 (W.D. Tenn.) (the "C&C Action"). On May 19, 2014, JAC filed a motion to decline jurisdiction under the Declaratory Judgment Act in the C&C Action (D.E. 35), which was granted by this Court on July 18, 2014 (D.E. 50). The case was dismissed without prejudice.

On July 31, 2014, JAC filed a state court declaratory judgment action in the Chancery Court of Madison County, Tennessee (the "State Court Declaratory Action") against Grange, Crouch and Coffman d/b/a C&C, the Allens, McNail and McNail's president, John Moore. The suit sought a declaration that Grange was obligated to defend and indemnify JAC and C&C in the Circuit Court Action. The State Court Declaratory Action also alleged negligence and negligent misrepresentation claims against McNail, Moore and Grange.

The Declaratory Judgment Act provides in pertinent part that, "[i]n a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. ยง 2201(a) (emphasis added).

By the Declaratory Judgment Act, Congress sought to place a remedial arrow in the district court's quiver; it created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants. Consistent with the nonobligatory nature of the remedy, a district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after all arguments have drawn to a close. 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 v. Seven Falls Co., 515 U.S. 277, 288 (1995) (internal footnote omitted). The two broad principles to be kept in mind by the district court are "whether the judgment will serve a useful purpose in clarifying and settling legal relationships in issue and whether it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Founders Ins. Co. v. Bentley Entm't, LLC, No. 3:12-cv-01315, 2014 WL 3776311, at *8 (M.D. Tenn. July 17, 2014) (citing Aetna Cas. & Sur. Co. v. Sunshine Corp., 74 F.3d 685, 687 (6th Cir. 1996)) (internal quotation marks omitted). "A federal court should decline to entertain a declaratory judgment if doing so would result in gratuitous interference with the orderly and comprehensive disposition of state court litigation." Peerless Indem. Ins. Co. v. Smith, Civil Action No. 13-49-HRW, 2014 WL 6186646, at *1 (E.D. Ky. Nov. 25, 2014) (quoting Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 495 (1942)) (internal alterations & quotation marks omitted). Indeed, courts in this Circuit have repeatedly held it inappropriate for district courts to entertain declaratory judgment actions in insurance cases. Allstate Ins. Co. v. Renou, ___ F.Supp.2d ___, 2014 WL 3649249, at *9 (E.D. Mich. July 24, 2014).

In deciding whether to exercise their discretion, courts take into account the following non-exclusive factors articulated in Grand Trunk Western Railroad Co. v. Consolidated Rail Corp., 746 F.2d 323 (6th Cir. 1984):

(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 res judicata [";]
(4) whether the use of a declaratory action would increase the friction between our federal and state courts and improperly encroach upon state ...

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