Wednesday, February 15, 2012

Federal Middle District Court Judge Caputo Rejects Request to Stay UIM Arbitration

In a recent January 27, 2012 Opinion in the case of Hartford Insurance Company of the Southeast vs. Stead, United States District Judge for the Middle District of Pennsylvania, No. 3:12-CV-0094 (M.D. Pa. Jan. 27, 2012, A. Richard Caputo J.), addressed an Emergency Motion for Stay of Arbitration filed by the insurance company.

In its motion, the carrier sought declaratory relief barring issues of coverage from being determined at an underinsured motorist arbitration that was scheduled to take place a few days after this Opinion was handed down.

The Court noted that, although the carrier previously consented to an arbitration, the carrier sought to have its arbitration agreement rescinded and/or in the alternative, have the arbitration stayed until the Court could issue such relief as was requested under the declaratory judgment act on various coverage issues. According to the Opinion, the carrier was concerned that the arbitration panel would possibly erroneously decide the coverage issues at the upcoming arbitration hearing, after which Hartford would have no ability to appeal this determination.

The injured party Claimants countered that, pursuant to the Declaratory Judgment Act, the Court should decline jurisdiction over the state law issues raised by virtue of this motion by the carrier.

After reviewing the case presented as well as the law governing the jurisdictional issues presented, Judge Caputo ruled he would dismiss the actions for lack of jurisdiction.

In so ruling, the Court covered, in great detail, the analysis adopted by the Third Circuit Court of Appeals in addressing whether or not federal courts should entertain declaratory judgment issues. In this matter, Judge Caputo found that the insurance company’s claim did not “raise a single federal issue.” Instead, all that was raised was “solely a question regarding insurance coverage which, as Hartford admits, involved ‘no unsettled areas of state law.’”

Accordingly, Judge Caputo found that this matter involved a purely state law issue and, if this case was simply one involving declaratory relief only, the Court would elect to exercise its discretion and decline jurisdiction.

However, before dismissing this action, the Court also reviewed the fact that, as the carrier pointed out, this action involved a “mixed claim” that was not seeking pure declaratory relief, but also injunctive relief in the form of a request for a stay of the arbitration.

Judge Caputo noted that the determination of whether to exercise jurisdiction over a mixed claim such as this one involving requests for both injunctive and declaratory relief was an issue that had not been addressed by the Third Circuit or the United States Supreme Court. Judge Caputo also noted that the other circuit courts that have considered this jurisdictional issue were “sharply divided.”

After reviewing the various approaches on the issues presented as found in the other circuit courts, Judge Caputo elected to follow the “heart of the action” approach. Under this analysis, “a court will look to whether the nucleus of an action is declaratory or coercive, and will exercise jurisdiction over the whole if the core is coercive, and will exercise discretion as to both claims if it is declaratory. To determine such ‘heart of the matter,’ these courts will consider whether the injunctive claim hinders on the declaratory ones.”

Applying that analysis to this matter, the court found that, to the extent the carrier was seeking injunctive relief, such relief was wholly contingent on the court’s ultimate determination on the declaratory judgment issues. As such, the court found that the “heart” of this issue is squarely an action for a declaratory judgment and, as such, the court maintained its original determination to exercise its broad discretion decline jurisdiction in this matter.

Judge Caputo concluded his Opinion, as follows: “Currently before the court of fundamentally state law questions concerning insurance, arbitration, and stacking. As this action is inherently one for declaratory judgment, coupled with a claim for injunctive relief to assist and implement any such declaratory judgment, the court will exercise its discretion to decline jurisdiction and dismiss this matter as one more appropriate for the state court.”

Anyone wishing to review this Opinion by Judge Caputo in the case of Hartford Insurance Company of the Southeast vs. Stead may click here.

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