Arizona Federal Court Abstains From Exercising Jurisdiction Over Insurer's Declaratory Judgment Action
Aerospace Insurance Update
U.S. District Court, District Of Arizona
In National Union Fire Insurance Company of Pittsburgh, Pennsylvania v. Aero Jet Services, LLC, -- F. Supp. 2d --, 2011 WL 4708857 (D. Ariz. Oct. 7, 2011), the U.S. District Court for the District of Arizona dismissed a declaratory judgment action brought by National Union, concluding that it would abstain from exercising jurisdiction over the suit because the issues could be decided in a pending state court action.
The state court action involved a claim for breach of contract and fraud brought by an aircraft buyer against Aero Jet Services, which had brokered the sale of an Astra Jet aircraft to the buyer and also entered into an agreement with the buyer to provide maintenance and management services for the aircraft. Subsequent to the sale, the buyer discovered corrosion and repainting work that had not been disclosed by Aero Jet. National Union denied coverage on the grounds that the claim was for economic damage not involving "property damage" or an "occurrence," and that any occurrence and damage that took place before the sale was outside the policy period. National Union commenced a declaratory judgment action in federal court under the Federal Declaratory Judgment Act seeking a determination that it had no duty to defend or indemnify in the action by the buyer pending in state court.
To determine whether to dismiss the action, the court considered the factors set out in the U.S. Supreme Court's decision in Brillhart v. Excess Insurance Company of America, 316 U.S. 491 (1942): the avoidance of needless determinations of state law issues; discouraging forum shopping; and avoiding duplicative litigation. Applying the Brillhart factors, the court concluded that the avoidance of needless determinations of state law weighed heavily in favor of dismissal because the declaratory judgment action could have been brought in state court under Arizona's declaratory judgment statute and the record of the timing and nature of the damage to the aircraft necessary for the coverage determination already was before the state court. The court also found that the facts relating to the timing and character of the damage to the aircraft to be developed in the state court action were also necessary for the determination of coverage, thus, suggesting duplicative litigation. The court found no indication of impermissible forum shopping or that the federal action was commenced to gain advantage. Nevertheless, it observed that the same remedy could be obtained in state court and the potential existed that a determination on indemnity in the federal declaratory judgment action may have to be stayed pending completion of the state action. Overall, the court's balance of these factors weighed in favor of abstention.