The federal district court refused to remand the insureds' case after the insurer removed from state court. Maui Land & Pineapple Co. v. Liberty Ins. Underwriters, 2016 U.S. Dist. LEXIS 15681 (D. Haw. Nov. 10, 2016).
The underlying case was filed in state court on Maui. The underlying plaintiffs were condominium owners who brought claims against the insured, Maui Land and Pineapple Co., Inc. (MLP), and other defendants allegedly involved in the development of the project. Ryan Churchill, one of the named defendants, served as president of MLP and was on the board of the project's Association of Apartment Owners (AOAO). The underlying plaintiffs asserted claims for: breach of fiduciary duty; seeking access to books and records of the AOAO; and for injunctive/declaratory relief against MLP, Mr. Churchill, and all other defendants.
In 2012, MLP tendered the underlying lawsuit to Liberty under a directors and officers policy. Liberty denied indemnity coverage because the underlying lawsuit did not constitute a securities action or a shareholder derivative suit, as required by the policy. Liberty also denied indemnity and defense coverage for Mr. Churchill on the basis that the claims against him were asserted in his capacity as director of the project's AOAO, and not as an officer of MLP.
MLP initiated the coverage action in state court. Liberty removed. MLP sought remand, but the magistrate judge recommended denying the motion. MLP sought review by the district court.
The court considered the Brillhart factors: (1) avoiding needless determination of state law issues; (2) discouraging litigants form filing declaratory actions as a means of forum shopping; and (3) avoiding duplicative litigation. Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942). MLP only relied on the first and third factors.
Regarding the first Brillhart factor and the needless determination of state law issues, the court acknowledged that in this diversity action, there were no compelling federal interests, and that insurance was an area of law that Congress had expressly reserved to the states. Nevertheless, this district court was often called upon to interpret insurance policies pursuant to state law to determine the scope of an insurer's duties to an insured. Here, the underlying lawsuit did not constitute a parallel proceeding. The coverage case did not involve the precise state law issues at stake in the underlying lawsuit, nor did it include the same parties. Liberty was not a party to the underlying lawsuit and its obligations under the policy were not at issue. Therefore, the first factor weighed in favor of retaining jurisdiction.
The third Brillhart factor, avoiding duplicative litigation, also favored retaining jurisdiction. Determining Liberty's duty to advance defense costs did not hinge on a factual determination to be made by the state court. As to Liberty's duty to indemnify, if there was a concern regarding the capacity in which Mr. Churchill was being sued, the court could defer decision on the indemnity issue until the capacity issue was resolved in the underlying lawsuit.
After balancing the relevant factors, the court reached the same conclusion as the magistrate judge and decided to retain jurisdiction.