Opinion
CIVIL ACTION No: 00-2301-DJW.
February 28, 2001
MEMORANDUM AND ORDER
Pending before the Court is Defendant's Motion to Dismiss (doc. 4). For the reasons set forth below, Defendant's Motion is denied.
Factual Background
Carol Seek ("Seek") is a registered nurse and employee of Wesley Medical Center in Wichita, Kansas. Both Plaintiff American Casualty Company of Reading, Pennsylvania ("CNA") and Defendant Healthcare Indemnity, Inc. ("HCII") are insurance companies ("the insurance companies"). At all relevant times, Seek was insured for acts of professional negligence by CNA and Wesley Medical Center was insured for acts of professional negligence by HCII.
Plaintiff American Casualty Company of Reading, Pennsylvania is a CNA Insurance Company. See Plaintiff's Complaint at ¶ 3 (doc. 1).
In 1999, Shirley Keck ("Keck") brought a medical malpractice action against Wesley Medical Center in the District Court of Sedgwick County, Kansas. See Keck v. Wesley Medical Center, Case No. 99-C-2307 ("the Lawsuit"). In the Lawsuit, Keck sought damages for injuries she suffered as the result of allegedly negligent care and treatment while she was a patient at Wesley Medical Center.
Prior to May 1, 2000, the insurance companies communicated by telephone regarding CNA's prospective contribution to the cost of defending the Lawsuit and/or indemnification of any settlement negotiated in the Lawsuit. On May 1, 2000, and after the referenced telephone communication(s), a CNA claims specialist forwarded the following letter to an HCII claims supervisor:
Please be advised that American Casualty Company of Reading, PA, a CNA Insurance Company, insures Nurse Seek under a policy that contains a Professional Liability Coverage Part. I have reviewed the American Casualty policy and the Health Care Indemnity, Inc. policy "Other Insurance" clause. It is the position of American Casualty Company of Reading, Pennsylvania [CNA] that the American Casualty policy and the Healthcare Indemnity, Inc. Policy are co-primary for this matter. We agree to an HCII 75% and CNA 25% split in indemnity on behalf of Nurse Seek. If this case settles, we can discuss the indemnity split at that time.
Ex. A to Defendant's Memorandum in Support of its Motion to Dismiss (doc. 5).
On June 5, 2000, the HCII claims supervisor responded to CNA's letter:
This letter serves to confirm our conversation that CNA Insurance Company, as a co-primary policyholder for Carol Seek, has agreed to pay 25% of the indemnity paid by HCII on this case. As we discussed, the case did not settle at mediation and it appears that it may take up to $2,500,000 to settle it. CNA's contribution, after the Kansas Health Care Stabilization Fund's $800,000 policy limit contribution, would be $425,000 of a $2,500,000 settlement. Hopefully, we can settle it for less than this amount.Id. at Ex. B.
On June 8, 2000, CNA transmitted the following letter by facsimile to HCII:
This letter is in response to our recent conversation and your letter of June 5, 2000, regarding our coverage agreements for Carol Seek. My May 1, 2000, letter to you contains a typographical error. In reviewing that correspondence, the letter should have stated that we have agreed to a 25% CNA and 75% HCII split on defense costs. As the next sentence reads ". . . we can discuss the indemnity split at that time." My investigation into this case is continuing and I will contact you when I am ready to discuss indemnity.Id. at Ex. C.
On June 30, 2000, attorneys representing HCII transmitted the following letter back to the CNA claims specialist handling the case:
Your letter of May 1, 2000, to Lisa Beard, Health Care Indemnity, Inc., One Park Plaza, Nashville, Tennessee, committed American Casualty Company of Reading, Pennsylvania, a CNA Insurance Company, to "a "HCII 75% and CNA 25% split in indemnity on behalf of Nurse Seek."
You have not complied with that agreement to date. As a result, a declaratory judgment action will be filed in the United States District Court, for the Middle District of Tennessee, shortly. We will forward a courtesy copy of the complaint to you once it is filed.
You still have an opportunity to comply with the agreement you made on behalf of your insured. Mediation will be conducted tomorrow morning, beginning at 8:00 a.m., in Wichita, Kansas. You can confirm the location with defense counsel with whom you have been in contact, or with Mr. Curtis Waugh. HCI, Inc. will expect CNA, and its affiliated companies, to contribute not less than 25% of the settlement amount. I am informed that the current demand for settlement of the case is $2,800,000.Id at Ex. D (emphasis in original). The parties to the Lawsuit reached a tentative settlement at the referenced mediation on July 1, 2000. CNA did not participate in the mediation.
On July 6, 2000, Plaintiff filed this declaratory judgment action requesting the Court determine the following issues:
(1) There was no contract was [sic] created by the letter forwarded to HCII by CNA dated May 1, 2000;
(2) Whether CNA owes HCII contribution and/or indemnity;
(3) Whether, in the event CNA is liable for indemnity and/or contribution to HCII under its policy of insurance issued to Nurse Seek, the settlement was reasonable;
(4) Whether, in the event CNA is liable for indemnity and/or contribution to HCII under its policy of insurance issued to Nurse Seek, what portion of that settlement is fairly attributable to the alleged negligence of Nurse Seek versus that of other personnel for whom Wesley Medical Center was vicariously liable;
(5) Whether Plaintiff is entitled to recover its costs.
Plaintiff's Complaint (doc. 1).
On July 13, 2000, HCII filed a cause of action against CNA in the United States District Court for the Middle District of Tennessee. On July 21, 2000, a settlement hearing regarding the underlying medical malpractice Lawsuit was held in Sedgwick County District Court and a Journal Entry dismissing it was filed the same day. Ex. E to Defendant's Memorandum (doc. 5). On August 28, 2000, HCII filed an Amended Complaint in Tennessee alleging breach of contract claim against CNA. Id. at Ex. G. On September 8, 2000, HCII moved to dismiss the declaratory judgment filed by Plaintiff here.
Discussion
Under the Declaratory Judgment Act, "[i]n a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201. "While this statute vests the federal courts with power and competence to issue a declaration of rights, the question of whether this power should be exercised in a particular case is vested in the sound discretion of the district courts." St. Paul Fire Marine Ins. Co. v. Runyon, 53 F.3d 1167, 1168 (10th Cir. 1995) (citing Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962) (per curiam)).
In determining whether to accept jurisdiction in a declaratory judgment case, a trial court should weigh the following five factors:
(1) whether a declaratory action would settle the controversy; (2) whether it would serve a useful purpose in clarifying the legal relations at issue; (3) whether the declaratory remedy is being used merely for the purpose of "procedural fencing" or "to provide an arena for a race to res judicata"; (4) whether use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and (5) whether there is an alternative remedy which is better or more effective.State Farm Fire Casualty Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir. 1994).
Defendant argues this declaratory judgment action would not settle the existing controversy because, if the Court should declare that the May 1, 2000 letter from CNA created a valid contract between the parties, Defendant will be precluded from pursuing monetary damages for the alleged breach. CNA asserts, however, that it is the Tennessee action which cannot resolve all existing controversies between the parties, because if HCII's action for breach of contract in Tennessee fails, HCII could then go forward with a claim of indemnity and/or contribution against CNA under HCII's policy of insurance issued to Nurse Seek.
As a preliminary matter, Defendant's argument regarding damage preclusion is without merit. Indeed, the very language of the Declaratory Judgment Act indicates that the prevailing party in a declaratory judgment may seek further relief in the form of damages or an injunction. 28 U.S.C. § 2202; see, also, Security Mutual Casualty Co. v. Century Casualty Co., 621 F.2d 1062, 1066 (10th Cir. 1980) (where the court utilized 28 U.S.C. § 2202 to award damages at a later date to parties who had earlier succeeded at the declaratory judgment stage.). Thus, if the Court should find a valid contract exists between the parties, Defendant has the option to petition this Court for the monetary damages it seeks.
Plaintiff's argument, on the other hand, is persuasive. In the declaratory judgment action, Plaintiff seeks not only determination of whether a contract exists, but also
(1) Whether CNA owes HCII contribution and/or indemnity;
(2) Whether, in the event CNA is liable for indemnity and/or contribution to HCII under its policy of insurance issued to Nurse Seek, the settlement was reasonable;
(3) Whether, in the event CNA is liable for indemnity and/or contribution to HCII under its policy of insurance issued to Nurse Seek, what portion of that settlement is fairly attributable to the alleged negligence of Nurse Seek versus that of other personnel for whom Wesley Medical Center was vicariously liable; and
(4) Whether Plaintiff is entitled to recover its costs.
Conversely, the Tennessee cause of action filed by Defendant alleges only breach of contract. If the Court dismisses the declaratory judgment action currently pending and HCII's breach of contract action ultimately fails, HCII may well decide to bring suit against CNA for indemnification and/or contribution pursuant to the terms of the underlying insurance policies. Because this prospective cause of action involves a dispute arising in Kansas, under insurance policies issued in Kansas, and involves Kansas insureds, the appropriate jurisdictional basis for such a lawsuit likely is Kansas. Thus, if the Tennessee breach of contract action fails, HCII could return to this Court and pursue another action seeking to determine the very issues raised in the declaratory judgment action currently pending.
Based on these circumstances, Court finds that the allowing the pending declaratory judgment action to go forward would settle all aspects of the existing controversy, would serve a useful purpose by clarifying all the legal relations at issue (as opposed to only some of the legal relations) and is a better and more effective remedy than dismissing the action in favor of the more limited breach of contract action currently pending in Tennessee.
The fourth Mhoon factor is not relevant in this case, because both lawsuits are in the same federal court. With reference to the third Mhoon factor, the Court recognizes the possibility that the declaratory judgment action here could have been filed in an attempt to obtain a favorable ruling on the breach of contract issue in advance of any ruling in the Tennessee case on this issue. Given the fact that the declaratory judgment action here requests relief beyond resolution of the breach of contract issue, however, the Court finds this factor does not weigh heavily in favor of dismissal.
Conclusion
Upon weighing the factors set forth in Mhoon under the facts presented, the Court finds that they weigh heavily in favor of allowing the declaratory judgment action to proceed. Accordingly, Defendant's Motion to Dismiss is denied.IT IS SO ORDERED.