The insured moved to dismiss the insurers' action for declaratory judgment because a parallel action was pending in Missouri state court. Axis Surplus Ins. Co. v. McCarthy/Kiewit, 2012 U.S. Dist. LEXIS 3612 (D. Haw. Jan. 12, 2012).
Kaiser Foundation Health Plan, Inc. hired the insured, a joint venture, to act as general contractor for construction of an addition to the Moanalua Medical Center. The joint venture was insured under a CGL policy issued by Arch Insurance Company. Excess layers of coverage were issued by RSUI Indemnity Company and Axis Surplus Insurance Company.
Kaiser sued the joint venture in Missouri state court for damages due to construction defects on the project. Arch agreed to defend under a reservation of rights. RSUI and Axis refused to defend and filed a complaint in Hawaii state court for declaratory relief against the joint venture and Arch. The case was subsequently removed to the federal district court. The joint venture then filed a complaint against Arch Axis and RSUI in Missouri state court for breach of contract, anticipatory breach of contract, breach of the implied covenant of good faith and fair dealing, bad faith and declaratory judgment.
The joint venture moved to dismiss the Hawaii federal court action. The district court, in a decision by Judge Kobayashi, considered the standard for stay or dismissal of the federal action as set forth by the Ninth Circuit in Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1991). Under the test, district courts were to: (1) avoid needless determinations of state law issues; (2) discourage litigants from filing declaratory actions in an attempt to forum shop; and (3) avoid duplicative litigation.
Regarding the first criteria, avoiding needless determinations of state law, the court first noted this case paralleled proceedings in the Missouri state court. Second, the case involved insurance law, an area that Congress had expressly left to the states. Third, there was no compelling federal interest in adjudicating insurance disputes based on diversity jurisdiction. Fourth, the court could be faced with unsettled issues of Hawaii state insurance law. Although the Hawaii Intermediate Court of Appeals decided in Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010) that construction defects did not constitute an "occurrence," the legislature enacted HB 924, which directed that the term "occurrence" be interpreted based on the law at the time the policy was issued. Accordingly, this first factor weighed in favor of dismissing or staying the federal action.
Turning to the issue of forum shopping, the court found this factor was neutral in determining whether to exercise its discretionary jurisdiction over the case because it appeared both parties had engaged in forum shopping.
Finally, under the third factor, the policy of avoiding duplicative litigation tipped slightly in favor of staying or dismissing the case pending the resolution of the broader Missouri action. Factual and legal determinations made in the Missouri action would be common to both cases.
Considering other factors outlined in Dizol, the federal action would not settle all aspects of the controversy. Even if the federal court resolved the insurers' claims here, a number of related issues would remain in the Missouri action. Further, if both the federal court and the Missouri state court reached the merits of the insurance coverage issues, there would be a risk of inconsistent judgments, piecemeal litigation, and entanglement between the federal and state court systems.
Finally, the court decided a stay pending resolution of the state court litigation was appropriate instead of a dismissal.
