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State Automobile Mutual Insurance Co. v. Fireman Fire Protection, Inc.

United States District Court, E.D. Tennessee, Knoxville Division

March 4, 2015

STATE AUTOMOBILE MUTUAL INSURANCE COMPANY, Plaintiff,
v.
FIREMAN FIRE PROTECTION, INC., JAMES G. STONE III, ROBIN ALETRAS, and AUTO-OWNERS (MUTUAL) INSURANCE COMPANY, Defendants.

MEMORANDUM OPINION AND ORDER

THOMAS A. VARLAN, Chief District Judge.

This civil action is before the Court on the Motion to Dismiss [Doc. 18] filed by defendants Fireman Fire Protection, Inc. ("Fireman") and James G. Stone III ("Stone"). Defendants move the Court to decline to exercise jurisdiction over the "declaratory judgment action" filed by plaintiff State Automobile Mutual Insurance Company ("State Auto"), in which plaintiff claims that defendant Fireman, through defendant Stone, breached the terms of an insurance policy it held with plaintiff. Plaintiff has responded in opposition to defendants' motion [Doc. 21]. Defendants did not submit a reply brief but did submit two notices of supplemental authority [Docs. 23, 24]. For the reasons that follow, the Court will deny defendants' motion.

I. Background

Plaintiff filed this action on May 29, 2014 [Doc. 1]. According to the complaint, plaintiff was the insurer of a house and buildings owned and occupied by defendants Fireman and Stone when the buildings were destroyed by a fire on or about August 3, 2013 [ Id. at p. 2-3]. Defendant Fireman is a business that used the insured properties in connection with its operation of a school to teach students how to recharge fire extinguishers, sell pre-engineered fire suppression systems, and clean kitchen exhaust hoods [ Id. at 2]. Defendant Stone is the president of defendant Fireman, and he used the insured properties as a residence [ Id. ].

About two to three weeks prior to the fire, defendant Robin Aletras ("Aletras") joined defendants Fireman and Stone as an occupant of the insured properties [Id]. Defendant Aletras used the properties as a residence and as a place to operate a woodworking business [Id]. He held an insurance policy with defendant Auto-Owners Mutual Insurance Company ("Auto-Owners"), which allegedly provided him with liability coverage and also insured some of the same property covered by defendant Fireman's policy with plaintiff [ Id. ].

Plaintiff alleges that in the early morning hours of August 3, 2013, defendant Aletras started a fire in his woodworking shop by dumping sawdust in and around an open flame [Id]. Defendant Aletras then allegedly failed to call the fire department until thirty to forty-five minutes after the start of the fire, when a passing motorist observed him nearby [ Id. at 2-3].

On October 23, 2013, defendant Fireman submitted a sworn proof of loss statement to plaintiff in the amount of $1, 030, 031.00 for damage caused by the fire [ Id. at 3]. Plaintiff alleges that it advanced $20, 000.00 to defendant Fireman pending investigation of the fire, and that it "is obligated to pay the mortgagee listed on the insurance policy, JP Morgan Chase Bank ISAOA/ATIMA, for the damage to the dwelling or the amount owing under the policy" [ Id. ]. Plaintiff further alleges that during its investigation of the fire, it uncovered evidence that defendant Stone previously received insurance proceeds under another policy for losses caused by defendant Aletras [ Id. at 3-4]. And plaintiff alleges that in 2009, defendant Stone recovered damages under an insurance policy as a result of a "mysterious total loss fire" [ Id. at 4]. Plaintiff denied defendant Fireman's claim on May 29, 2014 [ id. at 5], the same date that plaintiff filed its complaint.

Plaintiff claims that it is not liable to defendant Fireman under the insurance policy because defendant Aletras intentionally started the fire, and defendants Fireman and Stone materially misrepresented its circumstances [ Id. at 3-5]. Alternatively, plaintiff claims that defendant Aletras acted negligently in starting the fire [ Id. at 5]. Plaintiff seeks a declaration of the rights and duties of the parties under its insurance policy with defendant Fireman, and a declaration of the rights and duties of defendant Auto-Owners regarding defendant Auto-Owners' obligations to pay proceeds as a result of the fire under its policy with defendant Aletras [ Id. at 5-6]. Plaintiff also seeks damages against defendants Fireman, Stone, and Aletras to recover "the amount paid to the mortgagee under the policy, " and the amounts advanced under the policy, plus interest and costs [ id. at 6]; or in the alternative, a judgment against defendant Aletras for the amount that plaintiff is obligated to pay its insured under its policy with defendant Fireman, and an order of indemnification against defendant Auto-Owners [Id].

On July 30, 2014, defendants Fireman and Stone filed a complaint in the Sevier County, Tennessee, Circuit Court against plaintiff State Auto and defendant Aletras [Doc. 19-1 p. 2]. Joining defendants Fireman and Stone in bringing the state action were James Stone Jr. and Betty Stone, who were alleged co-owners of the insured properties [ Id. at p. 3]. The state court action makes a claim for damages against plaintiff State Auto for breach of contract, including punitive damages for an intentional, fraudulent, malicious, or reckless breach [ Id. at p. 5-6]. The state court action also makes a claim for damages against defendant Aletras for negligence [ Id. at p. 6-7]. At the time that defendants Fireman and Stone filed their motion to dismiss in this case, the state court action was ongoing [Doc. 19 p. 2].

II. Standard of Review

Federal courts are courts of limited jurisdiction, and therefore, may only hear cases over which they have subject matter jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). Jurisdiction my fail on the face of the pleadings or it may fail in fact. See United States v. Ritchie, 15 F.3d 592, 598 (6th Cir. 1994) ("Motions to dismiss for lack of subject matter jurisdiction fall into two general categories: facial attacks and factual attacks.").

The standard of review for determining whether a pleading has sufficiently established jurisdiction on its face is akin to the standard of review for a motion made under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Ohio Nat. Life Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir. 1990). Accordingly, in analyzing whether a pleading establishes jurisdiction on its face, the Court takes the material allegations of the pleading as true and construes them in the light most favorable to plaintiff. Kiser v. Reitz, 765 F.3d 601, 606 (6th Cir. 2014) (citing Ritchie, 15 F.3d at 598)); see also Ashcroft v. Iqbal, 556 U.S. 662, 678-80 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 564-70 (2007).

The Declaratory Judgment Act provides, in relevant part: "In 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). The Act "confer[s] on federal courts unique and substantial ...


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