Connecticut Federal Court Declines to Dismiss First-Filed Declaratory Judgment Action in Deference to Insured’s California State Court Action

The United States District Court of Connecticut, applying federal law, has denied an insured’s motion to dismiss or stay the insurer’s first-filed declaratory judgment action in deference to a subsequently filed, substantially similar coverage action filed by the insured in California state court, holding that the relevant factors weighed in favor of retaining jurisdiction over the first-filed declaratory judgment action.  Continental Cas. Co. v. Phoenix Life Ins. Co., No. 19-cv-1448 (D. Conn. August 10, 2020).

The insurer filed suit in Connecticut, the insured’s home state, seeking declaratory judgment regarding coverage for two underlying class actions filed against the insured.  Shortly thereafter, the insured filed a competing lawsuit in California state court addressing the same coverage issues.  The insured also asserted claims against its excess carriers in the California action.  The insurer removed the California action to federal court, and the insured moved to remand the California action back to state court, asserting lack of proof of diversity of citizenship and amount in controversy as to each individual Name for the Lloyd’s Syndicates subscribing to the excess policies.

While the California action was pending in federal court, the insured moved to dismiss or stay the Connecticut action pursuant to the Brillhart/Wilton abstention doctrine.  The Connecticut court denied that motion on the grounds the Connecticut action was first-filed.  The Connecticut court rejected the insured’s Brillhart/Wilton abstention arguments because the later-filed action was not then pending in state court.  After the California action was remanded to state court, the insured again moved to dismiss or stay the Connecticut action pursuant to the Brillhart/Wilton abstention doctrine.  While this renewed motion was pending, the California state court denied the insurer’s motion to dismiss the California action for forum non conveniens.

Notwithstanding the California state court’s ruling on the forum non conveniens motion, the federal court in Connecticut denied the insured’s renewed motion to dismiss or stay the first-filed action, concluding that the relevant factors, as outlined in Dow Jones & Co. v. Harrods Ltd., 346 F.3d 357, 359 (2d Cir. 2003), weighed against abstention.  First, the court rejected the insured’s arguments that resolution of the Connecticut action would not finalize the controversy because it did not include the claims that the insured asserted in California against the primary or excess insurers, concluding that it was sufficient that resolution of the Connecticut action would finalize the issues pending in that action.  Second, the court concluded that the insured did not demonstrate improper procedural fending or race to res judicata by the insurer by filing suit in the insured’s home state.  Third, the court held that the insurance coverage dispute was not likely to encroach upon the interest of California state courts because it involves questions of contract interpretation, not novel or complex state law issues.  Finally, the court concluded that there was no evidence that the California action would result in a better or more effective remedy, noting that the insured could assert its claims against the primary and excess carriers in the Connecticut action, and that the insured failed to demonstrate that the Connecticut court would lack supplemental jurisdiction against any non-diverse insurers that might be added by third party claims.