FEDERAL DISTRICT COURT ABSTAINS FROM COVERAGE ACTION BASED ON PENDING CASE IN CALIFORNIA STATE COURT

Judge Sidney Fitzwater of the Northern District of Texas recently stayed a coverage action under the “abstention doctrine,” concluding that while the issues before him were ripe for adjudication and that he had the authority to grant the relief requested, he should nevertheless abstain from the case because of a concurrent suit in California.  In Continental Ins. Co. v. Giffort-Hill & Co., Civ. No. 3:12-CV-0925-D, 2013 WL 1875930 (N.D. Tex. May 6, 2013), Continental sued seeking a declaration that it did not owe defense and indemnity arising out of a number of toxic tort suites pending in California.  Shortly after Continental brought its action in federal court in Texas, the insurer chosen to lead the defense — Central National Ins. Co. of Omaha — instituted separate suits in California, first against the insureds seeking to compel arbitration, and second against other insurers (including Continental) seeking a declaration that each insurer was obligated to provide a defense.

The central issue was the proper application of the Brillhart abstention doctrine, first outlined by the U.S. Supreme Court in 1942, and elaborated by the Fifth Circuit in 1994 by the identification of several non-exclusive factors to be considered by the courts.  Judge Fitzwater observed that the federal and state actions did not need to be “exactly parallel,” and that the parties and issues in each could differ.  He concluded that the duty to defend would be addressed in both the case before him and the case between the insurers in California.  Further, variances between the parties of the cases were not substantial enough to weigh against abstention.  Judge Fitzwater also considered that while many of Continental’s policies were issued in Texas, permitting the case to continue here would risk drawing in a large number of parties with connections only to California. 

Having considered the foregoing issues, and determining that fairness considerations were either neutral or weighed slightly for abstention, Judge Fitzwater determined that the federal action should be stayed.  He noted that the Supreme Court had urges stays in this context as opposed to dismissal because the federal action could continue later if the state action failed to resolve all issues, without the risk of implicating any applicable statutes of limitations.