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Allied World Surplus Lines Insurance Co. v. Galen Insurance Co.

United States District Court, E.D. Missouri, Eastern Division

August 16, 2017

ALLIED WORLD SURPLUS LINES INSURANCE COMPANY, Plaintiff,
v.
GALEN INSURANCE COMPANY, et al., Defendants.

          MEMORANDUM AND ORDER

          JEAN C. HAMILTON, UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on the Motion to Stay filed by Defendant Galen Insurance Company and Defendant Galen Insurance Management Company. (ECF 18). The Motion has been fully briefed and is ready for disposition.

         BACKGROUND

         In the Complaint, filed on March 29, 2017, Plaintiff Allied World Surplus Lines Insurance Company f/k/a Darwin Select Insurance Company (Allied World) seeks declaratory judgment, pursuant to the Federal Declaratory Judgement Act, 28 U.S.C. § 2201, regarding coverage under Private Risk-Transfer Organizations Management and Professional Liability Insurance Policies (the Policies) issued to Defendant Galen Insurance Company (GIC) and Defendant Galen Insurance Management Company, Inc. (GIMC, and, jointly with GIC, the Galen Defendants). (ECF 1 (Complaint)). The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332. (ECF 1, ¶ 8; ECF 10 (Answer), ¶ 8).

         One of the Policies at issue in this matter is for the period of April 26, 2014, to April 26, 2015 (the 2014-2015 Policy). (ECF 1.4). The second policy at issue is for the period of April 26, 2015, to April 26, 2016 (the 2015-2016 Policy). (ECF 1.6). Allied World also issued a renewal policy for the period of April 26, 2016, to April 26, 2017 (the 2016-2017 Policy). (ECF 1.8). The 2014-2015 Policy provides for limits of liability of $1, 000, 000 each for Management Liability, Professional Liability, and Employment Practices Liability for all loss from all claims under the insuring agreement. The 2015-2016 Policy and the 2016-2017 Policy provide for a limit of $2, 000, 000 each for Management Liability, Professional Liability, and Employment Practices Liability. All three Policies provide for a limit of $25, 000 for Network Security Liability.

         On June 14, 2014, Howard Nathans filed a Complaint against the Galen Defendants for wrongful termination of employment and breach of contract (the Nathans Claim). Subsequently, on April 4, 2016, Defendant Dennis Lowry, the former Chief Financial Officer of GIC, filed a Complaint, in Circuit Court of St. Louis County, Missouri, against the Galen Defendants for wrongful termination of his employment (the Lowry Claim). (ECF 1.3). The Galen Defendants requested coverage for the Nathans Claim under the 2014-2015 Policy and requested coverage for the Lowry Claim under the 2015-2016 Policy. Allied World initially agreed to defend the Galen Defendants against the Lowry Claim under the 2015-2016 Policy under a complete reservation of rights. Subsequently, Allied World advised the Galen Defendants that it would continue to defend them against the Lowry claim, but that it would do so pursuant to a complete reservation of rights under the 2014-2015 Policy, rather than the 2015-2016 Policy, because, pursuant to the provisions of those Policies, the Lowry Claim and the Nathans Claim are considered a single claim first made during the 2014-2015 Policy period. (ECF 1, ¶¶ 28-31; ECF 10, ¶¶ 28-31).

         The alleged basis for Allied World's assertion that the Lowry Claim and the Nathans Claim are a single claim is that they are “based on, aris[e] out of, directly or indirectly result[] from, in consequence of or in any way involv[e] the same or related facts, circumstances, situations, transactions or events or the same related series of facts, circumstances, situations, transactions or events, whether related logically, causally or in any other way, ” as provided by the 2014-2015 Policy and the 2015-2016 Policy. (ECF 1, ¶25).

         In its claim for Declaratory Relief before this Court, Allied World seeks a declaration that the Lowry Claim is either covered by the 2014-2015 Policy or that it is not covered at all due to misrepresentations in the applications for coverage under the 2015-2016 Policy and the 2016-2017 Policy. Allied World also seeks rescission of the 2015-2016 Policy and the 2016-2017 Policy, and, if the Court determines there is no coverage, seeks reimbursement of all amounts paid for the Lowry Claim. (ECF 1, ¶¶ 50, 54, 59, 63, 67).

         The Galen Defendants have counterclaimed, seeking a declaration that the Lowry Claim is covered under the 2015-2016 Policy and that Allied World is obligated to indemnify the Galen Defendants and to reimburse them for their defense costs in connection with the Lowry Claim. (ECF 10 at 9-16.).

         On about May 31, 2017, the Circuit Court of Cole County, Missouri, entered a Judgment, Decree and Final Order of Liquidation, placing GIC in liquidation. The Liquidation Order states: “No action at law or equity or in arbitration shall be brought against [GIC] or the Liquidator, whether in this state or elsewhere, nor shall any such existing actions be maintained or further presented after issuance of this Order.” (ECF 18 (Motion to Stay), ¶¶ 2-3; ECF 30 (Memorandum in Opposition to Defendants/Counterclaim Plaintiffs' Motion to Stay) at 7 (citing Liquidation Order ¶ 29)). The parties agree that Liquidation Order applies only to GIC. (ECF 18, ¶¶ 2-3; ECF 30 at 7).

         LEGAL FRAMEWORK

         As a preliminary matter, the doctrine of discretionary abstention provides that “abstention from the exercise of federal jurisdiction is the exception, not the rule.” Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 813 (1976) (emphasis added). Abstention “is an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it.” Id. at 813. See also New Orleans Pub. Serv., Inc. v. Council of the City of New Orleans (NOPS), 491 U.S. 350, 359 (1989).

         Federal courts have articulated several abstention doctrines, including the Burford Doctrine, Burford v. Sun Oil Co., 319 U.S. 315 (1943), and the Colorado River Doctrine, Colorado River, 424 U.S. 800. In Wolfson v. Mutual Benefit Life Insurance Company, 51 F.3d 141 (8th Cir. 1995) (called into question on other grounds), the Eighth Circuit reversed the district court's order to stay a federal action to recover life insurance benefits and held:

[T]he abstention doctrine [was] first enunciated in Burford . . . . As the doctrine is now articulated, Burford abstention is appropriate in two extraordinary situations, when “there have been presented difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar, ” or when “exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern, ” when “there have been presented difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar, ” or when ...

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