The federal district court, district of Hawaii, stayed the coverage action to allow the underlying state court action to proceed, United States Fire Ins. Co. v. Prieto, 2020 U.S. Dist. LEXIS 106676 (D. Haw. June 18, 2020).
In the underlying action, Aerica Cates sued defendant Prieto and the State of Hawaii in state court for Prieto's sexual abuse of the couples' daughter during unsupervised visits. Cates accused the State of failing to take appropriate action following the pediatrician's reports of abuse and forcing the daugther to resume visitation with Prieto. Cates asserted claims of assault and battery, intentional infliction of emotional distress, negligent infliction of emotional distress and negligence against Prieto. The state filed a cross-claim against Prieto, asserting that any injuries sustained by Cates were the result of Prieto's wrongful acts and/or omissions.
Prieto tendered the defense to his Homeowners carrier, United States Fire. US Fire agreed to defend under a reservation of rights, but then filed an action in federal district court for a declaratory judgment that it owed no duty to defend or indemnify. US Fire filed a motion for summary judgment. Prieto argued the court should decline to exercise jurisdiction.
Under the Declaratory Judgment Act, the court had discretion whether to exercise its jurisdiction based on the factors enumerated in Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942). Under the first factor, needless determination of state law, the court agreed the underlying liability action was a parallel state proceeding because the state and federal actions arose from the same factual circumstances. US Fire's duty to defend turned on whether allegations asserted in the state court action rose any possibility of coverage under the policy and its duty to indemnify rested on factual determinations made in the state court action. The existence of a parallel state action weighed strongly in favor of declining jurisdiction.
The court also agreed that, while it was capable of deciding the issues presented, proceeding with a declaratory judgment could result in the unnecessary determination of state law. Even if a federal declaratory judgment action did not present an open question of state law requiring resolution by a state court, it was not an abuse of discretion to decline jurisdiction. Finally, there was no compelling federal interest in this diversity case. Therefore, the first Brillhart factor of needless determination of state law weight in favor of dismissal.
The second factor, forum shopping, was neutral. Because diversity jurisdiction provided a basis to bring suit in federal court, US Fire did not engage in forum shopping.
The third factor, duplicative litigation, weighed in favor of declining jurisdiction. Additionally, adjudicating this action could potentially lead to inconsistent results, as coverage and related factual determinations here might affect the underlying proceedings.
Therefore, the Brillhart factors weighed in favor of declining to exercise jurisdiction. However, the court elected to stay, rather than dismiss, the case.