- Where Should Coverage Litigation Be Filed?
- Choice of Law Considerations"
- Is Winning The Race To The Courthouse Final?"
- Where Should Coverage Litigation Proceed?
- Where Should Coverage Litigation Be Tried?
Most lawyers file most complaints at the nearest courthouse. Product liability litigation, general negligence claims, commercial litigation and other such cases are typically filed, and tried, at the court across the street. That is not the correct approach for coverage litigation, however. Many other issues need to be considered before you can assess where the case should be filed.
One of the most contentious issues between parties in coverage litigation is who should file the complaint. Both sides habitually worry about the “preemptive strike.” Such an issue would never surface in ordinary litigation. In coverage litigation, however, either the insured or the insurer can be the plaintiff.
Since plaintiffs can select where the lawsuit is filed, it follows that the selected forum will benefit the plaintiff. That is precisely the problem with preemptive strikes. In the developing world of coverage law, forum does make a difference. Sometimes the difference is case-dispositive, depending on the law that is applied.
CHOICE OF LAW CONSIDERATIONS
Suppose that the case law in New Jersey is better for insureds while the case law in Michigan is better for insurers. Suppose further that the differences in the law are so striking and so dissimilar on key issues that the outcome of the case could definitely be shaped by the law that is applied. Now suppose that courts are sometimes inclined to apply the law of the forum state.
Query: Given the hypothetical, where would you file the complaint if you represented the insured? In New Jersey. Where would you file the complaint if you represented the insurer? In Michigan. That is why choice of law is THE key consideration in a coverage case. That is why it makes a difference to each side who becomes the plaintiff. That is the reason why there are races to the courthouse in this area of the law. The potential outcome of such a race is the reason why there is often such resentment between the parties on the issue of filing the complaint.
IS WINNING THE RACE TO THE COURTHOUSE FINAL?
The filing of the complaint, preemptive strike or not, is not the last word on where the case will actually be tried. If the case is filed in state court, the other side may remove it to federal court if rules for removal are properly followed. If the insurer filed the complaint, the insured could file another complaint in a different state.
Since no right-minded judge would allow two identical cases to proceed simultaneously with identical discovery, which case survives: The one that was filed first? Not necessarily. The one that is more comprehensive? Maybe. The one that is more convenient to witnesses? Perhaps. The one that the insurer filed? Could be. The one that the insured filed? Depends. The answers to these questions, and the analysis that gets us there, are not clear-cut, which compounds the problem.
Because courts look at many different variables, the actual filing of a complaint does not guarantee that the selected court is where the case will remain. Filing the complaint is just the first step in looking at the question: Where will the case be litigated?
WHERE SHOULD COVERAGE LITIGATION PROCEED?
Assuming you have already dealt with the issue of removal to federal court, what are some of the motions that could be filed if parties are dissatisfied with the forum? If many witnesses live in distant states and the parties are also located elsewhere, a motion based on forum non conveniens is in order.
If both the insured and the insurer have filed complaints, a motion to stay proceedings for one or both cases will give the court(s) time to determine which case should go forward.
Sometimes a party will file a retaliatory complaint because the other side filed a preemptive strike. Two major lawsuits in a judicial system that is already beyond overload capacity will not be viewed favorably by the courts. Under such circumstances, courts may be inclined to grant a motion to stay one of the cases.
Because coverage litigation usually involves so much money with such hotly contested issues, competing lawsuits are not merely interesting topics for academic discussion. They are real concerns for courts and for parties. Frequently, huge legal expenses are incurred in cases where jurisdictional issues are fought for years before the substantive battles begin.
Some lawyers would argue that jurisdictional battles in the coverage arena amount to substantive battles because the forum is so important. That may be true, but courts are beginning to dust off old doctrines to help them handle the problem of competing cases.
The Brillhart Abstention
The Brillhart abstention (1) is a good example of the efforts some federal courts have undertaken to avoid repetitive litigation. Most trial lawyers have never heard of the Brillhart abstention.. Those who have may believe that the theory is no longer relevant. Coverage lawyers, particularly in California, know that the issue is alive, albeit not well on some occasions.
The short analysis of the Brillhart abstention theory is that federal courts do not want to preempt state courts from handling cases that were first filed in state court. This is an interesting theory when applied to coverage cases.(2)
During the past decade, many major decisions in coverage cases have been made by the federal courts. As a result, parties to coverage disputes have increasingly filed complaints for declaratory judgment with the federal court. Generally, federal courts have developed expertise in the area while some state courts lag behind. It is an expertise, however, that some of the federal courts seem to regret.
In addition to the expertise that federal courts have developed, their resources are much more compatible with the “megacase.” Many state court judges do not even have law clerks to help them with their caseload. Those who do have clerks must typically share one person between several judges. Since mega cases put a strain on any organization, it is clear that state courts can quickly become overburdened with coverage litigation. That is another reason why parties have often avoided trying coverage disputes in state courts.
In recent years, when a state court coverage action is also pending (particularly if the state action was filed by the insured), federal courts have looked at the Brillhart doctrine when deciding if abstention is appropriate. How does this work?
Using the Brillhart doctrine, articulated by the U.S. Supreme court in 1942, the Ninth Circuit decided that if the insured filed litigation in state court, the federal court HAD to abstain from retaining jurisdiction in the case filed by the insurer.(3) However, proper application of the Brillhart doctrine would not work that way, as the Robsac dissent strongly indicates.(4)
Another ninth circuit case, decided after Robsac (Aetna Cas. & Sur. Co. v. Merritt) came to a very different conclusion.(5) In Merritt, the court states that there is “no authority for the proposition that an insurer is barred” from filing a coverage action in federal court.
What is the practical effect of abstentions, stays and other types of motions on everyday coverage litigation? It makes the race to the courthouse even more important for parties who wish to pick the forum that best fits their objectives. Further, it guarantees that the battles to proceed with the litigation in the selected forum will be hard fought and expensive.
WHERE SHOULD COVERAGE LITIGATION BE TRIED?
Piecemeal vs. Magacases
Experts differ on whether coverage litigation should be tried piecemeal or in one very large, very long, very cumbersome case. Consolidating numerous sites into one case certainly makes sense for discovery purposes. Only lawyers benefit if discovery is duplicated between the same parties who have separate cases pending in different states regarding different sites. Since different lawyers often handle such cases, discovery may not be repetitive for the lawyers. It is very expensive, however, for the litigants.
As a result, many parties have consolidated all of the sites at issue into one huge case. The geographic scope of such litigation can be staggering, however. The burdens imposed on law firms and courts are crushing. The mechanics of the trial can be more than problematic.
To deal with the problem of multiple cases in multiple jurisdictions, litigants have sometimes grouped sites by geographic location or by corporate entities. If that approach is used, the coverage litigation would be tried by different courts in separate states. The cases may be more manageable, but there is a significant risk that different courts would reach different conclusions, particulary when the groupings are merely by geographic location.
If the cases are grouped by corporate entities, the risk of conflicting rulings is minimized since the policies at issue would be specific to separate companies. Thus, all sites for XYZ Chemical would be tried in one jurisdiction, while all sites for ABC Chemical would be tried in another. The fact the Conglomerate A now owns both chemical companies doesn't matter for purposes of the coverage trials.
What happens if one company owns 200 sites? Splitting the sites geographically will likely confuse the issues, and separate trials in different jurisdictions will exponentially increase transactional costs. The only viable option is to litigate the case in one jurisdiction, but the trial will have to be carefully planned so it does not crush everyone involved. Can you imagine one jury trying the facts of one case that involves 200 sites? Both the court and the lawyers will have to develop a trial plan that makes sense. Creative thinking will definitely be a top priority.
Dividing a megacase into groups of sites for case management purposes is probably the best alternative for both discovery and trial. You will need to be realistic about the number of sites you can effectively try in each phase, however. You will need to resist the tendency to be too aggressive about how many sites can be tried at once. That is especially true if a jury is involved. Be wary of overwhelming your jurors with too much “stuff” that takes too much time.
Where you commence your coverage litigation requires fundamental thinking. You need to give this issue considerable analysis. Your approach to the subject will govern how the rest of the case will be managed and tried. Realistically assessing the geographic scope of the dispute should help you to determine whether to file one major case or several smaller cases.
Keep in mind there are pros and cons depending on your ultimate objectives. Think about your own resources and those of your client. These cases can become overwhelming even when they are managed properly. Initially taking the time to effectively determine where the case should be litigated will save you, and everyone else, the anguish of unmanageable schedules years down the road.
- Brillhart v. Excess Ins. Co., 316 U.S. 491, 86 L.Ed. 1620, 62 S. Ct. 1173 (1942)
- In Brillhart, the Supreme Court addressed the propriety of a federal court's exercise of jurisdiction over a declaratory judgment action filed after a state court action was already pending. 316 U.S. 491. The federal court defendant moved to dismiss the declaratory action, alleging that the issues should be resolved in the context of a pending state court garnishment proceeding. Id. at 493. The district court granted the motion but the court of appeals reversed, holding that the dismissal was an abuse of the district court's discretion. However, rather than remanding for the exercise of that discretion, the court of appeals directed the district court to proceed on the merits. The United States Supreme Court reversed, holding that the district court must exercise its discretion in deciding whether the claims before it would be more appropriately resolved in the pending state court action. Id. at 494,498.
To assist the district courts in the appropriate exercise of their discretion, the Supreme Court delineated the sort of analysis required in cases where a federal action is filed after a parallel state court action:Where a District court is presented with a claim such as was made here, it should ascertain whether the questions and controversies between the parties to the federal suit, and which are not foreclosed under the applicable substantive law, can be better settled in the proceeding pending in the state court. This may entail inquiry into the scope of the pending state court proceeding and the nature of defenses open there. The federal court may have to consider whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined, whether such parties are amendable to process in that proceeding etc.
Id. at 495. Brillhart, thus, did not provide an exhaustive list of factors to consider; rather, it held that the district court must review all relevant considerations in deciding whether abstention is warranted.
- Continental Cas. v. Robsac Ind. Inc., 947 F.2d 1367 (9th Cir. 1991).
Robsac included a strong dissent which anticipated the logical result of the majority's reasoning:Perhaps my greatest concern, however, is the practical consequence of the majority's analysis. [T]he reality is that the majority has established a per se rule against federal courts taking jurisdiction over declaratory judgments brought by insurers.  There is no escaping the conclusion that in the future, district courts will feel bound by this decision and choose not to take jurisdiction over declaratory judgment actions by insurers.
Id. at 1378 (Hall, J., dissenting).
- See Aetna Cas. & Sur. Co. v. Merritt, 974 F.2d 1196 (9th Cir. 1992), where the Ninth Circuit Court of Appeals held that the district court had properly heard a declaratory action filed by an insurer. The court states:
"Robsac does not control this case. In Robsac we merely held that the district court should not exercise its diversity jurisdiction in a declaratory judgment action to resolve a dispute between insurer and insured over coverage when a state court action involving the same parties and the same issue of coverage was already pending. We stated that the federal suit would have been reactive even if it had been filed first, but that conclusion was dictum since on the facts the federal suit was not filed first.  We know of no authority for the proposition that an insurer is barred from invoking diversity jurisdiction to bring a declaratory judgment action against an insured on an issue of coverage."
Id. at 1199, emphasis supplied.