William Powell Co. v. Nat'l Indemnity Co., 18 F.4th 856

Background:

William Powell Co. (WPC) purchased primary and excess liability policies from OneBeacon’s predecessor (1955–1976); asbestos suits against WPC began in 2001.
WPC sued OneBeacon in Ohio state court for declaratory relief and later for breach of contract (allocation and excess-policy payment issues); the state trial court resolved most issues and the Ohio Court of Appeals later affirmed in part and reversed in part.
WPC also filed a federal suit alleging breach of contract and insurer bad faith based on OneBeacon’s handling of defense, allocation, and settlement decisions; the federal case proceeded in parallel for years.
After the state-court final judgment adverse to WPC on some claims, OneBeacon moved to dismiss the federal suit on claim-preclusion and abstention grounds; the district court found the state judgment likely preclusive but denied dismissal and stayed the federal case under Colorado River, certifying an interlocutory appeal.
Pennsylvania later liquidated OneBeacon and entered a broad stay of litigation; the Sixth Circuit addressed whether that liquidation/ stay, McCarran–Ferguson, Burford abstention, and Erie-related deference affect jurisdiction and preclusion.
On appeal the Sixth Circuit held McCarran–Ferguson does not reverse-preempt federal diversity jurisdiction, Burford abstention and Erie-based deference to the Pennsylvania stay were not warranted, and the state-court judgment had preclusive effect barring WPC’s federal claims.

Issues:

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does the McCarran–Ferguson Act reverse-preempt federal diversity jurisdiction (28 U.S.C. §1332)?	WPC: federal diversity jurisdiction applies; federal courts may decide insurance disputes.	OneBeacon/liquidator: state liquidation scheme should displace federal jurisdiction.	No. McCarran–Ferguson does not reverse-preempt §1332; appellate jurisdiction under §1292(b) and exercise of federal jurisdiction permissible.
Is Burford abstention appropriate in deference to Pennsylvania liquidation proceedings?	WPC: federal courts should exercise jurisdiction; abstention unnecessary.	OneBeacon/liquidator: abstention appropriate to avoid disrupting Pennsylvania liquidation.	No. Burford abstention inappropriate here; federal interests and the limited risk of disrupting liquidation counsel against abstention.
Under Erie/Rules Decision Act, must federal courts apply Ohio’s rule deferring to out-of-state liquidation stays (Ohio Rev. Code §3903.24(A))?	OneBeacon/liquidator: Ohio courts would give full faith/credit; federal courts should follow (avoid forum conflict).	WPC: Byrd/Erie factors and federal jurisdictional interests permit federal courts to decline the state stay.	No. §3903.24(A) is a forum preference, not an outcome-determinative substantive rule; Byrd analysis favors exercising federal jurisdiction.
Do the state-court judgment and Restatement preclusion rules bar WPC’s federal breach and bad-faith claims?	WPC: federal bad-faith claims are distinct; equitable exceptions (Restatement §26(1)(f) — extraordinary circumstances) apply because district court allowed parallel litigation.	OneBeacon: claims arise from the same nucleus of operative facts; state judgment bars subsequent federal action.	Yes. Ohio law’s claim-preclusion (Grava/Restatement §24) applies; the claims arise from the same transaction and §26(1)(f) equitable exception does not apply.

Key Cases Cited

Burford v. Sun Oil Co., 319 U.S. 315 (U.S. 1943) (established Burford abstention doctrine protecting state regulatory regimes)
Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (U.S. 1976) (permitting stay in exceptional parallel-state proceedings for judicial efficiency)
Grava v. Parkman Twp., 653 N.E.2d 226 (Ohio 1995) (Ohio adoption of Restatement approach to claim preclusion/transactional test)
Quackenbush v. Allstate Ins. Co., 517 U.S. 706 (U.S. 1996) (limits on dismissal/remand under abstention; balancing federal/state interests)
Byrd v. Blue Ridge Rural Elec. Coop., 356 U.S. 525 (U.S. 1958) (Erie/Byrd framework on when federal courts should apply state procedural rules)
Donovan v. City of Dallas, 377 U.S. 408 (U.S. 1964) (state courts cannot restrain federal in-personam proceedings)
Penn Gen. Cas. Co. v. Commonwealth, 294 U.S. 189 (U.S. 1935) (concurrent jurisdiction and res judicata between state and federal courts)
Hawthorne Sav. F.S.B. v. Reliance Ins. Co. of Ill., 421 F.3d 835 (9th Cir. 2005) (McCarran–Ferguson does not reverse-preempt federal jurisdiction)