Should an insurer be allowed to pursue a federal action for declaratory judgment on its duty to defend where the insured has failed to cooperate in numerous underlying state actions against it?  The Fifth Circuit decided the district court erred in staying the declaratory judgment action and allowed the federal case to proceed simultaneously with the state cases.  See Medical Assur. Co. Inc. v. Hellman, 2010 U.S. App. LEXIS 12613 (5th Cir. June 21, 2010). 

   The insured doctor left the country with 350 medical malpractice claims pending against him.  Medical Assurance was defending the doctor in proceedings filed under the Indiana Medical Malpractice Act and in state court.  Under the statute, a medical review panel had to issue an opinion on every medical malpractice claim before the claim could be pursued in Indiana courts.  Only four of the 350 cases against the insured had moved from the review-panel stage to an actual lawsuit in state court.

   Medical Assurance's liability policy provided a duty to defend, but the insurer was relieved of those duties if the insured violated the policy's cooperation clause.  This clause committed the insured to, among other things, attend all meetings, hearings, depositions, and trials.  Medical Assurance sued in federal court, seeking a declaration that it had no duty to defend because the doctor had utterly failed to cooperate in the 350 pending cases.

   The district court stayed Medical Assurance's declaratory judgment action because the parallel state court proceedings were underway before Indiana's malpractice panels and courts.  The district court determined it would be impossible for Medical Assurance to show actual prejudice due to the lack of cooperation without interfering with the state proceedings. 

   The Fifth Circuit vacated the stay.  The purpose of the Declaratory Judgment Act was to facilitate efficient outcomes.  Here, that purpose would best be effected by allowing Medical Assurance to go forward with its federal case to determine its duty to defend.  The issue of whether lack of cooperation should relieve the insurer of its duty to defend was sufficiently distinct from the liability issues in the state proceedings that staying the federal action was an abuse of discretion.