This cases touches on both maritime law and insurance coverage. Therefore, the initial question was which office blog should do the post: our blog or hawaiioceanlaw.com, authored by Damon Key blogging colleague, Mark Murakami? Easily resolved: Mark found the case, but passed it on to us.
In Fireman's Fund Ins. Co. v. Sneed's Shipbuilding, Inc., No. 08-4882, 2010 U.S. Dist. LEXIS 4835 (E.D. La. Jan. 4, 2010), Superior Shipyard and Fabrication, Inc. contracted with the insured, Sneed, to build a dry dock. When defects were discovered in the dry dock, Superior sued Sneed in state court, alleging that the dry dock failed to meet contract specifications and that the parties' warranty had been breached. Sneed tendered the defense to its insurers pursuant to a builder's risk policy issued by Firemen's Fund and a marine general liability policy from Federal Insurance Co. Both insurers denied coverage based on exclusions in their policies. Superior eventually amended its complaint to include the insurers as defendants under the Louisiana Direct Action Statute.
Firemen's Fund and Federal then sued Sneed for declaratory relief in federal court based on federal maritime and diversity jurisdiction. Sneed moved to dismiss, arguing there was no justiciable case or controversy because resolution of any disputed coverage would be necessary only if a state court judgment was entered against Sneed. In the alternative, Sneed argued the case should be dismissed or stayed in the interests of judicial economy in light of the pending state case.
The district court first determined an actual case or controversy existed. The insurers sought a declaration of their actual liability under their respective policies. Sneed made an actual claim against each insurer. Further, the insurers had been directly sued by Superior in state court. Consequently, the insurers' obligations were not hypothetical.
Next, the district court ruled that dismissal of the insurers' suit was inappropriate. The underlying state action would not resolve all of the defense and indemnity issues raised by the insurers in the federal case. Nevertheless, because the underlying state case was set for trial within the year, a stay of the declaratory judgment action was granted to avoid duplicative litigation.
