Ncmic Ins. Co. v. Smith, 375 F. Supp. 3d 831

Background

NCMIC (Iowa insurer) issued a professional liability policy to chiropractor Ryan D. Smith for 10/3/2016–10/3/2017; multiple former patients sued Smith in Ohio alleging sexual assault, battery, malpractice and related torts (Doe and Horner actions).
Plaintiffs in state suits sought, among other claims, a declaratory judgment against NCMIC about coverage; NCMIC filed this federal declaratory action (May 31, 2018) seeking a declaration that it owes no duty to defend or indemnify Smith.
Jane Doe (a representative plaintiff in the state class action) moved to dismiss or stay the federal action for lack of subject-matter jurisdiction and urged abstention under the Declaratory Judgment Act.
Procedural developments: NCMIC was not initially a party in state court when it filed; later the Ohio court permitted amendment adding NCMIC as a defendant; several motions about sur-reply briefing and an affidavit were litigated before the court.
The district court granted NCMIC leave to file a sur-reply, declined to consider a supplemental affidavit as moot, and addressed whether to exercise discretionary jurisdiction over the federal declaratory claim.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether federal court should exercise jurisdiction over NCMIC's declaratory action	NCMIC: diversity jurisdiction exists and federal forum is appropriate to resolve insurer–insured duties now because Ohio law (O.R.C. §2721.02(B)) prevents state court from deciding coverage until liability is adjudicated	Doe: dispute is purely state-law; coverage and tort issues tied to state litigation so federal court should decline jurisdiction or stay	Court exercises discretion to hear the federal declaratory action and DENIES Doe's motion to dismiss/stay
Whether NCMIC may file a sur-reply	NCMIC: sur-reply needed to address assertions about status of state litigation	Doe: no good cause; sur-reply should be struck	Court GRANTED NCMIC leave to file sur-reply; denied Doe’s motion to strike
Whether federal adjudication would settle or clarify the controversy	NCMIC: federal judgment would settle insurer–insured coverage question that state court cannot presently decide	Doe: federal decision would not resolve underlying state disputes and may create inconsistent or duplicative proceedings	Court held a federal judgment would settle the coverage dispute and clarify insurer–insured relations; factor favors jurisdiction
Whether state-court remedies (Ohio DJA or indemnity action) are a better alternative	NCMIC: Ohio statute bars state declaratory relief until a final judgment against insured; waiting would force NCMIC to defend insured or risk bad-faith consequences	Doe: state remedies exist and comity favors allowing state courts to resolve the matter	Court found alternative remedies not adequate; this factor favors exercising federal jurisdiction

Key Cases Cited

Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942) (district court has discretion to decline declaratory relief)
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) (actual controversy standard for declaratory judgment)
Wilton v. Seven Falls Co., 515 U.S. 277 (1995) (Declaratory Judgment Act confers discretion to federal courts)
Grand Trunk W. R.R. Co. v. Consol. Rail Co., 746 F.2d 323 (6th Cir. 1984) (factors guiding whether to exercise jurisdiction)
Travelers Indem. Co. v. Bowling Green Prof. Assoc., PLC, 495 F.3d 266 (6th Cir. 2007) (Sixth Circuit balancing factors for declaratory jurisdiction)
Scottsdale Ins. Co. v. Flowers, 513 F.3d 546 (6th Cir. 2008) (declinature analysis and when federal forum may settle insurer–insured dispute)
Northland Ins. Co. v. Stewart Title Guar. Co., 327 F.3d 448 (6th Cir. 2003) (federal court may decide coverage where state court is not addressing it)
D'Atri, American States Ins. Co. v. D'Atri, 375 F.2d 761 (6th Cir. 1967) (insurer entitled to federal declaratory relief to clarify duty to defend when state action cannot address coverage)